There are many methods of budgeting that can be implemented by the small to medium business, but whether you follow a simple or complex process, the following options should be considered:
Rule of thumb. this is simply a question of "How much can I afford to spend?" The dangers inherent in this approach are obvious, as it does not consider your business objectives - or much else for that matter.
Percentage of past turnover. Not a very ambitious system, it should be used only where saturation coverage or maximum market share has already been reached.
Percentage of anticipated turnover. More ambitious, but with the danger of the forecast being incorrect. It invites increased expenditure in good times and less in a slow market.
Unit cost method. A fixed amount per sales unit, it assumes stability in the economy and that the cost to market will remain the same. Like the previous method, it also increases or decreases advertising expenditure at the wrong time. Its use should be limited to short-term or seasonal campaigns only.
Competitive spending. Even if you knew how much your opposition is spending, who's to say they're spending it effectively?
Composite method. This is the preferred method for the business with goals, as it takes into account:
Past sales. Use this as the base for your calculation. Don't just look at the previous year's budget, but rather at what the budget should have been.
Anticipated sales. If you're planning higher sales, it's natural to asume you're going to have to market more aggressively. If sales are expected to decrease, the reasons for the negative trend will indicate a higher or lower budget.
Market conditions. A big manufacturer in your area, employing hundreds of staff, closing down next year'? You're going to have to fight harder in a smaller market. Up with the budget!
Regional fluctuations. This factor is more applicable to national retailers, but even rural businesses often sell over a wide area. Is there anything you should take into account?
Specific selling problems. An inexperienced sales force, perhaps? A technical problem that has damaged the good image of your business'? Budget accordingly!
Available media. This is where you plan a spread of your budget across direct advertising, direct mail, publicity and promotion, as well as other media such as posters and promotional material. Where and how you promote depends on the make-up of your customers and prospects, and how the various media best suit your chances of reaching them effectively.
Opposition activities. An obvious element in your planning.
Short- and long-term objectives. You should know in what state you plan your business to be by the end of the next financial year and the years following that, but don't forget short-term marketing efforts which might require additional promotion.
Easy peasy, isn’t it?
