A startup must allocate a limited IMC budget. They estimate a $500,000 sales target and plan to spend 10% on communication. Which budgeting approach are they using?

Question

BlackTom AI · Accepted Answer

Question restatement: The startup has a $500,000 sales target and plans to spend 10% on communication within a limited IMC budget. They are using a budgeting approach tied to the level of sales. Here are the options and analysis for each:

Option 1: Affordable method
This approach sets the promotion budget based on what management perceives as affordable, often influenced by short-term financial constraints rather than a systematic connection to sales or objectives. The scenario specifies a fixed 10% of sales, not an arbitrary affordability figure, so this is not the affordable method.

Option 2: Objective-and-task method
This method starts with marketing objectives, estimates the tasks required to achieve them, and sums the costs of those tasks. It is a planning-driven approach that links expenditures to specific goals and activities. The given scenario does not describe a task-based planning process; it describes a percentage of sales, so this option does not fit.

Option 3: ROI-based method
An ROI-based budgeting approach focuses on expected return relative to cost, sometimes optimizing the budget to maximize return on investment. It requires modeling or measuring expected ROI from communications. The scenario mentions a percentage of sales but does not discuss ROI analysis or optimization, so this option is not supported by the description.

Option 4: Percentage-of-sales method
This approach allocates a fixed percentage of projected sales to promotions. It directly matches the scenario: a $500,000 sales target with a plan to spend 10% on communication. The budgeting is determined as a function of anticipated sales, which is characteristic of the percentage-of-sales method.

Option 5: Competitive parity method
This method sets the budget to match what competitors are spending on promotion, aiming to stay in line with the market. The scenario does not reference competitor spending or market benchmarks; it uses a percentage of sales instead, so this option does not apply.

In summary, the reasoning aligns with the described practice of budgeting a portion of projected sales for communication, which corresponds to the percentage-of-sales method. The other options involve different logic—affordability based on available funds, explicit task-based planning, ROI optimization, or matching competitor spend—that are not indicated by the scenario.

A startup must allocate a limited IMC budget. They estimate a $500,000 sales target and plan to spend 10% on communication. Which budgeting approach are they using?Single choice

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