Business organizations prepare annual budgets for the organization's various functional areas, including marketing, production, administration, and operations. For the marketing department, the master budget presents a plan of how the money allocated to the marketing function will be spent in the quarter or a year. The size of the marketing budget is dependent on a variety of factors such as the extent of the set objectives, the competitor and sector averages, and prior year data. A firm's financial position determines its marketing efforts to a great extent because with liquidity constraints, and firms tend to have a restricted marketing budget that is accompanied by cost reduction measures in other departments. Competitor actions also influence a marketing budget size.
In sectors where the competitors are increasing their marketing efforts, all major firms in the sector also tend to shore up their marketing budgets to protect their market share. Other factors include the price and demand for the marketing services, which depend on the economy's level. In periods of economic downturn, the demand for marketing services subsides (Riley, 2019) . Levels of responsiveness to the marketing efforts also influence the size of marketing budgets the traditional marketing campaigns; responsiveness is difficult to measure. However, in modern digital marketing, technology has made it possible to track and assess financial returns.
Delegate your assignment to our experts and they will do the rest.
A marketing budget is an essential component of an organization's strategy to meet its objectives. The plan helps a firm to track its position in financial terms. A marketing budget enables businesses to assess and track each strategy's success or otherwise, and it is also possible to track spending levels in terms of overspending or overspending and initiating remedial measures. A plan also helps in identifying areas of focus and fund them accordingly. Through the budget, a firm can set realistic targets and benchmarks that can move the business forward. Setting realistic targets on each marketing channel enables a business to know the revenues needed to make the marketing efforts worthwhile ("Marketing Plan and Budget | Marketing MO," 2020) . A marketing plan is an investment in business growth, and marketing efforts should be seen as an important aspect of an organization that contributes to its growth and development. It provides means to accomplish goals and get the most out of the capital invested.
The marketing budgets' composition may include the expenditures on advertising, recruitment of new marketing staff, sponsored online content, market automation software, and a blog domain. Conducting prior research-known as marketing communications research, before drafting the budget is necessary to gain insights on the components to increase the estimates' accuracy. The marketing plan must accurately understand the firm's competitive position in the market and its target market, tactics to get to that market, and a strategy to differentiate from the competitors and improve sales.
Creating an adequate marketing budget requires an organization to know its buyer's journey, align the budget with its marketing goals and its growth stage. Other important information to consider is the operational costs and consideration of trends, current, and future.
Knowing buyers' journey
Defining buyers' journey requires knowing the leads used and how the customers became aware of the company's products. Having information on the level of information needed to buy the product and the number of visits the company's website receives in a month is critical in budget making. Other important information includes the leads generated each month. How many of these lead to a successful buyer, each lead's cost, and the revenue levels for each successful lead.
Align the budget with marketing objectives
It is essential to understand the marketing department's goals and objectives and only allocate funds to the roles that will facilitate a practical accomplishment of these goals. The marketing goals are set based on the target audience and the transformative journey from a prospect to a client. The Reliable Company's marketing budget has set more funds for the sub-contracts and online adverts.
Consider the firm's growth stage
The marketing budget is influenced by the business stage, whether it is at the planning stage or growth stage. A firm at the planning stage places more focus on generating steady sales rather than spikes in sales. Therefore, a more long-term approach is considered appropriate. At the growth stage, a company aims to generate sales faster and invests more funds in quick-win marketing approaches (Evans, 2017) . In this stage, firms tend to use websites as the key marketing hub, which means that the development and maintenance costs would consume a significant portion of the marketing budget. The Reliable company has allocated more funds to website operations than online advertising expenses meaning that it could be at a growth stage aiming for quick conversion marketing leads.
Consider organizations operational costs
Making the marketing budget requires a thorough knowledge of the departments operating costs and other cost considerations such as how much it would cost to contract an agency. Would it be more expensive than doing it in-house? It is also vital to evaluate whether the department has enough staff to carry out the efforts and whether the allocations will cover any extra staff. The department should keep track of every possible cost to minimize the possibility of surprises from hidden costs. The Reliable Company tracks all the department's essential costs. Having an allocation for miscellaneous expenses covers the anticipated costs that would occur but outside the budget scope.
