The marketing and promotional budget for your company should be based on logical principles with proven strategic benefits. However, many companies base their marketing budgets on methods that are either illogical or counterproductive or both. Out of the four most common approaches to budget planning, the objective and task method is the only option designed to increase sales.

Budgeting Methods

Some companies determine their marketing budgets by just spending whatever money is available after expenses. This is a typical approach for small businesses, and on the surface it seems logical because it's simple to calculate and the business never spends more money than it has. The flaw in this approach is that if your sales go down, your marketing budget is cut as well, making it impossible for you to turn sales around.

Some companies set the marketing or promotional budget as a percentage of sales. For example, if the marketing budget is set at 10 percent of sales, then $1 million in sales translates to a marketing budget of $100,000. This method has the same flaw as the previous approach, because a decrease in sales leads to a decrease in the marketing budget. Some companies try to figure out how much their competitors are spending and then spend approximately the same. This method assumes the competitors are spending the right amount, which might not be true.

Setting Objectives

Marketing campaigns are intended to increase sales, so basing the marketing budget on sales reverses the logical order of the marketing process. The objective and task method avoids this flaw by setting a specific objective for the marketing campaign and then spending whatever is needed to achieve this objective. The first step in using the objective and task method is to decide on an achievable objective. For example, you might decide you want to increase sales by 20 percent over the upcoming year.

Designing Tasks

The second step in the objective and task method is to decide which specific tasks are likely to help you achieve your objective. For instance, if you experienced a 5 percent increase in sales the last time you ran an ad spot on your local TV channel and a 10 percent increase in sales the last time you hired two new salespeople, you can extrapolate from this data an estimate of how many ads you would have to run or how many new salespeople you should hire to achieve your goal of a 20 percent increase in sales.

Estimating Costs

Once you have your objective and your specific tasks, the final step is to determine how much it would cost to carry out those tasks and achieve your objective. If you decide to run four TV ad spots and hire three new salespeople, you should estimate how much that would cost and then budget accordingly. Because this method uses marketing money to drive sales objectives instead of the other way around, it is the most logical way to design a marketing budget. However, you should monitor the results of the campaign over time to determine whether your cost estimates were accurate and whether your sales goals are being met.