UNIT-5 SALES BUDGET

SALES BUDGET
A sales budget is simply a tool, a financial plan, that depict how resources
should best be allocated to achieve forecast sales. In other words, sales
budget is a blueprint for making profitable sales. It details who is going to
sell ‘how much’ of ‘what’ during the operating period, and to which customers
or class of trade and the likely selling expenses. It is a projection of what
a given sales programme means in terms of sales volume, selling expenses,
and net profits. The purpose of sales budgeting is to plan for and control
the expenditure of resources (money, material, people and facilities) necessary
to achieve the desired sales objectives.
The sales forecast is the source for the sales volume portion of the sales
budget. The sales volume objective derived from the sales forecast is broken
down into the quantities of products that are to be sold, the sales personnel
or sales districts that are to sell them, the customers or classes of trade that
are to buy them, and the quantities that are to be sold during different time
segments in the operating period. After these breakdowns are made, the
selling expenses that will be incurred in implementing the sales programme
are estimated. Sales forecast and sales budget are therefore, intimately
related as much as if the sales budget is inadequate, the sales forecast will
not be achieved, or if the sales forecast is increased the sales budget must
be increased accordingly. Sales budget by relating sales obtained and resources
deployed also acts as a means for evaluating-sales planning and sales effort.
It aims at attaining maximum profits by directing the emphasis on most
profitable segments, customers and products.

(A) PURPOSE OF THE SALES BUDGET

A sales budget generally serves three important purposes.
(i) Instrument of Planning : The budgeting process requires complex
sequences of planning decisions. In order to achieve goals and objectives
of the sales department, the managers must outline essential tasks to
1Je performed and compute the estimated costs required for their
performance. The planners show how the targeted volume can be
reached, while keeping selling expenses at a level that permits attainment
of the targeted profit. Sales budgeting, hence, helps in profit planning
and provides a guideline for action towards achieving the organisational
objectives. The alternative sales plan are drafted so that selection of
the most appropriate may serve the company’s sales volume and net
profit objectives.
(ii) A tool of coordination : Sales department is a sub-system of marketing
division and selling is one of the most important functions of marketing.
To be effective, it needs support from other elements of the marketing
mix. The, process of developing realistic sales budget draws upon
backward and forward linkages of selling with marketing and in turn
brings about necessary integration within the various selling and
marketing functions, and coordination between sales, finance, production
and purchase function. The sales budget enables sales executives tocoordinate expenses
with sales and with the budgets of the other
departments.
(iii) Mechanism of Control : Control is the prime orientation in sales
budgeting. The budget, which is a composite of sales, expense, and
profit goals for various sales units, serves as a yardstick against which
progress is measured. Comparison of accomplishments with relevant
breakdowns of the budget measures the quality of performance of
individual sales personnel, sales regions, products, marketing channels,
and customers. These evaluations identify specific weaknesses in
operating plans, enabling safes management to make revisions to,
improve performance. The sales budget itself, since it is a master
standard against which diverse aspects of performance are measured,
then serves as an instrument for controlling sales volume, selling expenses and net
profits.

SALES MAN EXPENSES CONTROL

Introduction
The success of planningdepends greatly on the control of the sales force. This control
activity has gained much significance in the modern competitive world. In fact,
planning and controlling are two sides of a coin and are crucial for sales
management.

M.C. Niles defines,

control is the maintaining of a balance in activities directed towards a goal or set of

goals.

Therefore, control consists of the steps taken to ensure that the performance of the
salesman conforms to the plans.
Control of Salesmen – Meaning, Need, Methods

What is Control of Salesmen?

Control of salesmen is the process of establishing the standards of performance for the
salesmen, measuring their performance, interpreting it and taking corrective actions,
wherever necessary, so as to improve their performance.

In other words, Control of salesmen is the act of directing, guiding and checking the salesmen
so as to ensure that every activity of the salesmen occurs in accordance with what is
envisaged in the sales plan.

Need for Control of Salesmen

Control of salesmen is very essential for a sales organization to achieve maximum results.
However scientific the selection and the training of the salesmenmay be, supervision and
control of the salesmen are absolutely necessary to secure the most economical and
efficient performance from them.

The need for effective control of the salesmen is all the more greater, especially when there are
a large number of salesmen, working in different places, far away from the sales
manager. The need for effective control of the salesmen is necessary for the following
reasons:

1. To make disciplined and responsible salesmen

By nature, some salesmen are devoted, and therefore require little control. But
there are salesmen who are indifferent and not devoted to duty. They may
not work properly unless there is an effective control; So, control of
salesmen becomes necessary, to make them disciplined and responsible
and to ensure good performance from them.

2. To coordinate their efforts and activities

For the success of sales campaign, the efforts of the salesmen must be
coordinated with other sales efforts, such as advertising, personal
selling, etc.

3. To maintain regular contacts

Control of the salesmen is also necessary to ensure that they are in contact with
the distribution channelmembers, consumers and the public at large.
Advantages of Control of Salesmen
1. It helps to increase the efficiency of the sales force and contributes to increased sales.

2. It contributes to the organization by reducing its selling expenses.

3. It contributes to the elimination of superfluous sales operations.

Methods of Control over Salesmen

Control over the salesmen may be exercised in many ways. The various methods of control
over the salesmen are explained below:

1. Personal Contact and inspection

Personal contact, inspection or personal control is the oldest method of control. It is also one of
the most important and effective methods of controlling the salesmen. Under this method, the
work of the salesmen is checked by the sales manager himself, in the case of smaller
organizations.

