Budgeting

SALES BUDGET

The “SALES BUDGET” is

the expected expenditure

required to achieve

projected sales revenues.

SALES BUDGET PLANNING

A sales Budget is a financial sales plan outlining

how to allocate resources and selling efforts to

achieve the sales forecast. Sales forecasts and

sales budgets are interdependent planning tools

that require close coordination with other marketing

activities. Sales budgets are used in Planning,

coordinating and controlling selling activities.

THE SALES BUDGET

Sales Forecast

Sales Budget

Administrative BudgetsProduction BudgetSales Department Budget

Profit Budget

Expenditure Revenues

Cash Budget

Revenue Expenditures

Role of Sales Forecast in Budgeting:

• Sales and marketing Planning• Production Scheduling• Cash Flow Projections• Financial Planning• Capital Investment• Procurement• Inventory management• Human resource planning• Budgeting

Forecasting Approaches and Techniques:

Managers can develop forecasts with

The break down approach

The build-up approach.

A Brake down Sales Forecast Model:

Types of Forecasts There are two major types of forecasting

• Macro forecasting is concerned with forecasting

markets in total. This is about determining the existing

level of Market Demand and considering what will

happen to market demand in the future.

• Micro forecasting is concerned with detailed unit

sales forecasts. This is about determining a product’s

market share in a particular industry and considering

what will happen to that market share in the future.

Types of Forecasts

• Short-term Forecasts

• Medium Term Forecasts

• Long term Forecasts

PURPOSES OF SHORT-TERM FORECASTING

• Appropriate production scheduling

• Reducing cost of purchasing R/M

• Determining appropriate price policy

• Setting sales targets and establishing controls

and incentives

• Evolving a suitable promotional program

• Forecasting short-term financial requirements

PURPOSES OF LONG-TERM FORECASTING

• Planning of a new unit

or expansion of an

existing unit

• Planning of long-term

financial requirements

• Planning of man-power

requirements

Competitors’

actions

Past patterns

of sales

Estimates made

By sales forceGen

eral

econ

omic

conditi

ons

Factors to Consider When Forecasting Sales

Changes in the

firm’s pricesChanges in

product mix

Market

research

studies

Advertisin

g

and sales

promotion plans

Forecasting:Non Qualitative Techniques

 

Judgment Methods:

 • Jury of Executives Opinion• Sales Force Composite

 

Counting Methods

 • Survey of Customers Buying intention• Test Marketing

Quantitative Techniques:

•  

Time Series Methods • Moving Averages• Exponential Smoothing• Trend Analysis Using ARIMA

Causal or association methods• Correlation-regression• Econometric models• Input-output models

The Planning

Sales Managers must translate department

goals and objectives into actionable tasks. Each

task is expressed in financial terms. The budget

provides a guide for action towards achieving

the organizations objectives.

The Coordination

Sales budgets must be closely integrated with

budgets for other marketing functions. Personal

selling is only one element in the promotional mix,

and promotion is only one element in the

marketing mix. We cannot develop distribution

plans, until we know the amount of products that

must be distributed. This number depends on the

sales forecast, which is part of the budget.

The Controlling

This is to evaluate actual results against sales budget expectations. Difference between them is budget variances.

Favorable variances reflect a positive budget outcome, such as lower actual costs than were anticipated to produce a forecasted amount of sales.

Unfavourable variance result from actual costs that are higher than anticipated costs and require corrective action.

Benefits of Budgets

• Ensure a systematic approach to allocation resources

• Develop the sales manager’s knowledge of profitable resources utilization

• Create awareness of the necessity of coordinating selling efforts with other divisions of the company

• Establish standards for measuring the performance of the sales organization

• Obtain input from all areas of the company in the profit planning process

Steps in Sales Budget Procedure

Step 1: Review and Analyze the Situation

Beginning with the last budget period’s variances, where,

when, and how much were the deviations from planned

performance, and who was responsible? Review of past

budget performance helps the sales manager avoid

variances in the coming period. Changes in the current

budget period, such as introduction of new products,

marketing mix adjustments, or developments in the

uncontrollable marketing environment, must be

anticipated and worked in to the sales budget..

Step 2: Communicate Sales Goals and Objectives:

All Management levels must be fully informed about

sales goals and objectives, including their relative

priorities, to ensure everyone is developing their

budgets using the same assumptions. Encourage

participation of all supervisors and managers in the

budget process so that, having been a part of its

development, they will accept responsibility for the

budget and enthusiastically implement it.

Step 3: Identify Specific Market Opportunities and problems

Sales managers and salespeople should use

budget resources to pursue specific market

opportunities. Budgets also should be

allocated to dealing with problems in a timely

manner.

Step 4: Develop a preliminary Allocation of resources:

Initially, assign resources to particular activities,

customers, products, and territories. Later you can

make revision in the initial sales budget. But make

all budgets as realistic as possible at each

development stage to maximize their favourable

impact on the organization.

When you accomplish budget goals through a

cooperative team effort, you create a feeling of

organizational confidence.

Step 5: Prepare a Budget Presentation:

All organizational divisions clamor for an increased

allocation of funds. Unless sales managers can

justify each line item in their budgets on the basis

of its profit contribution, the item will be ripe for

higher management to cut. Succinct, well-

reasoned written and oral budget presentations

are worth scenarios that are easy to develop with

spreadsheet software.

Step 6: Implement the Budget and Provide Periodic Feedback:

Although salespeople can be more budget conscious

and provide early warning of budget overruns, the sales

manager must ensure that sales revenue and cost ratio

remain within reasonable budget limits.

Sales managers might consider a monthly or quarterly

sales budget and control chart to monitor budget

variances and make timely corrective actions. They can

post this on the company website or automatically

distribute it via the company intranet.

THANK YOU