Block: Basics of Sales Management

Ch-11

Sales Budgeting and Control

Chapter

11

Sales Budgeting and Control

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Ch-11 Introduction

Sales Budgeting and Control

A sales budget is a programme designed for a stipulated time frame that highlights the selling expenses and anticipated sales, quantitatively and in value terms. This helps in making an objective estimate of net profit on the selling operations. In a real sense, it is a statement aimed at comparing the revenue, net profits, sales volume and the selling expenses relating to a particular product or the entire business. There are three types of sales expenses:  Fixed Expenses: These expenses pertain to the compensation of salespersons, office rent, insurance and interest on fixed assets like vehicles, office space, office equipment, etc.  Performance-related Expenses: These include commissions, incentives, awards, etc.  bonus and

Activity-related Expenses: These include travel and communication expenses, etc.

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Block: Basics of Sales Management

Ch-11 Sales Budget

Sales Budgeting and Control

Significance of a Sales Budget The importance of a sales budget cannot be overemphasised. Its significance can be gauged from the factors given below:  It serves as a scale, or a yardstick, to measure the performance/progress of the company in terms of the performance of the sales personnel, regions, products, marketing channels and customers.  It helps identify the areas in which the company needs to strengthen or performance.  It serves as an indicator to control the expenses associated with the sales to keep a constant watch on the net profits of the company. improve its activity and

 It helps in comparing the actual performance with the budgeted performance and takes corrective measures if drawbacks appear or to follow the strategy if the performance is good.
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I


Ch-11

Sales Budgeting and Control

It helps the planners to frame policies for actual market situations and provides the platform they want it to be. manner so

to establish ways and means to get the business where 

It provides vital statistics to relate and dedicate the resources in an effective

as to realise the forecasted sales and convert these figures into reality.  It helps keep expenses under control so that by using scarce resources, the objective of

net profits may be achieved.

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Block: Basics of Sales Management

Ch-11

Sales Budgeting and Control

Factors Affecting Sales Budget

The sales manager should take into consideration the following factors while preparing the sales budget:          
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Past sales figures and trend Salesmens estimates Plant capacity General trade prospects Orders on hand Proposed expansion or discontinuance of products Seasonal fluctuations Potential market Availability of material and supply Financial aspect
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Block: Basics of Sales Management

Ch-11
Other factors    

Sales Budgeting and Control

The nature and degree of competition within the industry Cost of distributing goods Government controls, rules and regulations related to the industry and Political situation national and international as it may have an influence upon the

market.

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Block: Basics of Sales Management

Ch-11 Sales Control

Sales Budgeting and Control

Control is a function of every management to ensure that operations are being carried out as per the plan to achieve the objectives. Sales control ensures the achievement of personal selling objectives. Sales coordination is very essential to ensure proper conduct of sales operations by different functionaries in the field. Types of Sales Control
Type of Control
1 Annual plan control

Prime Responsibility
Top level managers

Purpose of Control
To examine whether the planned results are being achieved To examine where the company is making or losing money

Approaches
-Sales analysis  Market shares analysis  Marketing expenses to sales ratio Customer attitude Tracking profitability by  Product territory  Market share  Trade channel  Order size  Sales audit
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Profitability control

Sales controller

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Block: Basics of Sales Management

Ch-11

Sales Budgeting and Control

Steps in Designing a Sales Control System      Objective setting Designing different control levels Designing a reporting system and a feedback system Deciding tools and techniques of control Variance analysis and reasons thereof

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Block: Basics of Sales Management

Ch-11 Sales Audit

Sales Budgeting and Control

Sales audit is a comprehensive, systematic, independent and periodic examination of a companys environment, objectives, strategies and activities to determine problem areas and opportunities and recommend a plan of action to improve the companys sales performance. The job of sales audit is performed by a sales auditor. The Aim of the Audit The Aim of the sales audit in any sales organization is to : i. Find out the true and accurate position of sales. ii. To exercise control over future planning and over the results of the company. iii. To analyse the past performance and learn from mistakes made in the past iv. To bring alertness to the organization. v. To award increments, promotions, giving extra rewards in case of exceptional performances and to punish those whose actions have resulted in loss to the company.
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Sales Budgeting and Control

Modes of Conducting Sales Audit   By internal staff of the company. By outside auditors like chartered accountants or consultants experts in particular

type of business activities. Timely sales audit at a regular interval and follow up of the recommendations as given by the auditors can result in excellent results for future and help in devising timely safeguards.

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Auditors Plans

Sales Budgeting and Control

The following questions can be considered by a marketing auditor:  What are the strengths, weaknesses, opportunities or threats to the company SWOT analysis)?        
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(known as

What are the changes in consumer behaviour? What are the major changes in market segmentation? What are the changes in the major competitors strategies? What are the changes in the competitive environment? What are the pricing strategies of the competitors? What are the main channels of distribution? Have the marketing objectives been achieved or not? What major advertising media are being used by the competitors?
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Sales Budgeting and Control

Credit Control
Steps in Designing a Credit Control System 1. Identifying credit distributors and wholesalers or consumers on the basis of past

experience. 2. 3. 4. 5. Processing the credit sanction. Circulating and implementing the credit sanction. Aging analysis (see the format given below). Reviewing credit sanctions from time to time.

