What are marketing expenses? Encyclopedia of Marketing
In previous articles of our magazine devoted to the marketing function, we touched upon a number of organizational issues: the structure of the marketing service, job descriptions of employees of marketing departments, etc. The next topic is the determination of marketing costs. We included this topic in this issue based on the following arguments. Most firms are now experiencing resource constraints. There may, of course, be exceptions, but the dominant austerity of financial resources exists. In this situation, it becomes quite possible to shift marketing costs to “later”, partly due to a lack of understanding of the importance of this management function, partly due to a lack of knowledge in the field of maneuvering resources within the marketing function. In this regard, when preparing an article for this issue, we asked our clients to send us their marketing budgets broken down by item. The results of the generalizations we have made, as well as additions from statistics from the American Bank Marketing Association, the American Apparel Manufacturers Association, and the American Retail Merchants Association, are before you. Perhaps some cost items may seem irrelevant to you in your circumstances. It's OK. Just put "0" against these lines for now, but rest assured that sooner or later they will be useful to you.
So, marketing is aimed at creating and maintaining a positive image of the organization, maximizing the use of its resources to identify, promote and satisfy market needs for products and services on a profitable basis. In this context, from the standpoint of determining cost items, 4 blocks can be distinguished within the marketing function:
- A. Advertising. Transfer of certain information through media selected by the client for:
- Analysis of this market:
- Satisfying the needs of existing or potential customers or their wishes.
- Ratings of existing or potential customers regarding products or services provided, personnel, policies and procedures, etc.
a) motivating the customer to purchase or use a product-service that provides benefits, guarantees or satisfaction to the user,
b) transfer of information aimed at strengthening the reputation or position of the advertiser.
B. Marketing research. Using various methods and tools on an ongoing and systematic basis to analyze information related to:
Who are existing and potential clients?
Geography of client placement.
What products and/or services does the client want and which ones does he really need?
Where the client prefers to receive services or how and when they should be provided.
What are the conditions of competition?
B. Public Relations. A permanent and ongoing program of activities designed to involve a firm in the social, cultural, educational, environmental and economic life of a region or larger administrative entity (for example, a country).
D. sales promotion. A set of actions to enhance the effectiveness of advertising and customer contact programs by increasing awareness and knowledge of products or services at the point of sale.
We present these well-known truths with one single purpose - to connect the upcoming lists of costs with the above marketing blocks. Now let's move on to cost items.
7. Acquiring space at trade shows, fairs, etc.
15. Costs for photographs and payment for models participating in advertising.
17. Posters, displays, etc., placed within the company for advertising purposes.
MARKETING RESEARCH COSTS
1. Research on advertising pre-testing and advertising effectiveness.
2. Payment for marketing research consultants.
3. Research related to the introduction of new products and services.
4. Research related to the company's image; public opinion research.
5. Quarterly, semi-annual and annual sample market research for penetration and perception.
6. Testing and evaluation of sales promotion activities.
Ultimately, all costs are aimed at conducting research on the potential of new products and services, market share, the selection of branches and affiliates, the image of the company, the effectiveness of advertising and preliminary testing of proposed public relations projects.
PUBLIC RELATIONS COSTS
2. Celebrating anniversaries and significant dates.
4. Awards given in charitable events.
5. Calendars.
6. Greeting cards.
7. Financing of events carried out by municipal authorities.
8. Donations and subsidies.
9. Production of displays for the needs of municipal authorities.
10. Payment of public relations consultants.
11. Payment for special events offered to the public.
12. Gifts and souvenirs with the organization’s logo.
14. Letters of gratitude to clients for agreeing to do business with the company, various types of congratulations and their mailing.
15. Production of geographical maps with the company logo and its location.
16. Costs of holding an open house day for the company.
17. Sponsoring of creative and sports groups and cultural/sports events.
18. Press conferences.
19. Costs of scholarships.
20. Costs of weather and time systems for installation in public places without a company logo.
21. Costs of external speech writers.
23. Development of a trademark or company logo.
COSTS FOR SALES PROMOTION (a separate group of costs aimed at expanding knowledge about the company’s products and services both externally and internally).
1. Audiovisual materials, including slides, audio and video tapes for demonstration during speeches related to the sale of products and services.
2. Production of items (banners, boxes, etc.) for use at points of sale of products and services.
3. Souvenirs for clients starting business with the company.
4. Prizes or bonuses for employees who attract new clients.
5. Letters related to increasing sales volumes and their mailing.
6. Training of personnel related to the sale of products and services.
7. Organizing meetings with new clients
Under what expense item can expenses be taken into account: marketing services, information and consulting services, etc.?
