However, depending upon what the firm has available, budgets may be low at times when managers may want to increase it, thus funds need to be raised.
Additionally, the budget set depends upon the firm’s objectives and strategy, as the amount of money allocated to the particular department will clearly depend upon what the department wants to achieve and the returns it expects to gain from the set plan. In addition to the returns what the firm expects to receive back is of critical important. This is because jetsave are willing to spend heavily on the project if it’s going to be successful with a high rate of return where as if the rate of return was low, jetsave wouldn’t spend heavily knowing the returns weren’t going to be high.
However, if the sales are poor, and the expenditure budget is reduced, as a result the sales will decrease further as budget should be set high in order to maintain sales. Thus, reducing the returns made, hence firm is unable to allocate funds to certain activities of the firm, such as the advertising budget may be reduced, thus sales may fall, due to the lack of information being advertised about the service offered by jetsaves, thus the expected sales level may fall, meaning that the firm may have to change its marketing mix as well as the need to raise funds to finance the promotional campaign.
However, when setting the budget, to reduce common problem listen above, the firm can reduce these problems by involving the financial experts who will actually have to achieve the financial targets, thus commitment will be shown, as these people will be involved in t he process and will be motivated to achieve them.
Furthermore, the process of discussing the targets may specify issues about the local business environment as before the firm launches its service it should have prior knowledge of whether the project is feasible or not, so for example knowing what the customers want to pay and what they are actually going to pay in relation to the competitors pricing as well. As if the competitors increase its prices, the firm will increase its pricing along that line to maintain its competitive position. However, it is important for the firm not to get too involved in negotiation, as decision making will be slow.
It is also important for the management to consider the size of the marker budget in the context of the overall spending and income of the firm. As well as the overall size of the budget, managers must also consider the timing of the payments and earning in relation to the firm’s overall cashflow position. For example, jetsave may involve an advertising campaign that may consist of heavy expenditure, and the management must ensure that it doesn’t lead to liquidity problems.
However, the firm must remember that marketing expenditure budget can be useful to some extent but it must consider other factors as well as expenditure budgeting. Sales budgeting should be considered as well as it considers several issues.
The size of sales budgeting depends upon factors such as the level of sales a product will achieve, although the firm has no data to use to predict future sales hence a market research can be conducted to estimate the level of sales although the data can be expensive to gather in the first place, as extrapolation cannot be used due to no previous data. Additionally, the firm may seek the market conditions as the action by competitors and the state of economy can affect the firms’ expected level of sales.
The firm must realise that the size of the marketing expenditure budget does not itself determine success; it also depends on how the money is used, so the firm’s overall cashflow position should forecasted carefully before decisions are made. Also marketing budgets include targets for sales as well as spending.