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Sales Budgeting and Control

The following factors should be taken into consideration in the credit rating of dealers/distributors:       Organisational set-up of the firm Market reputation Trade line of dealers/distributors Financial position of dealers/distributors Analysis of financial statement History of payments.

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Ch-11

Sales Budgeting and Control

Budget Purposes
Budgets are formulated for many reasons, including the major ones of planning, coordination, and control. . Planning: Corporations and their functional units develop objectives for periods, and budgets determine how these objectives will be met. 2. Coordination: The budget is a major management tool for coordinating the all functional areas and subgroup within the entire organization. future activities of

3. Control: Allocation of budgeted funds gives management control over their use. Sales managers estimate their budget needs, are given funds to operate their units, and then are held responsible for reaching their stated goats by using their budgets effectively. As the sales program is implemented and income and expenses are actually generated, managers assess results against the amount budgeted and determine whether they are meeting objectives.
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Sales Budgeting and Control

Factors to be considered while preparing sales budget The sales manager should take into consideration the following factors while preparing the sales budget. 1. 2. 3. 4. 5. 6. 7. 8. 9. Past sales figures and trend Salesmen's estimates Plant capacity General trade prospects Orders on hand Proposed expansion or discontinuance of products Seasonal fluctuations Potential market Availability of material and supply
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10. Financial aspect

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Block: Basics of Sales Management

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Sales Budgeting and Control

Budget Analysis (Reporting) Budgeting Analysis cover the following application areas: 1. 2. 3. 4. 5. 6. 7. 8.
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Sales Analysis Sales Orders Finance Accounts Receivable Finance Accounts Payable Finance General Ledger Inventory Purchasing Manufacturing
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Sales Budgeting and Control

Budgetary Control
Budgetary control has become an essential tool of management for controlling costs and maximising profits. The technique of budgetary control is, in fact, a must for every business enterprise. To exert control over the budgets, every organisation has to set up an effective budgetary control system. The following factors should be examined at the time of budgetary control reporting:   What changes are most likely in the business environment? What are the major objectives to be achieved?

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Sales Budgeting and Control

Market Share Analysis

Market performance can be evaluated on the basis of the market share analysis. If the market share of a company is increasing, it is a sign of progress; if it is decreasing, the company must take the necessary measures to arrest, and possibly push back, this trend.

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Ratio Analysis

Sales Budgeting and Control

Ratio analysis is a powerful tool of marketing control. It helps in correctly identifying the financial strengths and weaknesses of a company. Different ratios can be calculated for different purposes. For example, profitability ratios help determine the profitability of a company. Following ratios are useful for management control: i. iii. v. vii. ix. xi. Current ratio Proprietary ratio NP ratio Earnings per share Dividend per share Average collection period ii. iv. vi. viii. x. xii. Liquidity ratio GP ratio Operating profit ratio Dividend payout ratio Debtors turnover ratio Working capital turnover ratio
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Sales Budgeting and Control

Advantages of ratio analysis:     Ratio analysis helps in planning and forecasting. It helps in intra-firm comparison. It simplifies financial statements. It helps in coordination, control and communication.

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Ch-11
Variance Analysis

Sales Budgeting and Control

Comparison of standards with actual performance is required to understand the performance of sales. The difference of the actual from the standard is known as variance. The variance may be favourable or adverse according to circumstances. Sales variance is used in marketing control. It has many types.
SALES VARIANCE

Sales Value Variance

Sales Volume Variance

Sales Price Variance

Sales Mix Variance

Sales Quantity Variance

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Sales Price Variance

Sales Budgeting and Control

: : : : Standard Sales - Actual Sales Budgeted Sales - Standard Sales Budgeted Sales - Actual Sales Standard Price (Revised Standard Quantity Actual

Sales Volume Variance Sales Value Variance Sales Mix Variance

Quantity)

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Sales Analysis

Sales Budgeting and Control

Sales analysis is the detailed examination of sales volume by territory, salesperson, customer, product line, etc. It works on the basic principle that the trends of the total sales volume conceal rather than reveal the market reality. The following methods are used for sales analysis. a. b. c. d. Sales Analysis by Territory Sales Analysis by Salesperson Sales Analysis by Product Line Sales Analysis by Customer

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Sales Budgeting and Control

Sales Cost Analysis Sales cost analysis is a detailed examination of the costs incurred in the organisation and administration of the sales and marketing functions and its impact on sales volume. The following are the important sales costs which should be kept in mind by a sales manager:        Cost of goods per rupee of sales Profit per rupee of sales Cost per segment Cost per territory Cost per salesperson Cost per channel member Average cost per order.
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