The article will explain in detail how to account for the costs of marketing services and information and consulting services.
Question: Under what expense item can expenses be taken into account: marketing services, information and consulting services, etc.? Is it possible to immediately write off expenses for current activities?
Answer: An organization can include marketing, information, and consulting services as part of other expenses associated with production and sales at a time in the period to which they relate. In this case, expenses must be documented and economically justified.
Almost every company has expenses for information, consulting or marketing services
Practice shows that most often tax authorities try to find schemes using fly-by-night accounts in transactions related to the provision of information, consulting or marketing services. According to controllers, such services are often used to cover up illegal optimization of income tax, unjustified deduction of VAT, or for cashing out funds. In this regard, the tax authorities seek to prove the economic unjustification of the expenses incurred, referring mainly to their ineffectiveness (resolution of the Federal Arbitration Court of the West Siberian District dated 08/06/08 No. F04-4721/2008(9200-A46-40), F04-4721/ 2008(10739-A46-40).
It is clear that it is difficult for controllers to verify the reality of the execution of such contracts. However, despite the risky nature of such costs, companies often order such services. In particular, before concluding large transactions or in complex litigation with partners.
Let us remind you that, according to subparagraphs 14–19, 27 of paragraph 1 of Article 264 of the Tax Code, expenses for information, consulting and marketing services are included in other expenses associated with production and sales. At the same time, the Tax Code of the Russian Federation does not establish a strict list of documents for the economic justification of expenses. According to Article 252 of the Tax Code of the Russian Federation, expenses can be confirmed by documents drawn up in accordance with Russian legislation or business customs, as well as documents indirectly confirming these expenses (for example, a customs declaration, a business trip order, travel documents, a report on work performed in accordance with with the contract).
In order to prove during verification that business transactions with the counterparty were actually completed, special attention is paid to the preparation of primary documents: invoices, certificates of work performed or services rendered, performers' reports, transfer acts, invoices for payment, as well as invoices, technical specifications, applications and etc.
Under contracts for the provision of services, it is advisable to retain any documents and information to confirm that the services, which are intangible in nature, were actually provided. This could be, for example, reports on market research conducted, the provision of information services, the text of the consultation provided, printouts of telephone conversations with the contractor, a memorandum on the results of the consultation, etc.
Some companies prepare an analytical report, which will additionally justify the need for “dangerous” services. Practice shows that such a document will facilitate the protection of expenses, even if there are no positive results of the services provided or the organization has structural divisions that solve similar problems (for example, decisions of the Federal Arbitration Courts of Moscow dated January 24, 2008 No. KA-A40/14391-07, Far Eastern dated 04/21/08 No. F03-A04/08-2/264, dated 07.11.07 No. F03-A51/07-2/4297, West Siberian dated 08/27/08 No. F04-2034/2008 (10781-A81-40) districts).
The certificate provides a list of required services. They indicate why they are necessary and how the results obtained can affect the economic activity of the company. What problems may arise in the future if issues remain unresolved.
For example, when purchasing consulting services by a manufacturing enterprise, you can indicate what changes in operational efficiency are expected: increasing production profitability, increasing quality, volumes of finished products, improving the logistics chain for supplying products to consumers, etc. Companies also describe what risks are associated with that the organization will not use the appropriate services: its positions in certain markets of the supplied products will be lost, export supplies will be significantly reduced due to lower prices for similar products supplied by competing organizations, etc.
In addition, the company’s internal document describes in detail the procedure for setting prices, calculating the expected time spent by a consultant (for time-based payment) and other expenses. This information can be obtained during preliminary negotiations with a representative of the consulting company. It is necessary to indicate a list of questions to which answers are required.
In addition to proper documentation of such high-risk transactions, companies prepare in advance a logical justification for the expenses incurred. For example, in one of the cases, the company stated in court that the financial result of its activities depends on the end consumer’s demand for its products. Since retailers do not track consumer brand preferences, and society has an interest in ensuring that the product is purchased by the end consumer on an ongoing basis, the cost of market research is economically justifiable. The court accepted such arguments and canceled additional tax assessments (resolution of the Federal Arbitration Court of the Moscow District dated July 15, 2010 No. KA-A40/7448-10-P-2).
