Financial issues Associated with Marketing

NotesQuiz

The marketing department coordinates with the accounting department as follows:

Budgeting

  • The accounting department will discuss the likely sales volume of each product with the marketing department, in order to produce the sales budget.

Advertising

  • The accounting department will help the marketing department in setting a budget, and in monitoring whether it is cost effective. 

    For example, they could help in measuring new business generated as a result of different advertising campaigns.

Pricing

  • The accounting department will have input into the price that is charged. 

    Often products are priced at cost plus a percentage. 

    Even if the marketing department determines the price based on market forces they need to consult with the accounting department to ensure that costs are covered.

Market share

  • The accounting department can provide the marketing department with information on sales volumes for each product, to help the marketing department in determining market share.  

    In many companies there can be a great deal of antagonism between marketing and accounting, especially over pricing and cost control.

Service provision

  • Companies very often provide services to customers, at the same time as a sale or afterwards, e.g. a computer retailer may charge an extra fee to help customers set up their system, or a car dealer may provide car servicing.  

    There are several issues about which the service departments may need the input of the accounting department.

Chargeout rates

  • This is the hourly rate which the company charges clients. 

    It should be higher than salary, as it should include a share of overheads, e.g. training and any profit the company wishes to make. 

    However if the Chargeout rate is too high customers will not use the service. 

    Many accounting firms base Chargeout rates for their staff on roughly three times that person’s salary.

Estimating costs

  • Problems arise in determining the amount of overhead to be included in the chargeout rate. 

    Also, if the service takes longer to provide than expected, the company may not be able to pass on the extra cost.

Problems measuring benefits

  • Market conditions may mean that the chargeout rate contains a very low profit element. 

    The company may question whether it is worth carrying out these services.  

    The problem is that the benefits are intangible and not easy to measure, but nevertheless real. 

    A company with effective service provision has happier customers, and happy customers are more likely to buy from the company in the future, therefore leading to lower selling costs. But it is very difficult to measure these benefits.

NotesQuiz