Sales BudgetA sales budget consists of estimates of unit and rupee sales during

operating period as well as selling expenses; so as to estimate the profit target.

Once the budget is set, it can be broken down by region, product groups and/or account types

Also, sales budget talks about the optimum profitability in a given period; since firms typically look for profit maximisation in the long term; while it seeks sales maximisation in the current period.

Sales BudgetPurposes of sales budget:

1) It serves as a mechanism of control, as the company can measure actual performance against benchmarks. According to the degree of non conformance, revisions can be made in a timely manner

2) Planning can be better done through sales budgets; where planners try to maintain the balance between sales budget and sales expenses; and how they may be optimised to meet business objectives

Sales BudgetSales budget: figures in ‘000 units

North South East West Total

A 80 25 32 40 177

B 90 45 12 57 204

C 30 70 60 34 194

Product

Region

Sales BudgetSales department budget is the cost running the marketing function in the

budgetary period. It is normally split into 3 components:

1) Selling expenses budget: Costs attributable to the selling process: Sales personnel salaries and commission, sales training and sales expenses

2) Advertising Expenses: Expenses attributable to above the line and below the line promotions:

a) Percentage of last year’s salesb) Competitive parity in line with a larger playerc) Affordable methodd) Objective and task methode) Long term ROI of advertising

Sales Budget3) Administrative expenses: Accounts staff, market research sales

administration, etc.

Sales BudgetEstimating selling expenses: In the long run, the goal is profit

maximisation; but in the short run, one may have to incur loss in pitching for new accounts, doing extensive follow up, providing incentives for business development; mean that sales optimisation becomes the short term goal

The management may like to plan well in advance for the accounting period immediately succeeding the current one.

After the sales target is made, activities are defined to achieve the same; after which costs are estimated. For instance: the target requires sales people to travel 1,00,000 km a year, and the allowance per km. is Rs.8, the budgetary allocation would be Rs.8,00,000…

Sales BudgetAlso management can measure change in standard costs over time

If standard costing is not possible, estimates like cost per unit sale may be used. Companies may also adjust this cost for inflation, changes in competitive landscape, market conditions, etc.

Sales BudgetPlanning styles:

1) Top down: The top management gives sales and profit targets to various organisational units and unit heads make plans to achieve those objectives

2) Bottom up: Unit heads and their subordinates team up in the setting of the sales and profit objectives and also plans to meet them.

Ideally the budgeting should be more democratically done, as the top management is away from the realities in the field; but at the same time, juniors may tend to understate what they can achieve in the period.

Sales BudgetIn the normal scenario, each division will make a budget and send

it to the next higher authority for approval

The division must also discuss its plans for the forthcoming period for the sake of better evaluation. Every level must lead to more conciseness in detail

If there is a cutback, then the division has to obviously decide where to cut corners.

It will be similar for other departments, where they will present an estimation of their costs.

Top management has to carefully evaluate and allocate budgetary expenditure in the best interests of the company

Sales BudgetWhen there are budgetary deviations, there are two options:

1) Analyse if this is a result of poor performance2) If there were genuine reasons, the budget itself can be revised