WHAT IS A SALES BUDGET?

WHAT IS A SALES BUDGET?

In every organization, sales budget is the principal budget. Hence, all other budgets are prepared on the basis of sales budget. The sales budget is prepared both in quantities and sales value to be achieved in a budget period. Every effort must be taken to achieve this figure. The reason is that sales budget is the key budget.

How to prepare a Sales budget?

While preparing the sales budget, a sales manager should consider the following factors.

1. Past Sales Figures and Trends

The sales manager should consider the sales figures of last year and general sales trend. The sales trend is identified with the help of three or more year’s sales figures. The trend may be either upward or downward. The proposed sales budget is prepared by considering the current market condition, last year sales figures and identified sales trend. Moreover, seasonal fluctuations of demand for the product and trade cycle are also considered in the sales budget preparation.

2. Sales-men’s Estimates

Salesmen have close contact with customers. Hence, they can estimate the sales in the days to come. The sales manager should consult with salesmen in this regard. However, it should be seen that sales-men’s estimates should neither be over optimistic nor too conservative.

3. Plant Capacity

The sales budget cannot exceed the plant capacity available. At the same time, the available plant capacity should be properly utilized. If new plant is acquired, the proposed plant capacity can also taken into consideration for preparing sales budget.

4. Availability of Raw Materials

Sometimes, the raw materials are in short supply. If so, the sales budget is prepared on the basis of availability of raw material.

5. General Trade Prospects

The trade cycle is also considered while preparing the sales budget. If the trade has prosperity, the sale is going up and vice versa. The information of trade prospects is collected from the financial papers and magazine like The Economic Times, Marketing Mastermind etc.

6. Orders in Hand

Some products have high demand in the market. If so, the customers may place the order well in advance. If so, the orders are in hand also included in the preparation of sales budget.

7. Seasonal Fluctuations

The sales manager should consider the seasonal fluctuations of the product in the preparation of sales budget. The seasonable fluctuation is not uniform year after year.

8. Financial Aspect

New branches and/or more salesmen are appointed to increase the sales. If so, the sales budget covers the sales of proposed branches and/or new salesmen. It requires more financial outlay. Hence, the sales manager should consider the financial position of the company before preparing the sales budget.

9. Return on Capital Employed

Every organization should earn minimum return out of capital employed. Hence, the sales revenue should cover at least minimum return on capital employed. In this way, sales budget is prepared.

10. Competition

The sales manager should consider the degree of competition prevailing in the market while preparing the sales budget. If so, , a realistic and achievable sales budget can be prepared.

11. Miscellaneous Considerations

Over and above the points considered by the sales manager while preparing the sales budget, the following factors such as advertisements and other sales promotion activities, government policy and intervention, import possibility, cooperation of employees, product profitability etc. are also kept in view.

How to Prepare a Sales Budget

A sales budget is an important first step in structuring an overall budget for your small business. With an accurate projection of future sales, a small business owner makes well-informed decisions, keeps expenses in line and protects his company from failing. Use a sales budget to structure your company in a way that maximizes profit. If you have been in business for a few years, you can usually make an accurate sales budget. If you are just starting a business, you may have to turn to outside sources to generate a reasonable sales budget.

1. Select a period for your sales budget. While it is common to use an annual sales budget, some companies have quarterly or even monthly sales budgets.

2. Collect historical sales data for your company. If you run an existing business, you should be able to consult past sales records. If you are making a sales budget for anything but an annual period, use sales data for the same period as the current budget you are preparing. For example, if you are working on a budget for your upcoming spring quarter, use data from a previous spring quarter to minimize the effect of seasonal factors on your sales.

3. Locate sales and industry information from outside sources if you are a new company. Search for information on companies similar to yours. You can get actual sales data from the annual and quarterly reports of public companies, but that information is typically only available for large companies. The U.S. Bureau of Labor Statistics can provide you with industry growth estimates and other important financial data about your industry. Your local chamber of commerce can provide information on local companies and put you in touch with colleagues in your industry.

4. Count the number of salespeople working for your company and compare it with past sales periods. If the number of salespeople in your company has risen or fallen, increase or decrease your estimated sales figures accordingly. Ask your salespeople for their own personal projections for the upcoming sales period, as their first-hand knowledge and experience can help you make accurate projections.

5. Research current market trends. While past sales provide a good starting point for your budget, past performance does not always predict future results. If market trends are changing, they will most likely affect your company's fortunes as well. For example, if you make plastic cases for CDs and CD sales are falling, you may have to revise your sales estimates downward as well.

6. Speak with your customers. Their intentions to buy your products are solid indicators of future sales. If your customers tend to buy at certain times during the year, factor this typical buying trend into your sales forecast.

7. Create the forecast. Based on a combination of previous sales, the current state of the market, the strength of your sales force and customer intentions, make your best estimate as to sales during the next budget period.

8. Compare actual results with the sales forecast. After the projected sales period concludes, see how close your projection was to your actual sales. Any variance you uncover can help you prepare future budgets more accurately.