A marketing communication budget provides a formal process for planning, tracking and measuring the impact of your expenditures on marketing communications activities such as advertising, direct marketing, online or events. The budget sets out the funding required to meet your communications objectives and provides a method of managing the expenditure over a budget year. Show
Objectives of Marketing Communication Budget The marketing communication budget is part of the wider marketing planning process. Your marketing strategy establishes how you will achieve your marketing objectives. Marketing communications strategy describes the techniques you will use to deliver key messages to the target audience. The objective of the marketing communication budget is to achieve the communication goals as cost effectively as possible and demonstrate a successful return on investment. Some organizations separate above-the-line expenditures on advertising from below-the-line activities such as product information, social media or direct marketing. Scope of Marketing Communication Budget The budget covers the direct and indirect costs of communications programs. A budget for product information, for example, would include costs of copy writing, design, printing and distribution. A budget for an event such as an exhibition would cover rent of exhibition space, booth design and production, client entertainment costs, event publicity and miscellaneous staff costs. Careful planning ensures that there are no surprises when the final bill arrives. How to Prepare a Marketing Communication Budget? Crafting a marketing communication budget serves as your advertising road map for the course of a year. Having a formal budget laid out lets you carefully evaluate where you are spending your advertising dollars and gives you complete control over your marketing initiatives. By having documentation that clearly outlines what you are spending, you can more easily calculate your return on investment later and identify which marketing campaigns were profitable and which were not.
 Budgeting might not be the first thing that comes to mind when you think of marketing, but it is a prerequisite to any promotional activity. Without a budget, many marketing campaigns would never materialize. In addition to covering employees' salaries and software expenses, a significant portion of the marketing budget would go to communications tasks like advertising and PR (Public relations). You might assume that the marketing budget is a fixed amount set by someone high up in the hierarchy (like a financial director or CMO), though the reality is it can vary depending on the purpose and value of the marketing campaign. Let's take a closer look at them! Marketing Budget DefinitionSo, what exactly is the marketing budget? The marketing budget is the total amount of money allocated to marketing activities. A marketing budget ensures that a company does not over- or underspend on its marketing functions. Some of these functions include product development, market research, advertising, salaries, communications campaigns, agencies, etc. To set a marketing budget, marketers have to consider:
The final marketing budget is not decided by marketers, but by the directors and executives of the company. However, marketers are responsible for calculating promotional costs and reporting to high-level managers for approval. The following section will focus specifically on how marketers set promotional budgets. Marketing budget categoriesFirst, let's take a look at marketing budget categories. Marketing budget categories showcase different methods marketers can use to set a promotional budget. Here are five common marketing budget categories: Marketing budget: Affordable methodThe affordable method for determining a marketing budget is relatively simple. Management determines how much the company can afford to spend on marketing activities. The affordable method involves determining the budget based on how much the company can afford to spend. The process for setting the budget is as follows:
As the name suggests, the affordable method is highly cost-efficient. It is often adopted by smaller firms or startups that cannot spend too much on marketing. However, this approach is neither effective nor analytical. Marketers can't use it to analyze the impact of the promotional campaign. It is also more internal than market-oriented. When possible, companies should avoid using this method for budgeting. Marketing budget: Sales-focusThere are two sales-focus methods for calculating marketing budget: percentage-of-sales and sales-based. Percentage of sales methodThe percentage-of-sales methodfollows the idea that a certain percentage of sales revenue should be allocated to promotional expenses. The percentage-of-sales method allocates a percentage of current or forecasted sales to the promotional budget. As a result, the budget is set at a predetermined level of past, current, or future sales. For example, decision-makers within the firm would determine that 20% of this year's sales will be allocated to next year's marketing budget. If the company generates $1 million in sales revenue, the budget would be $200,000. However, if the company generates only $500,000 in sales, the budget would only be $100,000. As can be seen from the example above, marketing budgets can vary considerably from year to year depending on the company's sales. This makes planning a marketing budget in the long term difficult (as the amount of sales revenue would determine how much is allocated for marketing). Another issue is that while promotion and advertising help to create demand and generate revenue, it is not the result of past sales. Promotional expenses and sales are often at odds. When sales are high, marketers can cut back on their marketing budget (as people are already aware of the products or services). But when sales are low, they will need to spend more on marketing to stir up demand and excitement. Thus, using the same percentage of saleb every year can limit the company's marketing performance. The marginal analysis methodThe marginal analysis method is also a sales-based budgeting method and is hence also referred to as the sales response model. The marginal analysis method sets the marketing budget at a level where marginal revenues are equal to the marginal costs of a campaign. This method works on the basis of calculating how much additional revenue is created from a unit increase in advertising expenditure. It also calculates how sales increase after a percentage