Sales Budgeting: Estimating Future Levels of Revenue, Selling Expenses, and Profit Contributions of The Sales Function

Sales Budgeting
Estimating future levels of

revenue, selling expenses,
and profit contributions of
the sales function.
Budget
• A budget is simply a tool, a financial plan, that
an administrator uses to plan for profits by
anticipating revenues and expenditure.
• Sales budget is a detailed blue print of who is
going to sell how much of what during
operating period and to which class of
customers.
• It consists of estimates of an operating
period’s probable rupee and unit sales and
likely selling expense.
What is a Sales Budget?
• It includes estimates of sales volume and selling
expenses
• Sales volume budget is derived from the company
sales forecast –generally slightly lower than the
company sales forecast, to avoid excessive risks
• Selling expenses budget consists of personal selling
expenses budget and sales administration expenses
budget
• • Sales budget gives a detailed break-down of
estimates of sales revenue and selling expenditure
• Purposes of the Sales Budget
• Planning
• Coordination
• Control
Purpose 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 be
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. 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. Sales budget can be determined on the
basis of following categories:
Types of Budget
Financial statement that outlines firms intended actions and
the resulting cash flow consequences. Most sales budgets
covers a period of one year, but they are often broken down
into quarterly or even monthly targets.
• Sales budget – projection of revenue computed from forecast

unit sales and average prices.
• Selling expenses budget – approved amount that the

department will spend to obtain the revenues projected in the
sales budget.
• Profit budget – merged sales budget and the selling expense

budget to determine gross profit.
Basis of Selling Expense Budgets
• Affordable methods – management determines what
to spend on selling after accounting for the cost of
good sold and the desired profit level.
• Percentage of sales method – the funding level is

found by multiplying the sales revenue by a given
percentage. Budgeting is based on anticipated
rather then historical revenue.
• Competitive parity method – sales budgeting method

based on the competitive practices in an industry.
They refer to either a specific competitor or the
industry average.
• Objective and task method – budget allocation is
based on the objective of the firm, tasks
necessary to achieve those objectives, and the
expenses related to those tasks. It is known as
zero-based budgeting.
• Bidding system – in this the sales function

competes with other functions for limited funds
available on the basis of payoffs.
• Return on investment (ROI) – some sales managers

have begun to use this financial management
concept to chose between alternative courses of
action. ROI is determined by dividing net income
by total assets employed to earn the income.
Sales Budgeting Procedures
1. Situational Analysis – sales managers have to look at the magnitude
of past differences between budgeted and actual figures and the
reasons for these differences.
2. Identification of Problems and Opportunities the actual potential

threat and challenges has to be assessed and addressed to determine
the probabilities of occurrence their impact.
3. Development of Sales Forecast – manager is equipped to forecast

sales, using one of the various methods. Projections are made about the
anticipated levels of sales by territory, product or type of account. It
is expressed both in units and dollars.
4. Formulation of Sales Objectives – once the forecast has been

developed, sales force has to be told what sales target to strive and
what objectives to pursue.
5. Determination of Sales Tasks – sales manager and sales force have

to carry a broad array of sales activities, ranging from recruitment to
evaluation, and from prospecting to after sales service.
6. Specification of Resource Requirement – the resources that will
be required to implement the specified activities and achieve the
objectives.
7. Completion of Projections – here all the input and requests from

various units of the sales function are assembled and tied into a
comprehensive package.
8. Presentations and Review –present and defend its sales budget

proposal to the management.
9. Modification and revision – sales managers have to engage in a

series of compromise sessions. Here the sales targets and budgets
might be adjusted by the higher management, reflecting both to the
needs of the corporation and the true potential of the marketplace.
10. Budget approval – final levels are eventually approved and

authorized for both the sales and the selling expense budgets. Here
onwards budgets are reviewed periodically looking at the on going
market conditions and other external forces.

Sales Budgeting: Estimating Future Levels of Revenue, Selling Expenses, and Profit Contributions of The Sales Function

Uploaded by

Copyright:

Available Formats

Sales Budgeting: Estimating Future Levels of Revenue, Selling Expenses, and Profit Contributions of The Sales Function

Uploaded by

Document Information

Original Title

Copyright

Available Formats

Share this document

Share or Embed Document

Sharing Options

Did you find this document useful?

Is this content inappropriate?

Copyright:

Available Formats

Sales Budgeting: Estimating Future Levels of Revenue, Selling Expenses, and Profit Contributions of The Sales Function

Uploaded by

Copyright:

Available Formats

Sales Budgeting

Estimating future levels of

• Sales budget – projection of revenue computed from forecast

• Selling expenses budget – approved amount that the

• Profit budget – merged sales budget and the selling expense

• Percentage of sales method – the funding level is

• Competitive parity method – sales budgeting method

• Bidding system – in this the sales function

• Return on investment (ROI) – some sales managers

2. Identification of Problems and Opportunities the actual potential

3. Development of Sales Forecast – manager is equipped to forecast

4. Formulation of Sales Objectives – once the forecast has been

5. Determination of Sales Tasks – sales manager and sales force have

7. Completion of Projections – here all the input and requests from

8. Presentations and Review –present and defend its sales budget

9. Modification and revision – sales managers have to engage in a

10. Budget approval – final levels are eventually approved and

You might also like