In another case, the society made a different argument in its defense. Thus, monitoring current prices for products sold to retailers contributed to an increase in the demand of the final buyer, which ensured uninterrupted sales of the company's products to wholesale buyers. As a result, this led to timely price adjustments and contributed to attracting buyers, as well as the formation of a positive attitude towards the taxpayer’s trademark and an increase in his profits (Resolution of the Federal Arbitration Court of the North-Western District dated January 27, 2010 No. A56-60357/2008).*
A way to justify the costs of consulting, marketing, management and intermediary services for income tax purposes
It is possible to recognize in tax accounting the costs of purchasing consulting, marketing, management and intermediary services without the risk of a tax dispute only by preparing evidence of their economic justification.
Official position
According to regulatory agencies, if the results of consulting and other similar services are not specific and are not aimed at achieving real production goals, or the list of services duplicates the functional responsibilities of full-time employees, then the costs of such services cannot be taken into account when calculating income tax.
Rationale
Tax inspectors proceed from the fact that the absence of specific recommendations on the results of the provision of services indicates that the expenses incurred are unrelated to business activities. At the same time, “the connection of expenses with business activities is a key element for recognizing the costs incurred as economically justified expenses.” Consequently, expenses that do not have such a connection do not reduce taxable profit as they are economically unjustified and not aimed at generating income ( clause 1 art. 252 Tax Code of the Russian Federation). A direct sign of economic unreasonability may be, for example, overview reports containing information about the general state of the market or the activities of other organizations that cannot be used to achieve specific production goals.
There are also court decisions supporting the position of regulatory agencies on the issue of duplication of functions (FAS decisions Volga District dated April 3, 2007 No. A55-10037/2006-43 , East Siberian District dated December 27, 2006 No. A19-6451/06-33-F02-6879/06-S1).
However, the courts are no less likely to support the taxpayer and indicate that “the absence of information about consultations and recommendations in the acts is not a circumstance that excludes the right to take into account the costs of paying for services in the tax base” ( Resolution of the Federal Antimonopoly Service of the Moscow District dated October 10, 2011 No. A40-30370/10-127-132). The court may also take into account that the overview report, which is not directly related to the activities of the organization, allows you to analyze the activities of enterprises in the industry as a whole and assess their own competitiveness in the market ( Resolution of the Federal Antimonopoly Service of the North-Western District dated November 21, 2006 No. A05-2732/2006-34).
If it is necessary to conclude an agreement on the terms of a subscription service, the certificate must clearly define the scope and conditions for the provision of the relevant services. It is necessary to justify the payment of the established price based on the needs of the organization. If possible, it should be specified which consultation services will be provided in writing and which will be provided verbally, i.e. will not be documented. It is also important in the contract to provide a clear description of the procedure for accepting the results: report formats, requirements for oral consultations.
Marketing services
Marketing services very often led to disputes with tax inspectors, who refused to allow organizations to recognize expenses for them. Therefore, the more detailed the contract for the provision of marketing services, the better. It should record the deadlines and the obligation of the marketing company to submit a report on the work performed (). As a general rule, it is not necessary to prepare a report (see, for example, Resolution of the Federal Antimonopoly Service of the East Siberian District dated March 1, 2007 No. A33-10956/06-F02-725/07). But due to the intangibility of services, the report is one of the main evidence of their reality.
The report should reflect in detail all actions taken by the marketer, as well as conclusions and recommendations to the customer. Moreover, if the report does not comply with the terms of the contract, the inspectors may consider the costs unreasonable ( determination of the Supreme Arbitration Court of the Russian Federation dated March 19, 2008 No. 3741/08 , Resolution of the Federal Antimonopoly Service of the East Siberian District dated February 12, 2008 No. A19-11279/07-50-F02-110/08).
The purpose of marketing research must necessarily correspond to the organization’s business ().
An additional safety net can be a special order or order from the head of the organization, which will provide justification for the need to purchase this particular service. Example wording: “To make a decision on opening a new retail store in the city of Podolsk, Moscow Region, I instruct the sales department to analyze the state of the market in this area. Information is required about the filling of the market with goods similar to those shown in the list, as well as a forecast of sales volume in the first six months of the store’s operation. To obtain more accurate data, you can contact professional marketing agencies.”
It is important to include in the contract for the provision of marketing services a condition that the provision of services is formalized by an act (, clause 2 art. 720 Civil Code of the Russian Federation).
Inspectors pay special attention to the further application of marketing research results (see, for example, Resolution of the Federal Antimonopoly Service of the North-Western District dated August 13, 2008 No. A05-5/2008). If an organization does not use the results of ordered research in any way and does not adjust its activities according to the data received, then this increases the risk of claims.
