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Marketing budget.

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Introduction

Marketing budget Setting the marketing budget Sales forecasting Producing a sales forecast Test marketing Why might forecasts be wrong? The reliability of forecasts Questions Marketing budget A marketing budget is a quantifiable target which is set by a firm and which relates to its marketing activities. It may involve a target level of sales for a particular product (a sales budget) or set out the amount a firm intends to spend to achieve its marketing objectives (an expenditure budget). The sales budgets may include targets for the absolute level of sales a firm would like to achieve, or for a desired level of market share; they may also include targets for particular regions or for particular types of customers or distribution channels. Marketing expenditure budgets, by comparison, set out the desired amount of spending on activities such as advertising, sales promotions, paying the sales force, direct mailings and market research. The size of the sales budgets is likely to depend on: * The level of sales a product has achieved in the past; a firm may extrapolate a future sales target based on past trends * The expenditure budget; a firm may set a higher sales target if it is also intending to spend more on its marketing activities * Market conditions; actions by competitors and the state of the economy, may affect the firm's expected level of sales * Objectives and strategy; the target level of sales for a niche product is obviously likely to be lower than it is for a mass market product. ...read more.

Middle

As well as the overall size of the budget managers must also consider the timing of the payments and earnings in A sales forecast may be produced in a number of ways in relation to the firm's overall cashflow position. A major marketing campaign, for example, may involve very heavy expenditure and managers must ensure this does not lead to liquidity problems. Sales forecasting A key element of a marketing plan is the sales forecast. This sets out targets for overall sales and for particular products and services. A sales forecast acts as a goal against which a firm can measure its progress. It also drives many other decisions within the firm. For example * The production schedule will have to be closely linked to the sales forecasts to ensure the firm has the appropriate mix and number of products at the right time * The sales forecast will also influence the cash flow forecast; only by knowing what sales are expected to occur can the finance department estimate cash inflows. Having compared the expected inflows with expected cash outflows the finance function can then decide if particular steps need to be taken such as arranging overdraft or loan facilities * Human resource decisions will also depend on the expected level of sales. Decisions about staffing levels and the allocation of staff to particular duties will inevitably be determined by the expected sales levels. ...read more.

Conclusion

This may help to ensure they are much better prepared for change than if they did not forecast at all. Also even though a forecast may not be exactly accurate it may give an indication of the direction in which sales are moving and some sense of the magnitude of future sales which can help a firm's planning. Ultimately it may not matter much whether sales are 2,000,002 units or 2,000,020 units but it makes a big difference whether they are 2m or 4m in terms of staffing, finance and production levels i.e. provided the forecast is approximately right it can still be very useful even if it is not exactly correct. It is also important to remember that sales forecasts can be updated. A firm does not have to make a forecast and leave it there. As conditions change and new information feeds in, the managers can update the forecast and adjust accordingly. The reliability of forecasts Forecasts are most likely to be correct when * A trend has been extrapolated and the market conditions have continued as before * A test market is used and is truly representative of the target population * The forecast is made by experts (such as your own salesforces) and they have good insight into the market and future trends. * The firm is forecasting for the near future. It is usually easier to estimate what sales will be next week compared to estimating sales in five years' time ...read more.

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