Q&A - What factors affect the marketing budget?

The marketing budget sets out how much money is allocated to the marketing function and how it is intended to spend it.

The size of the marketing budget can be determined in several ways; for example:

• According to the marketing objectives (e.g. what management expect they need to spend to achieve the objectives)
• In line with market and competitor averages (e.g. some as a proportion of revenues)
• Based on the previous year, adjusted for known changes in the marketing programme

Which ever approach is taken, it is important that a marketing budget includes an element of contingency (a safety buffer) to allow the business to respond to unexpected events or opportunities.

The size of the marketing budget each year will be influenced by factors such as:

The financial position of the business

This is a fundamental issue. A business suffering from cash flow problems or low profitability will normally have to restrict its marketing budget along with cost reductions in other functional areas

Competitor actions

A business whose competitors are significantly increasing their marketing spending may need to respond in order to maintain market share.

The demand for, and price of marketing services

The budget needs to take account of the cost of marketing activities. For example, the economic slowdown in 2008/09 in the UK significantly reduced the cost of advertising on traditional media like television and newspapers because there was a reduction in demand (advertisers also started switching budgets to online campaigns too).

The responsiveness and returns from marketing spending

This is often hard to measure – but important if it can be. Each element of marketing spending needs to generate an acceptable return. In many traditional forms of advertising this has proved difficult. However, online marketing and direct marketing are now much more sophisticated and it is possible to track and measure the financial returns.