What does the rule of thumb budget method rely on for setting a budget?

The rule of thumb budget method is commonly used in marketing because it provides a straightforward approach to setting a budget based on established practices. This method often utilizes competitive parity, which involves analyzing what competitors are spending on marketing to maintain market positioning. By comparing expenditures with those of competitors, marketers can make informed decisions about how much to allocate to their own marketing efforts to remain competitive in the market.

Additionally, the percentage of sales approach is another key component of this budgeting method. This technique sets the budget as a percentage of past or expected sales revenue. It simplifies the budgeting process, as companies can easily calculate their marketing budget based on their projected or historical sales figures.

This combined reliance on competitive benchmarks and sales figures makes the rule of thumb method practical and accessible for many organizations, allowing them to allocate resources effectively based on both internal performance and external market conditions.