What is marketing expense?

Definition

Marketing expense is the cost of advertising, campaigns, and demand generation that belongs to this period. On the books, this is an Income Statement cost, not the cash that later leaves when the ad invoice is paid.

A clothing boutique books this month's ad invoices here. Paying later settles what is owed; it does not create a second campaign cost.

Accrual books record the month the ads ran, even if the card statement arrives next week. Cash-basis books may wait until the payment leaves the bank.

This cost is the period's demand spend. It is not the clothes on the rack, and it is not a prepaid annual placement still unused.

Where it shows up

P&L: Located in operating expenses.

Balance Sheet: Related to ad invoices sitting unpaid.

Cash flow: Decreases when the campaign is paid, reported cash from operating activities decreases.

See also: Customer Acquisition Cost · Operating Expenses · Budget Versus Actual

When you look at your Income Statement, this cost sits in the keep-the-doors-open block. Dress and jacket sales sit above it as revenue.

When the figure is high, the boutique ran a launch, bought more clicks, or a rate went up. When it is low, the month was quiet or a credit landed on an invoice.

The Balance Sheet does not keep this period's campaign cost after the close. Unpaid ad invoices sit in accounts payable until they are paid.

On the Statement of Cash Flows, the campaign payment is the cash event. Cash from operating activities falls when the card or ACH leaves the bank.

Operating expenses are the ongoing costs of running the shop that are not the garments themselves. Campaigns usually live in that keep-the-doors-open group.

Variable costs rise and fall with sales. Click-based ads often move that way; a fixed monthly retainer usually does not.

How it works

The boutique runs ads, prints a lookbook, or pays a photographer for a drop. That spend belongs on this line for the month the campaign ran.

If the vendor has billed and the card is still unpaid, the boutique debits this cost and credits accounts payable. The ads already ran.

If a quarter of ads was prepaid, the payment starts in prepaid expenses. Each month then moves that month's share onto this cost.

Stay with this period's campaign when you read the line. Unused prepaid placements are still an asset, not this cost.

Do not treat the payment as a new cost if the month was already recorded. The payment clears the payable; this cost was booked when the ads ran.

Selling, general, and administrative expenses often hold this line in a grouped overhead view. The meaning does not change: it is still the period's demand spend.

A customer-acquisition figure uses this spend as an input. That ratio is a later calculation; this page is the cost itself.

After the month closes, this line is part of the period's profit story. Next month starts the count again from zero.

Example

Rivet & Thread Boutique ran Instagram and local-radio ads all of May. This month's invoices total $1,800, and they are sitting unpaid.

The boutique records:

Debit: Marketing expense $1,800

Credit: Accounts payable $1,800

This cost hits the Income Statement, and accounts payable (a liability) goes up by $1,800. Cash has not moved.

May clothing revenue is $22,000. After the $1,800 campaign cost, $20,200 is left to cover garments, rent, wages, and everything else.

When Rivet & Thread pays the $1,800, it clears the payable and cash falls. This cost stays at $1,800; only the payable and the bank account move.

If the boutique had prepaid a $5,400 summer package in April, May's $1,800 would move out of prepaid expenses instead. The Income Statement still shows $1,800 of this cost in May.

Common mix-ups

Marketing expense is not the same as the ad invoice in the inbox. The cost is the month the campaign ran; the invoice is the later bill.

Marketing expense is not the same as customer acquisition cost. Acquisition cost is a ratio that uses this spend; this line is the spend itself.

Marketing expense is not the same as a discount at the register. A markdown lowers revenue; this line is what the boutique paid to promote the drop.

Related terms

• Customer Acquisition Cost: The average sales and marketing spend needed to win one customer.
• Operating Expenses: The ongoing costs of running the business that are not direct costs of sale.
• Selling General And Administrative Expenses: The grouped overhead costs of selling, administration, and management.
• Budget Versus Actual: The comparison of planned amounts to what actually happened.
• Vendor Bill: The invoice a supplier sends that becomes a payable.
• Variable Costs: Costs that rise and fall directly with sales volume.
• Return On Investment: The gain from an investment measured against its cost.
• Revenue: The total value of goods and services the business earned in a period.