What is Sales Budget?
A budget is a financial plan and tool of control. In a sales budget, resources are allocated to achieve the sales forecast. It states what and how much each salesperson will sell. It also spells out what and how much will be sold to the different classes of customers.
A budget is an estimate of sales, either in units or value and the selling expenses likely to be incurred while selling. Once the budget is accepted in terms of estimated sales, expenses and profit figures, the actual results are measured and compared against the budgeted figures. It is an instrument of planning that shows how to spend money to achieve targeted sales.
A budget also anticipates a particular level of profit. Budgeting is a short-term exercise that attempts to optimize business profits by accommodating customer-service activities and incurring expenses to acquire new business.
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For instance, to increase the sales volume by Rs. 2 lakh, sales management may have to rope in new customers. The expense of appointing new customers is also included in the budget.
It estimates how much sales are to be made and what expenses will be incurred in the same. A proper budget provides a projection into the sales volume, selling expenses, and profits of the company. Personal selling objectives, both quantitative and qualitative, determine the sales-related marketing policies which in turn form personal selling strategies.
The strategies are decided keeping in mind the two key decisions, i.e., kind of sales personnel and size of sales personnel. All this together determines the sales budgets and once the expenses have been estimated the sales force management is undertaken.
Purpose of Sales Budget
These are important Purpose of Sales Budget which is given below:
Planning Tool
In order to achieve goals and objectives, the sales managers plan by outlining essential costs to be incurred. This helps in profit planning and acts as a guide for achieving objectives.
Instrument of Coordination
The budget acts as an instrument of coordination. Selling is one of the functions of marketing and needs support from the elements of the marketing mix. Budgets also help in integrating other functions of like sales, finance, production, and purchase.
A Tool for Control
A comparison between budgeted and actual costs result in the analysis of factors causing variations and enables the sales manager to spot problem areas or plan better for expected outcomes. Variance analysis helps in improving insight of sales manager and enables to define and develop realistic sales budget in the future with minimal variance.
Methods of Sales Budgeting
These are important Methods of Sales Budgeting which is given below:
- Affordable Method
- Percentage of Sales Method
- Competitors Parity Method
- Objective and Task Method
- Zero Base Budgeting.
Affordable Method
What is affordable? Many companies set the promotion budget at what they think the company can afford. This method is used by firms dealing with capital industrial goods. Also, companies having a small size of operation make use of this meth
Percentage of Sales Method
Most companies set their sales budget as a specified percentage of sales (either current or anticipated). Mass selling goods and companies dominated by finance are major users of this method.
Competitors Parity Method
This method is used by large size companies facing tough competition. It presumes knowledge of competitors’ activities and resource allocation.
Objective and Task Method
This method calls upon marketers to develop their budgets by identifying the objectives of the sales function and then ascertaining the selling and related tasks to achieve objectives. Later the cost of each task activity is calculated to arrive at the total budget. Adjustment to task or budgets can be made.
Zero Base Budgeting
A process in which sales budget for each year is initiated from zero base thus justifying all expenditures and discarding all conventions and rules of thumb. Its limitation is that it is a very elaborate and time-consuming process. In practice, companies use a combination of these methods.
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