In our marketing classes, we weren't taught Budgeting in Great Detail. This forces us to think whether budgeting is an essential part of marketing or not! To your surprise, budgeting is very important and an essential part of marketing and advertising. But why? Let us understand. Marketing is considered to be one of the most creative domains in MBA. Rarely, people associate it with managing funds; budgeting is a very far away thought in this scenario. The following points will break this myth for you:
I hope, by now, you must have understood the importance of budgeting in marketing. Now, we can move forward to understand various budgeting methods in marketing. As a budding marketing manager, you must understand that there are no rigid methods and rules in budgeting, it depends upon your reasoning, but it must be justifiable. You can use any of the below-given budgeting methods in marketing: - This is one of the most preferred methods of advertising budgets. Under this method, the promotional and advertising expenses are forecasted on the basis of the last year's percentage of sales. For example – You are the manager of Maggie and your company incurred Rs. 30 lakhs on advertising in the previous year. Last year's sales figure was Rs. 70 lakhs and forecasted sales figure is Rs. 1 Crore. Now, your advertising expenses were 42.8% (30 lakhs / 70 lakhs) of sales in the previous year. According to this percentage of sales, your forecasted advertising budget will be Rs. 42,85,714.28. This way you can forecast your expenses. The following are the steps to follow-
The merits and demerits of the percentage of sales method are given below: Merits –
Demerits –
In the previous method, the advertising budget will decrease with decreasing sales. But don't you think that with declining sales advertising budget should increase to boost sales? This leads to a circular cycle of declining sales and advertising budget. Hence, this method of 'objectives and task' is considered one of the most logical methods among all the budgeting methods in advertising. Under this method, the objectives and goals of marketing and advertising are decided. These goals can be in terms of sales, profits, consumer loyalty, competition etc. Then necessary tasks are decided that must be performed to achieve the established objectives. The sum total of the costs of each of the task is the advertising budget. The following are the steps to follow:
Merits and demerits of this method are given below: Merits –
Demerits –
I am sure most of you must be bothered about what your peers are doing rather than focusing on your studies during the exam time, right? Not only during exams, but we also do this most of the times. This method of budgeting is based on the same phenomenon of 'Gazing at Our Competitors'. Under this budgeting method, you need to look at your competitors' budget that how much percentage of sales they are setting aside for advertising budget. Then, you will budget your marketing activities accordingly. Most FMCG companies follow this strategy; they are hugely dependent on product differentiation; hence, they need to have a keen eye on what their competitors are doing. This must happen in your B-school's clubs and committees as well! But you need to make sure that you "Do Not Follow" your competitors blindly. Functional committees advertising budget will be way different from annual fest's committees'; I am sure you have got the point! Merits and demerits of this method are given below: Merits –
Demerits –
No matter whatever budget you decide for your B-school event or your company, everything at the end boils down to "What You Actually Can Afford". This method is based on a similar thought. Under this method, companies decide based on how much funds they have. If there are no funds available, the company has to go without advertising. Small companies and start-up usually go with this method. Following this method does not mean that you cannot create a huge advertising or promotional campaign. With the rise of digital marketing, there are many tools which any company can adopt without spending huge funds. The Chumbak, a décor product selling company, is a great example of a company that followed this budgeting method and became a huge success! Merits and demerits of this method of budgeting are as follows: Merit –
Demerits –
This method is based on the market share of a company. For a company which has higher market share, less amount is set aside for its advertising budget. It is based on a notion that already established and renowned companies need not have to spend huge bucks on promoting their brand. Companies with lower market share have to spend more on their marketing and advertising budget if they follow this budgeting method. Merits and demerits of this method are given below: Merit –
Demerit –
These are the commonly followed budgeting methods in marketing. I hope you have a fair idea of all the budgeting methods and their Merits and Demerits. I am sure now while making a marketing or advertising budget for your next B-school event; you will not be confused regarding which method to follow. Apart from this, it is also vital for you to know what are the factors that affect your budgeting decisions. There are five factors that you need to decide, as future marketing professionals, before setting your advertising budget:
These all are the things you need to keep in mind before estimating your budget before deciding the appropriate method amongst all the budgeting methods in marketing.
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