Budgeting

The other day in a planning meeting with a client, our executive on the account asked the proverbial question “What’s your budget for this initiative?   Good question, right?  Well the answer is one we hear all too often; “We really don’t know how much to budget”.  

We know that budgeting can be a challenging and complex task; we do it all the time.  How much to budget should be dependent on what you are trying to accomplish and the results you intend to achieve.  Obviously, it wouldn't make any sense to budget $100,000 for an initiative that you intend to only produce $100,000 in additional revenue.  But, if your plan is to generate a million new dollars, now $100,000 makes a lot more sense.

There are also several things to consider.  How long will it take to achieve your sales goal?  What are your competitors doing?  How do you want to position yourself against them?  What promotional vehicles will you utilize?  Are you going to test market or rollout over a wider geography?  The answers to these questions all come in to play when you’re making budgeting decisions.

There are several different ways to allocate a budget number.  The one we prefer is the task method which essentially says:  develop a plan, put costs to create, produce and execute the tactical components and see if the total cost makes sense.  This is the most complex approach, but if funded, usually the most effective.  Another method is to try to guestimate what your primary competitors are doing and then set a number to position yourself against them.  Want to appear bigger and stronger?  Spend more than them.  Another method is a straight percentage of sales or margin.  There are industry averages for this.  You can also look at last year but we don’t recommend this approach because you’re always looking back, not forward.

As you can see, there are a lot of ways to answer the question “how much do we budget”.  The key is to make sure it makes sense.  Then spend it and watch for results.

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