Case Study: Prepaid Costs in Planful for Marketing

A Primer on Prepaid Costs in Planful for Marketing

Prepaid costs can emerge within marketing budgets under various scenarios:

• Situation 1: You might have a software subscription that is partially or fully paid upfront.
• Situation 2: An event could be paid with a 50% deposit upfront, with the remaining cost settled after the event's execution.
• Situation 3: A contract with an agency might involve payment for the next 3 months upfront, followed by subsequent costs paid incrementally.

Marketing teams must comprehend that their budget management approach—be it on an accruals basis, cash basis, or a mix—will influence how they plan and recognize such costs.

Accruals Basis

In an accruals-based budgeting approach, the budgeted amount should align with the timing of when the service is provided. For instance:

In Scenario 1: A $100,000 budget includes signing up for a $24,000 subscription starting February 1, 2024, till January 31, 2025. According to the accruals-based approach, planning for this cost involves a monthly allocation of approximately $2,000. Accounting teams often treat this as a flat monthly amortization cost, simplifying it to $2,000 despite variations in monthly days. Some may even amortize daily for precision, resulting in February having a potential amortized entry of $1,841.10.

While the finance team tracks the upfront $24,000 payment, the impact on the marketing budget should be a $2,000 monthly cost across FY2024 for 11 months. Understanding this dynamic aids in accurate planning of incurred or future costs impacting the marketing budget.

Cash Basis

In a cash-based budgeting approach, the budget should align with when the service is paid for. For instance:

In Scenario 1: A $100,000 budget includes signing up for a $24,000 subscription from February 1, 2024, to January 31, 2025. Here, the cost is planned to hit the budget in February for $24,000, coinciding with when the finance team settles the vendor's invoice.

Application in Planful for Marketing

Translating these scenarios into Planful for Marketing showcases how different statuses represent each planning cycle stage:

• Segment: Budget allocation ($100,000) set at the segment level—likely managed by the Marketing Ops team.
• Campaign: Depending on the chosen budgeting approach, the $24,000 is planned across 11 months of FY24 or allocated for a single month.
• Expense Group: Upon progressing with the software contract, a PO may be submitted internally for the $24,000, adjusting the timing in the marketing budget.
• Expenses: Monthly journal entries reflect the amortized software subscription cost, automatically loaded into Planful for Marketing to depict actual spending as per accounting standards.

Conclusion

Educating teams about accounting timing nuances minimizes manual reconciliation efforts while enhancing budget management accuracy and timeliness. Each team aims for an optimal balance in budget management, and your Planful for Marketing implementation will guide the approach.