Marketing and sales are directly facing customers and their role is to attract potential customers, and to make products and services available to them. They segment the market, define our target segments, and position our company’s products and services to make it attractive to those segments.
The following table summarizes the key sales expenses:
A large company may also need to drill down the budget to a more detailed level. For example, it may be necessary to separate the sales by regions, by customer or by Sales teams.
If sales promotions present a significant amount, it should also be categorized separately. The company may have direct channel stores, authorized distributors, and retail partners to sell its products. Each channel should be separated in the budget. The Marketing and sales team’s responsibilities include managing the performance of different channels.
Analyzing the marketing and sales budget,
Let’s take an example. the Marketing managers have a plan to launch a new product. These decisions will impact sales, sourcing of direct materials as well as production.
We will talk to the marketing, sales manager, human resources, production or factory manager and product development teams.
1. Marketing and sales managers
The first point of contact should be marketing and sales managers. Generally, marketing managers have a more accurate view of the strategic goals while sales managers have a better understanding of the limitations of potential selling.
2. Human Resource Manager
Marketing and sales budget, also includes compensation cost. So, the HR manager, should best know about the hiring plan for new staff and backfilling for attrition.
3. Product Manager
We must double-check the launch date with product teams. They will help give another perspective of the date of launch based on product development, testing, and quality assurance and training.
Common Issues on marketing and sales budget
1. Misalignment between the sales, marketing, and product teams.
Let’s continue our example of launching a new product. There is a possibility you may find out the launch date suggested by the marketing manager is too aggressive, or the product team is running behind schedule. In either case, this will require them to revisit their assumptions about the new product launch.
Also, new products have a production ramp-up. So, it is quite possible that the marketing and sales budget team may suggest rapid sales growth. However, the product team may not be able to match the demand. Or the HR team may not be able to hire the required staff.
2. Sales representative Training and ramp up
The assumption that an increase in marketing and sales expenses would proportionally bring an increase in return may not be true (at least initially).
Why is that?
This is because sales require highly skilled and trained people. Although, we are hiring the best of new salespeople. This doesn’t mean they will come in and sell as well as their experienced colleagues from the first month. Most likely, they will take some time to ramp up in the beginning and will sell less in the initial phase.
We should look at the historical performance of experienced salespeople when they first started in their initial months.
In the above example, the new sales representative joining in month 1 is at 0% of his quota. This is because he has just joined the company and is spending time onboarding and training about the company’s products and services. As he spends more time, the performance improves as he or she has now built up the product knowledge as well as spending more time with qualified leads. In the above example, by month 5, the new sales representative ramps up to 100% of his quota.
The same could be the case with marketing and other functions-For example the new marketing manager may take some time to train, ramp up and optimize the marketing spend.
If we don’t address these issue in the budget, we will have to deal with the inconsistencies later on.
The key question, as FP&A professionals, we should ask ourselves is
“How can we efficiently support the marketing and sales budget?”