Sales Budget

Submitted By:

Anjali Garg
MEANING OF SALES BUDGET

 Sales budgeting is a key function of sales management. It involves

estimating future level of revenue and selling expenses, and consequently
the profit contribution made by the sales function. The outcome of sales
budgeting is seen in the form of two documents:

 1.The sales budget, and

 2.The selling expenses budget.
 •Sales Budget reflects the targeted sales revenue.
 •Sales Expense budget shows the expenses necessary to reach the
targeted sales revenue. Through these two statements sales management
can reconcile these revenues & expenses with the firm’s objectives. Thus,
sales budgeting is concerned with improving selling efficiency & reducing
the selling costs
 The sales budget is prepared by multiplying the
expected unit sales volume for each product by its
anticipated unit selling price. Each of the other budgets
such as production budget, direct material budget,
direct labor budget, manufacturing overhead budget &
Selling and administration budget depends on the sales
budget. It is derived from the sales forecast. It represents
management’s best estimate of sales revenue for the
budget period.
Objectives of Sales Budget:-

 1.Planning :- The company formulates marketing and sales objectives; the

budget determines how these objectives will be met through a detailed
breakdown of the sales budget among products, territories and customers.
 2. Co-ordination:- The budget establishes what the cost of various heads b
thereby maintaining a desired relationship between expenditure and revenues.
The budget enables sales executives to coordinate expenses with sales. It also
restricts the sales executives form spending more that their share of the funds
helping to prevent expenses from getting out of control.
 3. Control:- The sales budget enables sales executives for evaluating sales
performance . A sales manager can improve his success by meeting sales and
cost goals set forth in the sales budget.
 4. Evaluation:- Sales department budgets become tools to evaluate the
department’s performance. By meeting the sales & cost goals set forth in the
budget, a sales manager may prove himself to be a successful executive.
FEATURES

 1. The sales budget is the first component of the master operating budget. This is
because sales affect all other parts of the master budget.
 2. It includes the total sales valued in quantity.
 3. It consists of three parts; break even, target and projected sales.
 4. The budget also includes sales by product, location, customer density and
seasonal sales patterns.
 5. It provides a plan for both cash and credit sales.
 6. The basis of a sales budget is the sale price per unit of goods to be sold
multiplied by the quantity of goods to be sold.
 7. A sales budget is planned around the competition, the material available,
cost of distribution, government controls and the political climate.
Factors influencing Sales budget

There are various external as well as internal factors involved that influence the
sales budget of any firm. Preparing a sales budget is much tougher than an
expense budget. This is because everything in the expense budget are within
company control.
However in the case of a sales budget, the company can only control part of
factors affecting the budgeted numbers and these are called INTERENAL
FACTORS.
The other part is influenced by the EXTERNAL FACTORS, such as economy,
competition, season and government to a certain extent. Those factors that
are not within the company’s control are budgeted based on assumptions.
INTERNAL FACTORS

 1. Volume of sales of the enterprise.

 2. Profitability of different products of the enterprise.
 3. Advertising and sales promotion strategies.
 4. Price policy.
 5. Ability and efficiency of the salesman.

These factors fall within the reach of any organisation or enterprise, and hence
if any improvement or changes are required,it could be easily
incorporated,without any wastage of time and money.
EXTERNAL FACTORS

 1. Purchasing power of the general public.

 2. Industrial and taxation policy of the govt.
 3. Changes in needs, habits & preference of the consumers.
 4. Situation of competition in the market.
 5. Distribution of wealth in the country.

These factors greatly influence the sales budget of any organisation,in fact the
sales budget of the firms are prepared in keeping the external factors in mind
for the smooth running of the business.
 SALES BUDGET PROCESS

Sales organizations have certain process or procedure for the preparation of

sales budget. The steps generally followed in the sales budget process are as
follows:
 Review situation
 Communication
 Subordinate budgets
 Approval of the sales budget
 Other departments.
REVIEW SITVATION

 The sales manager should review the past performance, current and future
marketing environment.
 The review of past budget performance can help the sales manager to
understand the deviations of actual performance against the budget and
the items or elements where the company showed favorable or
unfavorable variances.
 A review of current and future factors of marketing environment such as
customers, competitors, economy, technology, government policies or
regulations, would help the sales manager to understand the changes
taking place in the external environment.
COMMUNICATION

 The head of sales function should communicate in writing to all the field
sales managers about the budget preparation, including the formats,
guidelines, assumptions, and timetable.
 Each first-line field sales manager estimates the sales volume in units and
value for each product and service to be sold, along with estimated sales
expenses, and administrative budget .
SUBORDINATE BUDGETS

 It means the sales budgets prepared by the first-level sales managers, such
as branch, area or district managers, as well as, middle level sales
managers like regional, zonal, or divisional sales manager.
 At the zonal or regional level, the sales budgets are prepared after
receiving the branch wise sales budgets from the respective first level
managers.
 The regional or zonal managers modify and add the respective branch or
district sales budgets. They , thereafter ,submit their sales budgets to the
national sales manager or the marketing head.
APPROVAL OF SALES BUDGET

 In consultation with the marketing head, the national sales manager

prepares two or three alternative proposals of the sales budget, and makes
a presentation to the top management of the company.
 After a detailed discussions on the alternative proposals, the sales budget
finally gets approved.
OTHER DEPARTMENTS

 The final sales budget is given to other departments like production,

finance, materials, and human resource to prepare their budgets.
 The approved sales budget is also broken down into each sales territory, as
well as into quarterly and monthly periods.
 Only the sales budget has revenue and expenditure budgets, whereas all
the other departments in the company have expenditure budgets.
METHODS

Different types of methods are:

 1) Affordability
 2) Percentage of Sales
 3) Competitive Parity
 4) Objective and Task
 5) Return Oriented
AFFORDABILITY METHOD

 Is a process where the management develops the sales budget

depending on its ability to spend on sales functions.
 Here a firm develops the budget based on whether it can afford to spend
a certain amount for selling it goods.
PERCENTAGE OF SALES

 Is used for developing by multiplying sales revenue by a given

percentage.
 The sales revenues used may be a past sales revenue figure or a
forecasted figure.
 Sometimes, even a weighted average of the two is used.
COMPETITIVE PARITY

 In this method, the sales manager sets the budget based on the
budgeted figures of the competitors or the industry average.
 The budget is based on a comparable base - size and revenues.
OBJECTIVE AND TASK

 The management develops the budget the budget based on the

objectives to be attained.
Involves 4 steps :
 1. Identification of objectives of the sales department.
 2. Next, the tasks to be performed for achieving the objectives are
specified.
 3. Third step involves determining the expenditure required for the tasks.
 4. Fourth step involves adding all the above expenses to arrive at a final
figure for the purpose of budgeting
RETURN ORIENTED

 The methods like return on investment (ROI), return on assets (ROA), return
on total assets (ROTA)return on asset managed (ROAM) are some tools that
help managers to develop a sales budget.
 It helps the sales managers analyze the impact of a particular sales cost
allocation on revenues and profits generated by sales.