Businesses spend a lot of money to research a product’s attributes, design the item and sell it. The same process also applies to the way companies provide services. Marketing expenses are important items that top leadership heeds, especially when it comes to preparing the corporate income statement and aligning salespeople’s salaries with revenue levels.
Marketing expenses are charges a company incurs to sell its products and services. The firm typically pays for various charges to convey its merchandise from its storage facilities to such distribution centers as shopping malls and retail outlets. Discussions about marketing costs often center on salespeople’s willingness to match the charges with their compensation. In other words, sales personnel may be eager to do so because higher marketing expenses could translate into higher sales -- which, in turn, could mean more commissions. Marketing charges are part of a company’s operating expenses, and accountants specifically include them in the “selling, general and administrative expenses” section of the statement of profit and loss. Other SG&A expenses include rent, litigation, insurance and office supplies.
For a company, providing details about marketing expenses is a sign of operating prowess. Investors may review the marketing expense information and compare it with actual sales data to determine whether sales tactics are bearing fruit, commercially speaking. In a knowledge economy in which adequate marketing strategies play center stage, companies spend substantial amounts to differentiate their products and convince customers to shun competitors’ items. For example, a company can spend a lot of cash on advertising to promote its brand and tell the public that its products are technologically superior. A knowledge economy -- in contrast to an agriculture-based economy -- is a system of consumption in which intellectual skills play a big role in defining who wins the competitive game.
An income statement sheds valuable data on a company’s SG&A expenses and manufacturing costs, as well how much money the business made over a specific period -- such as a month, quarter or fiscal year. Financial accountants distinguish SG&A charges from manufacturing expenses, in an attempt to show top leadership how much the firm is spending on day-to-day activities and how these expenses stack up against the company’s costs of goods sold. The objective is to calculate what percentage of sales revenue is attributable to material costs -- an indicator that corporate accountants call “gross profit margin.”
Various professionals spend considerable time ensuring that corporate marketing expenses are adequate, spurring sales and monitoring income statement preparation. These personnel run the gamut from salespeople and advertising specialists to financial accountants, bookkeepers and corporate communication professionals.
- "Cornell University"; "The Relationship of Sales and Marketing Expenses to Hotel Performance in the United States"; John W. O’Neill, et al.; November 2008
- The Ohio State University Fact Sheet; The Profit and Loss Statement -- What Does It Mean?; Marianne M. Huey
- University of Glamorgan: Profit and Loss
- "IndependentMail.com"; Income Statements Provide Tools for Better Decision-Making; Joe Sangl; May 2009
Marquis Codjia is a New York-based freelance writer, investor and banker. He has authored articles since 2000, covering topics such as politics, technology and business. A certified public accountant and certified financial manager, Codjia received a Master of Business Administration from Rutgers University, majoring in investment analysis and financial management.