Time to Rethink Marketing Budgeting?

“How much will it cost”?

That’s a frequent question from prospective clients. The expected answer is an annualized figure, but how about if we answered, “our fees will be $2 per case”?

Why isn’t that a reasonable or at least an expected answer? Two reasons: first, the Profit & Loss financial statement, and second, it’s “not how we’ve always done it.”

Our point: While wine and spirits brands are rethinking how to better integrate marketing and sales, maybe we should rethink how we budget and measure these results, too.

Above and Below the Line

As you may know,  wholesaler incentives like depletion allowances and similar sales-oriented expenses are deductions from gross revenue. They are captured in the P&L statement “above the line” separating revenue from expenses.

On the other hand, marketing costs for third party marketing agencies like ours live “below the line,” alongside other expenses like compensation, insurance and rent. (And, yes, there are other definitions of this concept but let’s not get carried away.)

Don’t worry accountants!  We are not suggesting changes to the P&L. What we’re positing is that this (arbitrary?) separation of the costs of sales incentives (as deductions from gross revenue) from the costs of creating demand (as expenses) tends to separate functions that should be considered together.

Don’t Separate, Integrate

Put another way, it doesn’t make sense to separate budget lines for pushing product and pulling product through the sales channels for two reasons: the lines separating marketing and sales are, if not indistinguishable, then at least blurred; and second, the marketplace is leaning toward placing a higher value on results driven by the integration of sales and marketing.

Some examples:

  • A grocery chain buyer asks a brand owner, “what are your digital marketing plans in our market and how is that going to help us sell your wine”? Should that digital campaign be an above the line deduction from gross revenue, or a below the line expense? How can the local sales team best leverage the marketing spend in its sales efforts?
  • A brand conducts a city promotion combining billboards, digital and sales incentives. Can they discern how the elements contributed to sales or creating demand?
  • Are the costs of sponsoring a brand on a delivery service an above or below the line cost? Is there an opportunity cost to channel those funds to off-premise sales incentives instead?

In conclusion, brand owners may be able to better meet the demands of the market by considering the total sales and marketing spend, and actions, together, in order to understand how the dynamics of push vs. pull tactics are playing out on retailer shelves and restaurant lists.