How big is your marketing budget?

The Chartered Institute of Marketing (CIM) officially defines marketing as “the management function of those activities which anticipate and satisfy customer demand profitably”. However, increasingly both the business press and the media in general have used the term marketing as a popular alternative for the more specific terms of advertising, promotion and selling. Now there are also other terms such as social marketing, and e-marketing, so that the meaning of marketing has become defused, and its use as a professional word devalued.

Just as the term marketing has seemingly lost its previously formal definition, so the clear idea of which elements of a business comprises a marketing budget has also become vague. The purpose of a marketing budget is for the effective allocation and management of the resources and investment necessary for the production of profitable income. For the commercial manager, the preparation of a comprehensive marketing budget is an essential step in the effective management of all the commercial activities involved in producing sustained profitable income.

The objective of every commercial manager is to maximize and maintain the level of profitable income for the long term, while minimizing the level of costs and the use of assets and investment. Thus the commercial manager needs to understand how each activity contributes directly and indirectly to delivering the product or service to the customer who provides the money for the business.

Using the CIM definition of marketing, it is soon apparent that there are many cost centres involved in “anticipating and satisfying customer requirements profitably”.

Here are just some of them with reasons for their inclusion:

• Warehousing costs – Product is produced for customer demand and has to be stored before it is sold. Thus there are costs for heat, light, power and warehouse wages.
• Distribution costs – Getting the product to the customer involves fuel, postage, freight and associated salaries.
• Advertising cost – Communicating with the market includes media and production costs
• Promotion costs – Promotional schemes, exhibitions and PR expenditure.
• Web-site costs – Includes design, registration and management costs
• Selling costs – The salaries and expenses of all direct sales staff
• Sales office costs Sales admin and marketing salaries, office running costs.
• Discount All discounts on accounts and invoices, because this is a direct cost against income.
• Market research costs Market research is a pre-requisite to anticipate customer requirements.
• Bad debt costs Bad debt results from customer credit management
• IT costs Software costs and licences, hardware rental and lease directly associated with sales and customer support.
• Vehicle costs The cost of vehicles uses specifically for selling and selling support, capital and leasing costs.

In addition, a marketing budget should also include the projected sales income, together with the value of the assets used by the sales organisation, including finished stock, dedicated vehicles and debtors.

The performance of the commercial manager may be judged on the amount of profitable income produced, and the efficiency of its production measured in terms of the level of costs, investment and assets used. The late Peter Drucker, is famously quoted as saying that in business “if you can’t measure it, you can’t manage it.”

It is important therefore that performance measurements should be applied to all the components of a marketing budget, to maximise efficiency in producing income.

In practise, the commercial manager may not have oversight for a number of business activities that relate to the customer, such as production, credit control and relevant IT services. However, in such circumstances, the commercial manager still needs to know and understand the costs and output of all the business areas that contribute to producing income, regardless of whether or not he has responsibility.

The sole purpose of every business is to make money. Ultimately every aspect of business operations must be seen in terms of its contribution to producing income.

For many businesses the marketing budget is still seen in the narrow terms of advertising, promotion, social marketing and other communication based activities. However, for the commercial manager, as well as the chief executive and the finance director, defining all the constituents of the marketing budget is essential, if assets are to be correctly allocated and managed profitably.

Nicholas Watkis set up Contract Marketing Service in 1981, providing professional interim marketing management for a wide variety of businesses. Over 30 years practical experience in organizations, large and small, national and international, led to specialist consultancy in business development performance measurement, of which he is the principal consult.