The volume targets when translated to revenue figures would also help in

The volume targets when translated to revenue figures

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The volume targets when translated to revenue figures would also help in preparing the 4. Cash flow plans and fund requirement plans. 125
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BUDGETS While these above plans are more at a corporate level, our this chapter is devoted more towards the marketing and sales budget. For the marketing and sales department the starting point is the SKU wise/ item-wise (because in the case of industrial products SKU’s may be more like product items example, a particular type of paint or a particular chemical or a particular steel sheet/wire etc.), volume sales. These volume sales will have to be converted into value revenue. For example if a bottle of shampoo is available in the market place to a customer at an mrp of Rs. 132.00 per bottle, the company’s revenue cannot be calculated at Rs. 132 per unit. If the product is distributed through a chain of distributor and retailers and they are offered intermediary margins and vat is applicable multistage, then all these amounts would have to be reduced from the mrp amount of Rs. 132.00 to arrive at the net realization amount. It is quite likely that after adjusting for all these, we may get an amount of Rs. 96.00 per bottle as the company’s billing price to the distributor. Then the revenue will have to be calculated at the price at which the product is billed by the company ex – its warehouse. From this amount we have to deduct the cost of goods sold (COGS) to arrive at the gross margin. To calculate COGS one must take the cost of the product ex factory gate, add excise duty (as applicable) and all costs of transportation and handling and any other levies such as octroi, central sales tax, cess etc., (as applicable) to arrive at the cost of goods sold. This gross margin per product, taken in conjunction with the volume planned to be sold, will give the total gross margin per sales activity unit (viz., territory, area, branch or zone) From the gross margin one has to deduct the marketing, selling, distributing and administrative expenses to arrive at the net margin. 8.2 MARKETING EXPENSES Elements of the marketing expenses would be 1. The staff expenses including salary, travel, incidental expenses such as communication, office, and entertainment etc. of the marketing staff. 126
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BUDGETS 2. Advertising and mass communication expenses 3. Promotional expenses 4. Any validatory market research expenses. For each of these the company has to decide how much to spend. For Example advertising budget can be objective based such as how much awareness to create, how much brand recall to create, how much conviction needs to be done or it may be affordability based viz., as a percentage of sales or some portion above previous year’s spend, or even curtailed due to adverse market conditions or it can be based on competitive spending viz., if competitors are spending a certain amount, then the company needs to spend a certain amount to maintain its share of voice.
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