Businesses have several options for coming up with a marketing budget. Some companies determine how much to spend on marketing based on the amount of revenue they make in a given period. Specifically, the more sales they bring in, the more they opt to spend on marketing.
There's a flaw in this system, however. If sales go down, so does the corresponding marketing budget, and this can start a vicious cycle. If a company doesn't have enough money to spend on marketing, then it can't increase its sales, and if it can't increase its sales, then it can't get more money for marketing.
Continue Reading Below
For this reason, many companies prefer to use the "objective task" method when coming up with a marketing budget.
How it worksAlso known as the "objective and task" method, the objective task method is a system in which a company allocates a certain amount of money to its marketing budget based on specific objectives, rather than choosing an arbitrary amount or basing its marketing budget on sales revenues or projections alone. The objective task method of budgeting typically has three steps:
- Setting objectives:The first step in the process involves setting objectives for the marketing campaign and identifying what results the company in question wishes to achieve. For example, a company might set an objective of increasing sales by 10% over the course of the next business quarter.
- Identifying tasks:The second step in the process involves recognizing which specific tasks are likely to help achieve the objectives at hand. For example, if a company wants to increase sales by 10% over a three-month period, then it might determine that it needs to run weekly ads in several local newspapers in order to boost its visibility.
- Estimating costs:The final step in the process involves figuring out how much money is needed to achieve the objective at hand and then allocating that amount to a marketing budget. Using our example, if a company determines that it needs to run an ad each week in four different newspapers at a cost of $200 per ad, and it needs to repeat those ads every week for 12 weeks, then it needs $9,600 in its marketing budget.
Benefits and drawbacksThe major advantage of the objective task method is that the budget is not based on previous sales figures or amounts spent on marketing, nor is it based on what competitors are doing. Rather, it keeps spending focused on the business's key goals. The downside, however, is that this method can be costly and time-consuming to implement, and if it results in a marketing budget that simply isn't affordable, it can essentially render itself useless.
This article is part of The Motley Fool's Knowledge Center, which was created based on the collected wisdom of a fantastic community of investors. We'd love to hear your questions, thoughts, and opinions on the Knowledge Center in general or this page in particular. Your input will help us help the world invest, better! Email us firstname.lastname@example.org. Thanks -- and Fool on!
The article Objective Task Method of Budgeting originally appeared on Fool.com.
Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.
Copyright 1995 - 2016 The Motley Fool, LLC. All rights reserved. The Motley Fool has a disclosure policy.