increase in the promotional budget. The marginal analysis method argues that companies should stop spending on communications when marginal revenues equal costs. Marketing budget: Director's decision and InertiaAnother popular method of establishing a marketing budget is the 'director's decision' method. Director's decision method involves setting the budget based on what the director or manager decides. While the director's decision is simply the decision-making process, it might not be the most efficient, as the senior managers are not directly involved in the marketing environment, and therefore don't have a full grasp of the customers' needs and micro-strategies. Another such judgment-based method is the inertia method. The inertia method involves setting the budget at a specified level or even a fixed sum unless something changes in the company. Again, this budgeting tactic is not optimal as it may lead to stagnant marketing results. Innovative marketing strategies often require slight budget adjustments. These strategies typically also involve a certain level of risk but may prove highly successful, especially in today's ever-changing marketing environment. Marketing budget: Competitive parityBudget decision-making can be based on the external environment. Marketers can sometimes also use the industry benchmark to set their own marketing budget. This is called the competitive parity budgeting method. The competitive parity method involves setting the promotional budget at the same level as competitors. To use this approach, companies must closely examine their competitors' spending and set their budgets based on the same level. The limit of this approach is that it does not consider the different promotional tools and tactics that other firms use to engage their customers and generate demand. It is important to note that just because you spend the same amount on advertising as your competitors, does not mean that you will be equally successful. Marketing budget: Objective-task methodFinally, the objective-task method sets the promotional budget based on the tasks required. The objective-task method sets a budget based on the campaign's objectives and the resources required to achieve them. The process of using the objective-task method is as follows (see Figure 2 below):
This method is advantageous as it is relatively simple and encourages managers to stay on task to achieve set objectives. It also provides a cost breakdown and allows for insightful analyses of how budget expenses lead to marketing results. However, the cost of each resource or task may vary slightly, as they are simply estimates. Additionally, the method does not consider opportunity costs. Marketing Budget AllocationNow, let's take a closer look at marketing budget allocation and the reason companies even set marketing budgets. Companies allocate marketing budgets to have an overview of finances and ease marketing planning. What companies include in their marketing budgets can vary significantly based on the industry they operate in and the types of customers they serve. Overall, the marketing budget is allocated to elements like:
However, companies do not have to draw up a budget for all the abovementioned elements. For example, according to The CMO Survey conducted in 2016: Less than half (47.9 percent) of companies include expenses for marketing employees in their marketing budgets. Other companies may put marketing employee expenses into general and administrative expenses, sales, or other areas.” 1 Similarly, certain companies may include direct expenses and social media spending, whilst others may dismiss these elements from their marketing budgets. How can businesses create a marketing budget for all these differences? The key is to adopt a standardized approach with five main steps:
Digital marketing budgetNowadays, the digital marketing budget plays an increasingly significant role in organizations' marketing efforts. According to Deloitte's Chief Marketing (CMO) Survey, digital marketing's contribution to company performance increased by 33% in 2020. Additionally, budget allocations to mobile marketing and social media marketing are expected to grow in the upcoming years, with mobile representing 36% and social representing 25% of the total marketing budget.2 Marketing Budget ExampleBefore you go, let's look at a marketing budget example through a mini-case study. Paul Magill, managing director and CMO services leader of Deloitte, mentioned that many companies face with their marketing budgets because many business opportunities remain underfunded. The marketing budget often remains the same each year, and making marketing investments is considered high risk. However, these investments often provide great opportunities in today's fast-moving markets, and thus marketers should ingrain flexibility into their budgets.3 As a result, to construct an effective budget, marketers should keep the following three questions in mind:
In addition to answering "yes" to these questions, marketers should find a fine balance between investing in technology and talent, pay close attention to current market trends, and invest in performance marketing, building long-term brands, and social listening technology to construct an effective marketing budget.4 Marketing Budget - Key takeaways
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What factors would you consider when making marketing budget allocation decisions?Here are five factors to consider when creating your marketing budget.. Your Target Audience. Start with your target audience in mind. ... . Marketing Goals. ... . Past Marketing Budgets and Results. ... . What Mediums You Want to Advertise On. ... . How Long/Often You Want to Advertise For.. What are the factors you need to consider in the allocation of budget?How to Allocate Budget Across Departments. Determine Your Total Spending Requirements. Budgetary decisions should be based as much as possible on actual facts and figures, be it previous spending or informed estimates. ... . Identify Funding Methods. ... . Allocate Budget by Department. ... . Design a System For Monitoring Spend.. How do you allocate a marketing communication budget?advertising, sales promotion, direct marketing, personal selling, public relations, and publicity). There are four common methods used by companies to decide on the communications budget. These are the affordable method, the percentage-of-sales method, the competitive parity method, and the objective-and-task method.
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