Sales Budgeting and Control

Introduction
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, bonus and awards, etc.
Activity-related Expenses: These include travel and communication
expenses, etc.
Significance of a Sales Budget
The importance of a sales budget cannot be over emphasized. 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 improve its
performance.
It serves as an indicator to control the expenses associated with the sales activity and
to keep a constant watch on the net profits of the company.
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.
It helps the planners to frame policies for actual market situations and provides the
platform to establish ways and means to get the business where they want it to be.
It provides vital statistics to relate and dedicate the resources in an effective manner
so as to realise the forecasted sales and convert these figures into reality.
It helps keep expenses under control so that by using scarce resources,
Cont. the objective
of net profits may be achieved.
Factors Affecting Sales Budget
The sales manager should take into consideration the following factors while
preparing the sales budget:

Other factors
Past sales figures and trend
The nature and degree of
Salesmens estimates
competition within the
Plant capacity
industry
General trade prospects
Cost of distributing goods
Orders on hand
Government controls, rules
Proposed expansion or discontinuance of
and regulations related to
products
the industry and
Seasonal fluctuations
Political situation
Potential market
national and international
Availability of material and supply
as it may have an
Financial aspect
influence upon the market.
Sales 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 Prime Responsibility Purpose of Control Approaches

1 Annual plan Top level managers To examine whether -Sales analysis
control the planned results Market shares analysis
are being achieved Marketing expenses to sales
ratio
2 Profitability Sales controller To examine where Customer attitude Tracking
control the company is profitability by
making or losing Product territory
money Market share
Trade channel
Order size
Sales audit
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

Sales Audit
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.
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.
Auditors Plans
The following questions can be considered by a marketing auditor:
What are the strengths, weaknesses, opportunities or threats to the company
(known as SWOT analysis)?
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?
Credit Control
Steps in Designing a Credit Control
System
factors consider in the credit rating
1. Identifying credit distributors and of dealers/distributors:
wholesalers or consumers on the basis
Organizational set-up of the firm
of past experience.
Market reputation
2. Processing the credit sanction.
Trade line of dealers/distributors
3. Circulating and implementing the Financial position of
credit sanction. dealers/distributors
4. Aging analysis (see the format Analysis of financial statement
given below).
History of payments.
5. Reviewing credit sanctions from
time to time.
Budget Purposes
Budgets are formulated for many reasons, including the major ones of planning,
coordination, and control.
1. Planning: Corporations and their functional units develop objectives for
future periods, and budgets determine how these objectives will be met.
2. Coordination: The budget is a major management tool for coordinating the
activities of all functional areas and subgroup within the entire organization.
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.

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

1. Sales Analysis

2. Sales Orders

3. Finance Accounts Receivable

4. Finance Accounts Payable

5. Finance General Ledger

6. Inventory

7. Purchasing

8. Manufacturing
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?

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.
Ratio Analysis
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. Current ratio ii. Liquidity ratio
iii. Proprietary ratio iv. GP ratio
v. NP ratio vi. Operating profit ratio
vii. Earnings per share viii. Dividend payout ratio
ix. Dividend per share x. Debtors turnover ratio
xi. Average collection period xii. Working capital turnover ratio
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.

Cont.
Variance Analysis
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 favorable or adverse according to circumstances. Sales variance is
used in marketing control. It has many types.

SALES VARIANCE

Sales Value Variance Sales Volume Sales Price Variance

Variance

Sales Mix Variance Sales Quantity Variance

Sales Price Variance : Standard Sales - Actual Sales

Sales Volume Variance : Budgeted Sales - Standard Sales

Sales Value Variance : Budgeted Sales - Actual Sales

Sales Mix Variance : Standard Price (Revised Standard Quantity Actual

Quantity)
Sales Analysis
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. Sales Analysis by Territory

b. Sales Analysis by Salesperson

c. Sales Analysis by Product Line

d. Sales Analysis by Customer

Cont.
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.