However, in the case of larger organizations, personal control over the salesmen is exercised by
regional, divisional, district or branch managers. The regional, divisional, district or branch
managers check and control the salesmen working under them in their own areas. Besides,
there may also be field supervisors or inspectors to check the salesmen’s work and to control
the salesmen through personal contact.

This method is, no doubt, an effective method of control. But it is very expensive. Further, as
the organization grows in size, and if more salesmen are employed in scattered areas, it
becomes very difficult to exercise effective control over the salesmen through this method.
However, the difficulty can be overcome by appointing more field supervisors and by
allocating a small area for each field supervisor.

2. Control through Correspondence

Control over the salesmen can be exercised through correspondence. This is one of the most
commonly used methods of control.

Under this method, letters are written by the sales manager to the salesmen periodically and
information about their performance is also obtained from them. On the basis of the
information received, instructions and suggestions are given to them periodically through
correspondence for the improvement of their performance.

This method will be quite effective only when it is used as a supplement to the personal control
or personal contact method.

3. Establishing Control through Reports and Returns

Control over the salesmen may also be exercised through report and returns from the salesmen.
Under this method, salesmen are required to send reports to the sales manager periodically say,
daily, weekly or monthly, depending upon the requirements. The reports in writing and returns
should contain information regarding:

1. The number of calls made (with relevant details of each call)

2. The total volume and value of sales effected.

3. The number of new customers contacted and sales made.

4. The number of old customers lost and the reasons for the same.

5. The sales expenses incurred.

6. Collection of outstanding amount made from the customers.

7. Customers’ needs and problems.

8. Credit standing of customers

9. Complaints from the customers.

The reports should also contain information regarding:

10. Competition in the market.

11. Changing market conditions.

12. Effectiveness of the advertising.

13. Involvement of wholesalers, retailers in promotion.

The reports are analyzed and the salesmen’s performance is evaluated. Based on the analysis
and interpretation of the salesmen’s performance, necessary instructions are given to the
salesmen for improving their performance in future.

For example, call report indicates the calls made on customers, sales obtained, future promises
made by customers, their credit standing, etc. Similarly, an expense account may point out
details of expenses made by the salesman during a particular period.

By summing up the various reports of the salesman, a record is prepared by the sales
organization about the actual performance. The carefully prepared record gives a clear-cut
picture of every salesman’s work and activities. On the basis of reports and records, the
manager can compare the performance with the targets.

4. Fixing Sales Territories and Sales Quotas

Fixation of sales territories and sales quotas is one of the effective methods of controlling the
salesmen.

Methods of Sales Budgeting

There are a variety of methods which can be used to prepare a sales budget.
The following are some of the popular methods to prepare a sales budget −

Affordable Budgeting

This is a method generally used by organizations dealing in industrial goods. Also, firms,
which do not give importance to budgeting or firms which are having small size of
operation, make use of this judgmental method.

Rule of Thumb
Such as a given percentage of sales. Companies involved in mass selling of goods and
companies dominated by the finance function are the major users of this method.

Competitive Method
A few companies, the products of which face tough competition and many challenges in
selling and which need effective marketing strategy to maintain profits, make use of this
method. Using this method needs knowledge of how our competitor is working with regards
to resource allocation.
Companies make use of a combination of the above methods. Depending upon the past
experiences, budgeting approaches are refined time to time. The status of the sales &
marketing helps the organization to figure out the extent of sophistication needed in
approaching sales budgeting.

Preparation of Sales Budget

Preparation of sales budget is one of the most important processes of the sales. Generally,
companies prepare the sales budget based on the principle of bottom up planning. Preparation
of a budget for revenue and sales will depend on the sales organizational structure; each
departmental head is asked to forecast their sales volume and expenses for the coming period.
For Example, − in a leading automobile company, the budget would be prepared district wise
and all the Budgets from each district would be submitted to the Regional office. Clubbing of
all the District budgets is done at the Regional or Zonal level or Division wise. A division
Budget is prepared and these Divisional wise budgets would vary product wise or market
wise. So the Division wise budgets are finally submitted to the Manager, Sales as either
product oriented or market group oriented.
Division wise budgets across all divisions would be submitted to the Central sales department
and they would scan and finalize the company’s Sales Budget. Now the marketing budget is
combined with the budgets of the sales and marketing staff departments, which will give a
clear picture of total sales expenses, other marketing related expenses and approximate sales
revenue generated for the company. Some of the common items in each sales budget include
Employee Salaries, Administrative Expenses, Marketing Expenses and many more.
Direct selling expenses include boarding and lodging for salesperson, food and travel, and
along with these −

 Commission or incentive based sales

 Employee benefits like medical insurance, gratuity and retirement contribution
 Office expenses like internet charges, mailing, telephone, office supplies
 Miscellaneous costs

Advertising and promotional materials like −

 Selling aids
 Contest awards
 Product samples catalogues
 Price lists
 Other miscellaneous materials

Reviewing of past sales budget helps in better planning of future sales budget by informing
about the pros and cons of the past budgets. This leads to better budget for future and can
minimize the differences between the actual and the budgeted.