Factoring the current and future trends
Adopting technologies when formulating a marketing budget can help lower marketing budgets and improve the effectiveness of the marketing efforts. The use of targeted emails, email scheduling and email tracking, social media, and online adverts enable the firm to keep abreast with industry changes (Evans, 2017) . An adequate marketing budget should incorporate traditional and modern marketing approaches to reach the target market successfully. In the Reliable company master budget, there is evidence that the firm has considered both approaches with the consideration of sub-contracting expenses, sales commission, and online advertising.
Analysis of the Reliable Company master budget
The company has budgeted for higher operating expenses and cost of sales which results in low margins. There is an overestimation of cash outflows than the expected cash inflows, which means the department will experience budget deficits. There is a need to re-evaluate the budget and assess the effectiveness of the sub-contracted agency. Assessment of the agency's impact on the level of revenues generated is needed to assess whether it is worth an expenditure of $267,750 in three months. That amount is more than half of the projected consulting revenues with the period. It is an indication of non-commensurate efforts, and there is a need to have the contract evaluated for more deliverables or for the expenses to be revised downwards. The department has projected total revenues of $200000 to be received in the month of June against a total expenditure of $187500 translating to a net impact of surplus $12500. The surplus is as a result of the pragmatic policy employed in payables and collections. More of the account receivables are receivable in the earlier days while payables are staggered in payments paying less in the early months, building more liquidity from sales and paying more in the later months.
Table 1: Reliable Company master budget
| Reliable Company Marketing Department Master Budget | |||
| Data | April | May | June |
| Budgeted consulting revenues |
$190,000 |
$200,000 |
$205,000 |
| Less: Sales commissions (5% of sales) |
$9,500 |
$10,000 |
$10,250 |
| Less: Cost of sales (45% of sales) |
$85,500 |
$90,000 |
$92,250 |
| Net consulting revenues |
$95,000 |
$100,000 |
$102,500 |
| Accounts Receivable Collections | |||
| Month of sale |
20% |
||
| Month following sale |
70% |
||
| Second month following sale |
10% |
||
| Monthly Budgeted Expenses | |||
| Salaries and benefits |
$48,000 |
||
| Web site operations |
$21,000 |
||
| Online advertising expenses |
$15,000 |
||
| Other misc. expenses |
$3,500 |
||
| Accounts Payable Payments | |||
| Month of sale |
40% |
||
| Month following sale |
60% |
||
| Accounts Payable | |||
| Online advertising expenses |
$15,000 |
||
| Marketing Department Master Budget | |||
| June | |||
| Consulting Revenues |
$205,000 |
||
| Less: Commissions |
$10,250 |
||
| Less: Subcontractor expenses |
$92,250 |
||
| Net revenues |
$102,500 |
||
| Expenses | |||
| Salaries and benefits |
$48,000 |
||
| Web site operations |
$21,000 |
||
| Online advertising expenses |
$15,000 |
||
| Other misc. expenses |
$3,500 |
||
| Total expenses |
$87,500 |
||
| Net department expenses |
$15,000 |
||
| Expected Cash Collections | |||
| June collections on account: | |||
| April sales |
$19,000 |
||
| May sales |
$140,000 |
||
| June sales |
$41,000 |
||
| Total cash collections |
$200,000 |
||
| Expected Cash Disbursements | |||
| Salaries and benefits |
$48,000 |
||
| Web site operations |
$21,000 |
||
| Other misc. expenses |
$3,500 |
||
| Online advertising expenses |
$15,000 |
||
| Sales commissions (5% of sales) |
$10,000 |
||
| Cost of sales (45% of sales) |
$90,000 |
||
| Total cash disbursements |
$187,500 |
||
| Net impact on cash |
$12,500 |
||
References
Evans, M. (2017). 6 Steps to Developing a Marketing Budget. Retrieved 21 February 2021,
from https://www.forbes.com/sites/allbusiness/2017/05/02/6-steps-to-developing-a-small-business-marketing-budget/?sh=7f83de9d355c
Marketing Plan and Budget | Marketing MO. (2020). Retrieved 21 February 2021, from
http://www.marketingmo.com/strategic-planning/marketing-plans-budgets/
Riley, J. (2019). Marketing Budget | Business | tutor2u. Retrieved 21 February 2021, from
https://www.tutor2u.net/business/reference/marketing-budget#:~:text=The%20marketing%20budget%20sets%20out,is%20intended%20to%20spend%20it.&text=According%20to%20the%20marketing%20objectives,as%20a%20proportion%20of%20revenues )