In its work, an organization can use both positive and negative results of marketing research (FAS resolutions Northwestern District dated October 18, 2007 No. A56-1041/2007 , East Siberian District dated May 29, 2006 No. A19-31699/05-15-F02-2421/06-S1). For example, after reading the reports of marketers, a manager may decide not to open a new store. You can confirm the use of marketing research, for example, in the form of a note from the head of the sales department addressed to the general director. Other local documents will help to prove that the organization took the results of the study into account in its activities - memorandums on the results of meetings, etc.*
Management Services
The functions of the sole executive body (manager) can be transferred to a third party organization (, clause 1 art. 69 of the Law of December 26, 1995 No. 208-FZ). Such an agreement will force inspectors to focus their attention on two aspects: the cost of management services and the availability of employees performing overlapping functions.
In an agreement with a management company, it is safer to establish a price in two parts: a constant price, which is paid monthly, and a variable price, the basis for payment of which will be the achievement of certain indicators by the organization. It is dangerous to increase the cost of services of a management company if there is no effect from management or the volume of its services remains the same. In this case, the court may consider management costs unreasonable (see, for example, the decisions of the Federal Antimonopoly Service Volga District dated May 17, 2007 No. A65-39224/2005-SA1-37 , Ural District dated February 28, 2007 No. Ф09-1018/07-С3).
Thus, if services are not provided on a subscription basis and their cost varies from month to month, then it is better to justify such changes by the volume of services (for example, in man-hours), the costs of the contractor or other pricing indicators ( Resolution of the Federal Antimonopoly Service of the Moscow District dated March 17, 2009 No. KA-A40/1737-09).
Reports on work performed should be as detailed as possible. There are court decisions that are positive for organizations even if reports and work completion certificates are carelessly filled out ( determination of the Supreme Arbitration Court of the Russian Federation dated June 20, 2008 No. 7590/08). However, attention to these documents significantly increases the security of the transaction. It is advisable, although not necessary, to prepare them monthly ( determination of the Supreme Arbitration Court of the Russian Federation of November 28, 2007 No. 15254/07). The more carefully the report and act are drawn up, the less reason the inspectors will have to point out that management expenses are unreasonable.
It is worth preparing other evidence of the management company’s participation in the organization’s activities. The presence of orders and instructions from a representative of the management company will help confirm the provision of services. This will also be facilitated by various kinds of reports and reviews, indications in internal documents about the presence of representatives of the contractor at negotiations and official meetings, marks on documents about their agreement with the representative of the contractor, official correspondence, written answers and recommendations. This conclusion follows, for example, from Resolution of the Federal Antimonopoly Service of the Volga-Vyatka District dated July 5, 2007 No. A82-9088/2006-14.
If possible, it is better to avoid a situation where a former manager goes to work for a management company. However, there is positive arbitration practice. After all, the former manager, being an employee of the management company, provides services not only to his former employer, but also to other clients. Therefore, it is impossible to say that the expenses are unreasonable. This is said, for example, in Resolution of the Federal Antimonopoly Service of the East Siberian District dated April 25, 2006 No. A19-18184/05-40-F02-1722/06-S1.
The presence of employees duplicating the functions of the management company requires training additional justification for attracting a management company.
Intermediary services
For tax optimization, an agency agreement is often used, under which the agent is instructed to find buyers or verify their integrity. In this case, you need to pay special attention to the formatting of the agent’s report (). It needs to describe in as much detail as possible exactly what actions the intermediary performed. In this case, it would be useful to mention in the internal documents of the organization about the involvement of an intermediary for certain actions. For example, in the sales department's final report, you can analyze the agent's performance.
If the intermediary carries out trading operations, then the precautions will be slightly different. The intermediary must be physically able to carry out the assignment. For example, warehouse space, as well as a sufficient number of employees with the necessary specialization. Otherwise, inspectors may question the reasonableness of the costs of the intermediary.
You will need to justify why an intermediary is needed, especially if the organization has a staff of employees who sell goods, work, services, and also has an established sales market.
If an intermediary resells goods, it is safer if its accounting reflects the costs of transport and handling services. After all, inspectors can request documents confirming a transaction both from the organization being inspected and from its counterparties (Article 93.1 of the Tax Code of the Russian Federation
“Cash payment systems should be used only in cases where the seller provides the buyer, including its employees, with a deferment or installment plan for payment for its goods, work, and services. It is these cases, according to the Federal Tax Service, that relate to the provision and repayment of a loan to pay for goods, work, and services. If an organization issues a cash loan, receives a repayment of such a loan, or itself receives and repays a loan, do not use the cash register. When exactly you need to punch a check, see the recommendations.”
