Sales Budgeting

Sales Budgeting

Objective
 To reduce costs and improve selling efficiencies

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 Sales Budgeting

Definition
 A sales budget is a spreadsheet which documents monthly, quarterly and
annual budgets as well as financial goals, expressed in currency and units
of production.
 It's crucial to the business that the sales budget is maintained and
accurate because if information is missing, this negatively affects the
rest of the budgeting process
 It is an authorized blueprint for action that translate tactical decision
into rupee value
Financial statement of revenue & expense flows
 Types of Budgets

Sales Budget
 Most sales budgets are for one year but are often broken down to
quarterly/monthly basis
 A budget’s individual figures should always be compared to actual
results
 The comparison may well prompt a revision while the sales efforts is in
progress.

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Sales Budget

Allocating Sales Costs

 Fixed Costs
 Variable Costs
 Semi variable Costs
 Sales Budget

Definition of 'Variable Cost‘

A corporate expense that varies with production output. Variable costs are
those costs that vary depending on a company's production volume; they rise
as production increases and fall as production decreases. Variable costs differ
from fixed.
Examples of common variable costs include raw materials, packaging, and
labor directly involved in a company's manufacturing process.

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 Sales Budget

Semi-variable cost is an expense which contains both a fixed-cost component and a

variable-cost component. The fixed cost element shall be a part of the cost that needs
to be paid irrespective of the level of activity achieved by the entity. On the other hand
the variable component of the cost is payable proportionate to the level of activity.

It shows similarities to telephone bills. One must pay line rental and on top of that a
price that depends on how heavy one is using the service. So it changes with output.
Another example is satellite television. A price for the box must be paid monthly and
to get additional movies, more money has to be given.

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 Sales Budgeting

 Estimating future level of revenue, selling expenses and profit

contribution of the sales function.
 The outcome of sales budgeting is in the form of two documents.

1. Sales budget
2. Selling expense budget

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 Sales Budget

1. Projection of revenue computed from forecast unit sales at average prices,

for a specific period.
Products Jan Feb Mar May June July Aug Sept Oct Nov Dec Tot Units 13

A 1548 1548 1548 1780 1780 1780 2202 2202 2226 2202 2202 23220

B 17200

C 15000
Total Value Rs 950,000,000,00
D 18000

E 20500

F 101000

G 138000

H 203000
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I 251000
 Selling expense Budget

Definition
Approved amounts that management will spend to obtain
the revenue projected in the sales budget.
Major Selling Cost Categories

1. Selling
2. Promotion
3. Fulfillment
4. Servicing
5. Support
6. Administration
 Major Selling Cost Categories

1. Selling A. Salary, commission, bonus,

2. Promotion incentives, fringe benefits
3. Fulfillment B. Travel & entertainment
4. Servicing C. Prospect seminars
5. Support D. Discounts & allowances
6. Administration
 Major Cost Categories

1. Selling A. Advertising allowances

2. Promotion B. Catalogs ,brochures,
price lists
3. Fulfillment
C. Fares & exhibitions
4. Servicing
D. Samples, models,
5. Support
displays
6. Administration
E. Selling aids
(audiovisual equipment)
F. Contests & deals

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 Major Cost Categories

1. Selling A. Packaging, shipping

2. Promotion B. Billing
3. Fulfillment C. Credit
4. Servicing D. Warranty
5. Support E. Returns
6. Administration

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Major Cost Categories

1. Selling A. Distributor &

2. Promotion customer training
3. Fulfillment B. Technical counseling
4. Servicing
5. Support
6. Administration
 Major Cost Categories

1. Selling A. Recruitment & selection

2. Promotion B. Training & development
3. Fulfillment C. Sales meetings
4. Servicing D. Customer service
5. Support E. Warehousing
6. Administration
 Major Cost Categories

1. Selling A. Office expenses

2. Promotion B. Telephone & postage
3. Fulfillment
4. Servicing
5. Support
6. Administration
PROFIT BUDGET
Merger of sales budget & selling expense budget to
determine gross profit, by deducting planned selling
Expenditures from expected sales revenues
 Selling Expense Budget

Methods of Funding sales Forces – (Several methods)

Sales managers should be involved in the budget development process
as they are responsible for sales expenses

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 Methods - Selling Expense Budget

1. Affordable Method
- A certain level of profit is predetermined
- Management decides what share of revenue above & beyond the cost of
goods sold, has to spend on selling and administrative costs, after achieving
a predetermined profit level
2. Percentage of Sales Method - The most popular expense budget technique
Selling Expense Budget Level = A Percentage of Sales Revenue
Advantages - Simplicity, No additional decisions are required, Time saver
Flaw - Prevents cause effect relationship
- Level of sales effort should be derived from the sales results
In fact it is the effort that produces revenue
- Percentages chosen vary widely by industry/company
- Method depends more on managerial judgment than rational
decision making criteria
- Small competitor, high %age – large company, low %age
Methods - Selling Expense Budget

3. Competitive Parity Method

- Based on the competitive practices in the industry
- To determine selling expense budget either absolute figure (Rupee
budget) or relative figure (%age of sales)
- Use of relative figure is more frequent
- A company should not surrender the field to aggressive rivals
4. Objective &Task Method
-Budgeting process begins with the establishment of mutually agreed upon
objectives for every member, on account by account, product by product,
quarter by quarter basis.
1.Identify objectives – to be achieved by sales force
2.Specify tasks necessary to realize objectives
3.Determine expenses required to carry out task
4.Appropriate sum total of expenses
Methods - Selling Expense Budget

4. Objective &Task Method

- Budgeting process begins with the establishment of mutually agreed
upon objectives for every member, on account by account, product by
product, quarter by quarter basis.

