This paper examines the theory and practice of promotional budgeting. Part 1 contains a brief review of the literature in this important area. Part 2 presents the theoretical underpinnings of the promotional budgeting decision and introduces a conceptual model for illustrating these. In the next section this model is used to identify desirable budgeting strategies for different sets of market circumstances. Part 4 describes several problems which practitioners confront in determining optimum promotional outlays. Finally, Part 5 identifies the most frequent methods that are used to set promotional budgets.