The marketing plan is the most important component of the enterprise development plan. This is what the fourth commandment of marketing says: “Well planned is half done.”
Marketing Plan– the most important component of the enterprise development plan, a tool for planning and implementing its marketing activities.
Strategic Marketing– constant and systematic analysis of market needs, allowing to identify the most effective products and promising markets in order to create a sustainable competitive advantage for the enterprise.
Operational Marketing consists of considering issues of pricing, promotion of goods and organization of their sales.
A strategic marketing plan, developed for 3–5 or more years, takes into account the marketing capabilities of the enterprise and contains long-term goals and main marketing strategies, indicating the resources necessary for their implementation.
The annual marketing plan includes a description of the current marketing situation, an indication of the goals of marketing activities for the current year and a description of the marketing strategies necessary to achieve them.
A methodological approach to the development of strategic plans was formulated in topic 7. A marketing plan is developed for each strategic business unit and combines plans for individual product lines, individual products, individual markets, and individual consumer groups.
Strategic and tactical plans for marketing activities have the following sections:
Product plan;
New product research and development plan;
Distribution channel operation plan;
Pricing plan;
Marketing research plan;
Physical distribution system operating plan;
Marketing organization plan;
Marketing budget is a plan that reflects the projected amounts of income, costs and profits.
Along with marketing plans, special programs are being developed aimed at solving individual complex problems: organizing the release of a new product, developing a new market, etc. Such programs can be short-term or long-term and are compiled by working groups specially created for this purpose.
Marketing program– a set of interrelated tasks and targeted measures of a social, economic, scientific and technical, production, organizational nature, united by a single goal, indicating the resources used and implementation deadlines.
In practice, the following types of marketing activity programs are used:
Programs for transferring the enterprise as a whole to work in a marketing environment;
Programs for mastering individual elements of marketing activities;
Programs in certain areas of the marketing mix.
Of particular interest is market entry program. This program consists of two blocks.
Basic block includes:
1) goals and justification for effectiveness:
– growth in sales volume;
– increase in profit;
– acceleration of return on investment;
2) activities in the field of R&D, production, after-sales service, product promotion;
3) resources for individual elements of the marketing mix;
4) plan for implementing activities.
IN providing block includes:
1) organizational and economic mechanism for managing the development and implementation of the program - a set of tasks related to:
– organizational structure;
– personnel;
– financing;
– remuneration and incentives;
2) information and methodological support:
– methods and means of collecting, transmitting, storing and processing information;
– methods of program justification;
3) ways to control the implementation of the program.
8.2. Determining Marketing Costs
Determining marketing costs is a rather difficult task, because:
– marketing costs support the process of selling goods;
– marketing costs are of an investment nature and can bring income in the near future;
– financial planning of marketing costs is carried out when developing appropriate budgets (research, communication policy, etc.).
When determining marketing costs, the following methods are widely used:
? “top-down” - first the total amount of costs is calculated, and then this amount is distributed to individual marketing activities. In this case, the approaches presented in Fig. 1 can be applied. 8.1;
? “bottom-up” - first, the costs of individual marketing activities are calculated, and then these values are summed up using the cost calculation method using the relevant norms and standards (calculations are carried out by the enterprise’s marketing service or by external experts on a contractual basis).
Rice. 8.1. Approaches to determining the total amount of marketing costs using the “top-down” method
Costs for individual marketing activities are divided into fixed and variable.
Fixed marketing costs– costs necessary to constantly maintain the functioning of the marketing system at the enterprise. They include costs for:
Systematic marketing research;
Creation of a bank of marketing information for enterprise management;
Financing of work aimed at improving the product range of the enterprise.
Variable marketing costs– costs associated with changes in the market situation and market conditions, the adoption of new strategic and tactical decisions.
The marketing service compiles cost estimates in the following areas:
Costs of marketing research (topic 3);
Costs of developing new products (topic 2);
Distribution costs (topic 7);
Promotion costs (topic 6).
A modern method of planning marketing costs is method of marginal marketing budgets, based on “that the elasticity of consumer response varies with the intensity of marketing efforts.” At the same time, the expenditure of funds on the use of each element of the marketing mix is determined, which leads to the best results (the greatest magnitude of effect).
8.3. Budget and budgeting in marketing
The marketing budget in quantitative form reflects management's expectations regarding future income and the financial condition of the enterprise.
