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Competitor-based budgeting

Where budgets are based on the income and expenditure of competitors. This method involves finding out exactly what competitors receive and spend in producing or providing their products or services, or in relation to specific activities (eg marketing activities) and allocating a similar amount. Although there are some advantages in using this method, the disadvantages tend to outweigh the advantages. Firstly, although competitor-based budgeting can be a quick, cheap way of setting a budget, it can prove difficult to obtain the information required, ie exactly how much is received and spent by competitors on what. Although Annual Company Reports are widely available, they may not provide the breakdown of information required. Secondly, competitors budgets may not have been compiled accurately, and thus, prove inefficient in controlling resources. Thirdly, even if information on competitors’ budgets can be obtained and these have been based on accurate information / in depth market research, every business is different. Consequently, the figures may not be specific to a particular business’s needs.

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