1. Identify objectives – to be achieved by sales force

2. Specify tasks necessary to realize objectives
3. Determine expenses required to carry out task
4. Appropriate sum total of expenses

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 Sales Budgeting Procedure

- Situation Analysis
- Identification of Problems & Opportunities
- Development of Sales Forecast
- Formulation of Sales Objectives
- Determination of Sales Tasks
- Specification of Resource Requirements
- Completion of Projections
- Presentation & Review
- Modification & Revision
- Budget Approval

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 Sales Budgeting Procedure

Situation Analysis
 Sales budgeting have to get the facts
 Magnitude of past differences between budgeted and actual and
reasons
 Learning/experience from previous mistakes
Identification of Problems & Opportunities
 Actual and potential threats and challenges have to be assessed and
addressed to determine their probabilities of occurrences and severity
of their impact
 Problem viewed by one sales manager may appear to other as a
fascinating challenges
 Sales Budgeting Procedure

Development of Sales Forecast

- Sales forecasting methods used differ firm to firm
- Combined methods formula is very common
- Projections are made about the anticipated levels of sales by territory,
product and type of accounts considering future environmental
conditions also
- Based on marketing information system
- Formulation of Sales Objectives
- Based on sales forecast, sales force has to be informed what sales target
to strive.
- These sales targets/objectives to be developed in a participatory way
- Objectives has to be prioritized, validated and supported by adequate
resources

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 Sales Budgeting Procedure

Determination of Sales Tasks

- Carry out a broad array of sales activities, from recruiting to evaluation

and prospecting to after sales service
- The step is to identify tactical tasks
- Assignment is remarkably challenging to know where you want to be
and how to get there
- Options have to be examined, sales and profit impact has to be
projected and likelihood has to be considered
 Sales Budgeting Procedure

Specification of Resource Requirements

- Spells out the resources required to implement the specified activities

and achieve desired objectives
- Permanent , temporary/contractual field force and necessary support
ranging from cars/bikes to lap-top computers , audiovisual aid
- Without sufficient support, object can not be achieved

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 Sales Budgeting Procedure

- Completion of Projections
- Sales objectives, task and resources can be put together
- All the inputs, requests from various units of sales function are
assembled and integrated into a comprehensive package
- Requires careful review and coordination of the ingredients of the total
and selling expense budgets to make the final product sound

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 Sales Budgeting Procedure

Presentation & Review

- Sales management has to present and defend its budget proposal to top
management
- Has to justify its request its scarce funds by competing with other parts
of the organization
- Top executive would be remiss in their duties if they did not challenge
sales management’s budget proposal
- Some sales manager deliberately ask for more funding than they expect
to receive
- Sales and selling expense budgets have to be fitted into the corporate
master budget and coordinated with production and procurement
budgets
 Sales Budgeting Procedure

Modification & Revision

- Sales targets and budgets may be adjusted by management, reflecting
its assessment of both the needs of the corporation and the true
potential of the market place.
- Such modification also influence selling expense budget
- Top management may decide to channel disproportionate support to
research & development or toward the acquisition of new business
rather than the fund fully, as requested in the sales budget

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 Sales Budgeting Procedure

Budget Approval
- Finally, sales and selling expense budgets are approved and authorized
- At regular intervals actual and budgeted figures are compared to each
other
- Deviations are noted and investigated
- Revision may become necessary if sales results and cost are
substantially off course, like fuel cost, safety concern and slow economy.

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 Practice of Sales Budgeting

- Success depends largely upon the level of commitment & cooperation

obtained from every one
- Problems are mostly human relation issues
- In many organization, budgeted sales figures are not delivered
Honesty in Sales Budgeting
- Lack of honesty is another problem
- Inflated budget request
- Reduction during review
- Sales managers – extreme position
- Compromise during review
- Deliberately understating financial need

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 Practice of Sales Budgeting

Budget Discipline
- Implementation
- Follow Up
- Actual versus planned
- Price deviation
- Fixed versus variable cost variation
- Sales management accountability for fluctuations
Intervals For sales Budgets
- Most common - annual budgeting
- Six months
- Quarterly
 Practice of Sales Budgeting

Sales Productivity

- Sales Productivity = Sales revenue

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Selling expenses

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THANKS

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