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

Sales Department Budget Production Budget Administrative Budgets

Cash Budget Profit Budget

Revenue Expenditures Expenditure Revenues

 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
Factors to Consider When Forecasting Sales

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 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
 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
 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
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