What Is a Sales Budget?

Sales Budget is a conservative estimate of the estimated size of sales, and is mainly used for current purchase, production, and cash flow decisions. Obviously, the sales budget must consider both the sales forecast and the risk of being too high. Generally, the sales budget should be slightly lower than the enterprise forecast.

Sales budget

Sales budget is generally production and operation of the enterprise

1. From top to bottom: The supervisors, based on the company's strategic goals, understand the available costs after forecasting, and choose one or more methods to determine the budget level based on the goals and activities, for example, and assign them to each department.

2. Bottom-up: Based on the budget of the previous year, combined with the sales quota of the previous year, the salesperson calculates the budget by customary methods and submits it to the sales manager.

On the one hand, the sales budget provides the basis for other budgets; on the other hand, the sales budget itself can play a role of restricting and controlling the sales activities of the enterprise. The preparation of the sales budget is conducive to the realization of the company's goals and sales tasks; the sales budget is set for the realization of the company's strategic goals, and the company's strategic goals will be adjusted according to changes in the environment. Therefore, the budget is not always a success. We should change with the market. The budget is not a constraint, but a weapon to meet challenges.

Financial planning is a continuous process, and it plays an important role in the communication and communication of all parties involved in the plan. The budget is a planning tool and a control benchmark for actual work. The budget has the following functions:

The budget clarifies and centralizes sales opportunities, sales goals, and sales quotas;

The budget plans a reasonable cost input to achieve the target;

The budget helps to promote coordination and cooperation among functional departments;

The budget helps to balance sales, cost of sales and planned results;

The budget provides a tool for assessing results;

Budgets maximize revenue by focusing on profitable products, market areas, customers, and potential customers.

The owner of the profit target should participate in the formulation of the budget. If a regional manager is responsible for a profit target, he should join the budgeting process. But this does not mean that the regional manager has the final decision on the budget. The decision is usually made by the sales manager, sales committee, or vice president of marketing. However, if lower sales managers participate

Sales budgets generally include the following steps:

Identify the target

Generally, a company's sales and profit goals are determined by top management. The top management is the company owner. In order to attract investment and loans, companies must maintain adequate return on investment. Otherwise, the company's growth opportunities and survival will be seriously threatened. The company's marketing director and sales manager's responsibility is to create sales that meet the company's highest goals, but to do so must consider costs.

Sales Forecast

Sales forecast includes three parts: regional sales forecast, product sales forecast and sales staff sales forecast. Once the company's sales and profit targets have been determined, forecasters must determine whether this target can be achieved in the company's target market. If the overall sales target is inconsistent with the forecast, the company's sales and profit targets need to be readjusted or the company's marketing system needs to be changed

Determine the scope

In order to achieve the established sales goals, it is necessary to identify potential customers and their needs, design products, produce products and price products, communicate with customers through various methods, recruit and train sales staff, etc.

When determining the sales budget level, the sales manager should determine which method to use based on the company's history, product characteristics, marketing mix, and market development. Various companies use a variety of budgeting methods. Here are some common methods. Sales managers can choose according to the actual situation.

Maximum cost method

This method is to subtract the expenses of other departments from the total cost of the company, and the rest is used as the sales budget. The disadvantage of this method is that the cost deviation is too large, and the sales budget is different in different planning years, which is not conducive to the steady development of the sales manager.

Sales percentage method

When using this method to determine the sales budget, the most common practice is to use the expenses and sales percentage of the previous year, combined with the forecasted sales volume of the budget year, to determine the sales budget. Another approach is to use a weighted average of the sales percentage of expenses in recent years, and use the result as the sales budget for the budget year. This method often overlooks the company's long-term goals, is not conducive to developing new markets, and is more suitable for companies with mature sales markets. At the same time, this method is not conducive to attracting new sales talents, because in the long run, attracting sales personnel with potential for development is essential to the company's long-term development, but this method prompts sales managers to focus on short-term goals , And neglect the cultivation of people with long-term significance to the company.

Equal competition law

The equal competition law is based on the selling expenses of major competitors in the industry. The sales managers who agree to this method think that the sales results depend on the competitive strength. In this method, they must have a good understanding of the industry and competitors. To achieve this, a large amount of information about the industry and competitors must be obtained in time, but usually Under the circumstances, the information obtained reflects the market and competition conditions of previous years. In this way, the distribution of sales budgets sometimes fails to achieve the goal of equal competition.

Marginal income method

Here the marginal revenue refers to the benefit obtained for each additional salesperson. As the sales potential is limited, as the number of sales staff increases, its revenue will become less and less, and the cost of each sales staff will be approximately the same. Therefore, there is a point, and another sales staff, its revenue And the cost is close, and then increase the sales staff, the cost is greater than the revenue. The marginal income method requires that the salesperson's marginal income is greater than zero. The marginal revenue method also has a big disadvantage. It is difficult to determine the marginal revenue of the sales staff under the circumstances of changes in sales levels, competition conditions, and other market factors.

Zero-based budgeting

An activity starts from scratch during a budget period. The sales manager proposes the expenses necessary for the sales activities, and conducts input-output analysis on this activity, and preferentially selects those activities that contribute to the organization's goals. This analysis is repeated until all activities are sorted by contribution size, and then the costs are allocated according to this sequence. In this way, sometimes small contributions may not be paid. In addition, the use of this method requires repeated demonstrations to determine the required budget.

Task objective method

The task objective method is a very useful method. It can effectively assign tasks to achieve goals. The following example illustrates this method.

If the company plans to achieve sales of 140 million in sales expenses of 5 million. Among them, if the contribution level of the sales level to the total task is 64%, then the sales income used for the sales staff's efforts is: 140000000 × 64% = 89600000, then, expenses / sales = 5.6%

Assume that the advertising cost is 2000000, and the contribution level of advertising to the total task is 25.6%. Since advertising achieves sales revenue:

140000000 × 25.6% = 35840000

Advertising Cost / Sales = 5.6%

In this case, the contribution of the two activities to the task is the same.

Otherwise, for example, if the advertising revenue is low, the company may consider reducing advertising costs and increasing personnel sales expenses.

This method requires a lot of data, so the management workload is large, but because it is intuitive and easy to understand, many companies use this method.

Input-output method

This method is an improvement on the objective task method. The task objective method is a comparison of expenses and sales in a certain period of time. However, sometimes after the cost is input, its effect is not displayed in the current period, and it cannot truly reflect the cost-to-sales ratio. The input-output method does not emphasize timeliness, but emphasizes the actual relationship between input and output. The shortcomings of the task objective method.