The budgeting process requires precision and accuracy, constant clarification.
In the practice of financial management, among the numerous forms of budgets, the most commonly used are:
Flexible budgets – actual and budgeted operations are compared for a given volume of output;
Capital budget is a long-term budget intended for the purchase of long-term financial assets;
Consolidated budget - consists of production (operating) and financial budgets.
The operating budget reflects the planned expenses associated with the production activities of the enterprise. The operating budget includes:
–> sales budget - a forecast valuation of expected sales, indicating the expected sales price and sales volume in natural units;
–> production budget - the number of units of goods produced, considered as a function of sales and changes in inventory at the end and beginning of the year;
–> cost budget for raw materials and supplies – information on the size of purchases of raw materials and materials for the year;
–> factory overhead budget - all types of costs, except for direct labor costs, raw materials and supplies. Consists of variable and fixed overhead costs for the coming year;
–> budget for costs of sales and distribution of goods - all sales costs, general and administrative expenses, as well as other necessary operating expenses;
–> profit and loss budget.
Based on the information contained in all of these budgets, a forward-looking balance is drawn up.
8.4. Control in marketing
Control– the final phase of the marketing management cycle, the final link in the process of decision-making and their implementation. At the same time, the control phase is the starting point of a new cycle of marketing management and the implementation of management decisions.
The objectives of marketing control are presented in Fig. 8.2.
Rice. 8.2. Objectives of marketing control
Rice. 8.3. Stages of marketing control
The following are used forms of control:
Strategic control is the assessment of strategic marketing decisions from the point of view of compliance with the external conditions of the enterprise. Strategic control and audit of marketing is a relatively regular, periodic area of activity of the enterprise’s marketing service;
Operational control – assessment of the level of implementation of current (annual) plans. The purpose of such control is to establish compliance of current indicators with planned ones or their discrepancies. Such a comparison is possible provided that the annual plan indicators are distributed by month or quarter. The main means of control: analysis of sales volume, analysis of the company's market share, analysis of the cost-sales ratio and monitoring of customer reactions;
Profitability control and cost analysis - assessment of the profitability of the marketing activities of the enterprise as a whole, in relation to specific products, product groups, target markets and segments, distribution channels, advertising media, commercial personnel, etc.
When controlling profitability, the following types of costs are distinguished:
–> straight- costs that can be attributed directly to individual elements of marketing: advertising costs, commissions to sales agents, research, wages for marketing employees, etc. They are included in the marketing budget for the relevant areas of activity;
–> indirect– costs that accompany marketing activities: payment for rent of premises, transportation costs, etc. These costs are not directly included in the marketing budget, but are taken into account during control.
Analysis of the relationship between “marketing costs and sales volume” allows you to avoid significant cost overruns when achieving marketing goals.
Objects of marketing control are presented in Fig. 8.4.
Rice. 8.4. Objects of marketing control
Identifying marketing costs by element and function is not an easy task. It is usually performed in three stages:
1) study of financial statements, comparison of sales receipts and gross profit with current expense items;
2) recalculation of expenses by marketing functions: expenses for marketing research, marketing planning, management and control, advertising, personal selling, storage, transportation, etc. In the calculation table compiled, the numerator indicates current expense items, and the denominator indicates their breakdown by item of marketing cost. The value of this type of analysis lies in the ability to link current costs to specific types of marketing activities;
3) breakdown of marketing expenses by function in relation to individual products, methods and forms of sales, markets (segments), sales channels, etc. The tabular method of presenting information is usually used:
the numerator of the compiled table indicates functional items of expenditure for marketing purposes, and the denominator indicates individual products, markets, specific customer groups, etc.
Conducting strategic control and the resulting audit (revision) of marketing strategy in contrast to the two other forms of marketing control (operational control and profitability control), it is an extraordinary and often extreme measure. It is used mainly in cases where:
The previously adopted strategy and the tasks it defines are morally outdated and do not correspond to the changed conditions of the external environment;
The market positions of the enterprise's main competitors have significantly strengthened, their aggressiveness has increased, the efficiency of the forms and methods of their work has increased, and this happened in the shortest possible time;
The enterprise suffered a defeat in the market: sales volumes have sharply decreased, some markets have been lost, the assortment contains ineffective goods of low demand, many traditional buyers are increasingly refusing to purchase the enterprise's goods.
If managers are faced with these difficulties, then a general audit of the entire activity of the enterprise is required, a revision of its marketing policies and practices, restructuring of the organizational structure, and an urgent solution to a number of other serious problems.
