You must always be aware that the methods adopted by you bear costs. Advertising that you post in newspapers will not get there for free, while in turn, the increase in sales, though beneficial itself, will cause an increase in costs associated with producing the goods etc. Precisely, that is why, before you start, think whether it is cost effective for your business. Not all investments pay for themselves immediately, some require a longer time perspective.
Preparing a financial plan consists of a detailed determination of expected revenue, costs and profits included in the plan of marketing programs. The minimum information specified in this section will include information on the total cost of the plan. Budget depends on two parameters: (1) comparison of the marketing budget to the average profits in the industry, (2) the amount of costs to be borne by the company to achieve planned goals.
As for the estimation of cost, some of them vary depending upon, for example, size of production, and others remain constant. That is where the division of fixed costs and variable costs comes from. The general rule allowing to differentiate them is that if you are able to find direct dependence between the cost and the number of units of product sold, it is a variable cost. In another case, we are talking about a fixed cost. The fixed cost may increase by leaps and bounds, for example, magazine rental cost increases when the company needs additional space. Still, these costs remain constant at a given time.
Please, keep in mind, that every marketing decision can increase costs, for example, due to effective advertising campaign, which will result in the increase in sales and that there will be a need to purchase additional production machine (fixed cost), order a larger quantity of material the product is made from (variable cost) and so on.
Examples of fixed costs: renting a place, advertising, sellers’ salaries, insurance charges, product development. All the time, you incur fixed costs, no matter whether you are able to sell the product or not.
Examples of variable costs: the cost of labour, materials used, energy used for production, selling costs, supply costs, sellers’ commissions.
When constructing a budget you can also divide it between products and different types of marketing activities (marketing mix). In this way, you get a two-dimensional matrix (see Table 1).
|The life- cycle (introduction, development, maturity, decline)|
|Market position (achieved or planned, e.g. leader)|
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