Sales and Distribution Management – Budget

Sales budget is a financial plan, which shows how the resources should be allocated to achieve forecasted sales. The main purpose of sales budget is to plan for maximum utilization of resources and forecast sales.

The information required to prepare a sales budget comes from many sources. One of the best sources is the salesperson who deals with the products on a daily basis. The company can also gather information from the production department regarding the date of manufacture or expiry.

It is very important to forecast the accurate sales because the budget of other departments is based on the sales budget. For example, the production is manufactured as per the sales forecast, but if the sales forecast is not accurate, either the production will be less or more than desired.

Objective of Sales Budgeting

The objective of sales budgeting is to plan for and control expenditure of resources (money, material, facilities and people) necessary to achieve the desired sales objective. It aims at leveraging and maximizing profits.

The purpose of sales budget is to achieve the objectives of the sales department. It also acts as a planning tool. It helps a firm to set standards and strive to achieve them. It is also an instrument of coordination between different departments in an organization like sales, finance, production and advertising.

Sales budgeting is also a tool or control, which helps by comparison with the actual results. If the actual of sale is more than that of budget, we can say it is a favorable condition.

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.

Communicating Overall Objectives

It is important for the top management to present their goals and objectives to the marketing department and argue effectively for an equitable share of funds. The chief sales executive of the firm should take the inputs from all supervisors and managers in preparing the sales budgets and encourage them to come with different ideas so that after the preparation of the Budget, they could take responsibility and show involvement in achieving the targets and implementing them.

While preparing the sales budget, we need to set a preliminary plan so that we can allocate the resources and the efforts needed to sell the products, increase the customer base and territories. Any revisions in the Budget can be identified in the initial sales budget so that the sales manager could provide a realistic budget with maximum efficiency. Deviations should also be identified in each stage of development of sales budget.

As the budget is prepared by taking inputs from all levels of the hierarchy, the entire team would cooperate to achieve it. In case of failure, the sales manager should have control points in order to get the budget on track. He could also include some motivational factors like rewards, public commendations and recognition in the budget, which will motivate the employees to have a positive attitude, resulting in achievement of the budget goals.

Selling the Sales Budget to Top Management

There should be uniformity among the Budgets provided by different divisions. Top management of Sales and Marketing should propose the Budget that anticipates the future challenges and is competitive, along with the proposal submitted by the Heads of other divisions

Each and every division usually demands for additional funds and so there could be deviation from sales budget. These deviations should be addressed by the sales managers and they should justify each deviation in their budgets, as these would affect the profit percentage. In other words, there should be scope for deviations as well in sales budget.

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