Audits are necessarily preceded by:
A comprehensive analysis of the situation and identification of specific reasons for the unsuccessful operation of the enterprise in the market;
Analysis of the capabilities of the technical, production, and sales potential of the enterprise;
Determining the prospects for the formation of new competitive advantages.
The completed procedures require a revision of the enterprise's strategy, reform of its organizational and management structures, and the formation of new, more difficult tasks and goals that reflect the identified potential opportunities.
The types of analysis used in marketing audit are presented in table. 8.1.
When auditing the marketing of an enterprise, the following are used:
Internal audit – carried out by the enterprise itself;
External audit – carried out by external experts and audit firms.
Table 8.1
Situations to analyze
1. Determine what threats and opportunities fast food companies (for example, McDonald's) face in the Russian market.
2. The Tula enterprise “Troika” sets the task: to attract the attention of the population to the household appliances it sells and by 2004 to ensure a share of the Tula market equal to 50%. Develop a marketing plan.
3. The Tula enterprise "Wallpaper" is widely known in the regional market. However, competition is high. Using the methods of situational analysis and SWOT analysis, identify the company’s capabilities to strengthen its competitive advantages.
4. OJSC Avtoshina, well-known in the motor oil market, decides to conduct an external audit. Are the costs of an audit justified for a thriving company?
5. The owner of the Orange restaurant believes that his activities are not sufficiently profitable. How can marketing control help him run his business more successfully?
6. Is it necessary for the management of a higher education institution to conduct periodic marketing audits? If so, create a plan to audit your marketing activities.
7. Based on the following data, draw up a production budget at the end of the year:
– product sales volumes – 10,000 units;
– sales unit price – 22 rubles;
– the desired amount of inventory at the end of the year is 1150 units;
– enterprise inventories at the beginning of the period – 1000 units.
Based on the data provided, create a sales budget.
Managers must understand which marketing costs will always remain the same and which will change as sales volumes change. The classification of distribution costs will depend on the organizational structure and on specific management decisions. However, a number of items typically fall into one category or another. Marketers often don't consider their budgets in terms of fixed and variable costs, but by doing so they could gain at least two benefits.
Marketing expenses are often the largest portion of a company's discretionary expenses. As such, they are important drivers of short-term profits. Of course, marketing and sales budgets can also be viewed as an investment in attracting and retaining a customer base. However, in either approach, it is useful to distinguish fixed marketing costs from variable marketing costs. In other words, managers need to understand which marketing costs will always remain the same and which ones will change as sales volumes change. This classification would require an itemized review of the entire marketing budget.
Usually gross variable costs are considered as expenses that change with changes in the volume of unit sales. In a relationship distribution costs a slightly different concept will be needed. Instead of varying with changes in unit sales, total variable distribution costs are more likely to change directly with the value of units sold, that is, with changes in income. Thus, most likely, variable distribution costs will be expressed as percentage of income, and not as a certain part of the monetary value of a unit of goods.
The classification of distribution costs (fixed and variable) will depend on organizational structure and from specific management decisions. However, a number of items usually fall into one category or another - provided that their status as constants or variables may vary over time. Ultimately, all costs become variable.
During the quarterly or annual planning period fixed costs
Variable expenses marketing may include:
Marketers often don't consider their budgets in terms of fixed and variable costs, but by doing so they could gain at least two benefits.
- First, if marketing costs are truly variable, then budgeting this way will be more accurate. But some marketers budget a constant amount, and at the end of the period they are faced with inconsistencies or deviations if sales do not reach the target figures. Conversely, a flexible budget - that is, one that takes into account its truly variable elements - will reflect actual results, regardless of at what point sales are stopped.
- Second, the short-term risks associated with fixed marketing costs are greater than those associated with variable marketing costs. If marketers expect revenue to be sensitive to factors beyond their control (such as competitors' moves or production cuts), they can reduce risk by including more variables and fewer fixed costs in their budgets.
A classic example of a decision that is closely related to the balance between fixed and variable marketing costs is the choice between using a third-party sales representative or using an in-house sales force. Hiring a full-time (or mostly full-time) sales force carries more risk than the alternative, since wages must be paid even if the company fails to meet revenue targets. Conversely, when a company uses commission-based resellers to market its products, its distribution costs are reduced if sales targets are not met.
Total distribution costs (marketing costs) ($) = Total fixed distribution costs ($) + Total variable distribution costs ($)
Total variable distribution costs ($) = Income ($) * Variable distribution costs (%)
Trading commission costs. Sales commissions are one example of distribution costs that vary with income. Therefore, any sales commissions should be included in variable selling costs.
Example. Henry's Catsup, which sells ketchup, spends $1 million a year on sales staff who work with grocery store chains and wholesalers. The reseller offers to perform the same sales task for a commission of 5%.
With revenue of $10 million: Total variable distribution costs = $10 million * 5% = $0.5 million.
With revenue of $20 million: Total variable distribution costs = $20 million * 5% = $1 million.
With revenue of $30 million: Total variable distribution costs = $30 million * 5% = $1.5 million.
If the company's revenues are less than $10 million, then the services of a reseller will cost less than paying its own sales force. At $20 million in revenue, the reseller would cost the same amount as his sales force. With income over $20 million, the intermediary's services will cost more.
Of course, switching from using an in-house sales force to using a reseller can itself cause a change in revenue. Calculating the level of income at which business expenses are equalized is only the first stage of the analysis. But it is an important first step towards understanding the trade-off system.
There are many types of variable distribution costs. For example, distribution costs may be calculated using complex formulas specified in companies' contracts with brokers and dealers. Selling costs may include incentives to local dealers based on meeting sales targets. They may also include promises to reimburse retailers for joint advertising costs.
What to pay attention to
Fixed costs are often easier to measure than variable costs. Typically, fixed expenses can be compiled from payroll records, lease documents, or financial statements. To determine variable costs it is necessary measure the rate of their increase. Although variable distribution costs are often a predetermined percentage of revenue, they can alternatively vary with changes in the number of units sold (as is the case with a packaging discount). A further complication arises if some variable distribution costs relate to only a portion of total sales. This can happen, for example, when some dealers receive cash discounts or preferential prices for a certain shipment of goods, while others do not have such privileges.
Things get more complicated when some costs may appear to be fixed when in fact they are incremental. That is, they are constant up to a certain point, and then they trigger additional costs. For example, a company might contract with an advertising agency to run three advertising campaigns per year. If she decides to pay for more than three campaigns, this will incur incremental costs. Typically, incremental costs can be treated as fixed costs, provided the boundaries of the analysis are well understood.
Staged payments are sometimes difficult to model. Discounts for customers whose purchases exceed a certain level, or bonuses for sales staff who exceed sales quotas, can be difficult to describe features. Creativity is important when planning marketing discounts, but such creativity can sometimes be difficult to capture within fixed and variable costs.
When developing its marketing budget, a company must decide how much of its expenses should be allocated to the current period and how much to amortize over several periods. This rate is suitable for costs that are considered as capital investments. An example of such an investment would be a discount on the financial debt of new distributors. Rather than adding such a discount to the current period budget, it would be better to view it as a marketing item that increases the company's investment in working capital. Conversely, spending on advertising designed to build long-term influence is hardly an investment; It makes more sense to consider them marketing expenses.
Important indicators and concepts
Marketing spend levels are often used to compare companies and to demonstrate how much they are investing in a given area. Therefore, marketing expenses are usually viewed as a percentage of sales.
Marketing costs as a share of sales. The level of marketing expenditure expressed as a share of sales. This figure shows how actively the company is engaged in marketing. The appropriate level of this indicator varies depending on the type of product, strategies and markets.
Marketing costs as a share of sales (%) = Marketing costs ($) / Revenue ($)
Variations of this metric are used to test marketing elements against sales volume. Examples include incentives targeting the sales area, measured as a percentage of sales, or incentivizing in-house sales personnel as a percentage of total sales.
Advertising costs as a percentage of sales. Advertising expenses as a share of sales. It is typically a subset of marketing expenses expressed as a percentage of sales. Before using such metrics, marketers are advised to determine whether certain marketing expenses have been deducted when calculating sales revenue. Retail discounts, for example, are often subtracted from gross sales to calculate net sales.
Deductions per place. This is a special form of distribution cost that is encountered when new quantities of goods are brought in to retailers or distributors. They are essentially fees that retailers pay for providing space for new products in their stores and warehouses. These deductions can take the form of one-time cash payments, free merchandise, or special discounts. The exact terms of the space fee will determine whether it constitutes a fixed cost, a variable cost, or a combination of both.
Understanding the difference between fixed and variable distribution costs can help companies consider the relative risks associated with alternative distribution strategies. In general, strategies that incur variable distribution costs are less risky because variable distribution costs will remain lower if sales do not meet expectations.
