SALES AND DISTRIBUTION MANAGEMENT

UNIT - III

SALES BUDGET
By Prof. Arun Mishra arunjimishra@gmail.com 9893686820

WHAT IS A SALES BUDGET?

The sales budget is a blueprint for making profitable sales. It includes estimates of sales volume and selling expenses Sales volume budget is derived from the company sales forecast generally slightly lower than the company sales forecast, to avoid excessive risks Selling expenses budget consists of personal selling expenses budget and sales administration expenses budget Sales budget gives a detailed break-down of estimates of sales revenue and selling expenditure

PURPOSE OF SALES BUDGET

Mechanism of Control
Serves as an instrument for controlling sales volume, selling expenses, and net profits. Serves as yardstick against which progress is measured. Comparison of accomplishment with budget measures the quality of performance of individuals, regions, products, marketing channels and customers.

Instrument of Planning
Sales budget planner formulates the sales plan so that both sales volume and net profit objectives are reached. The planner shows how the targeted volume can be achieved, while keeping the selling expenses at a level that permits the attainment of the targeted profits.

BUDGETARY PROCEDURE
Company

budgetary procedure normally starts in the sales department. Once the top management receives and gives tentative approval to the sales budget, other departments prepare budgets outlining their plans. Many firms follow a process for preparation of annual sales and company budgets. It generally includes:

Review past, current, and future situations Communicate information to all managers on budget preparation guidelines, formats, timetable Use build-up approach, starting with first-line sales managers Get approval of sales budget from top management Prepare budgets of other departments

BUDGETARY PROCEDURE
1.

Planning Styles & Budgetary Procedures: There are two basic styles:

Top-Down Bottom-up The preparation of Sales Budget normally starts at the lowest level of sales organisation called profit center. Each management level approves the budgets, incorporates then into its own budget & submits to the next higher level for approval. At each step, details are reduced to make the final company budget relatively simple. The approved budget is then distributed downward.

2.

Actual Budgetary Procedure:

BUDGETARY PROCEDURE
3.

Handling Competition for available funds within the Marketing Division:

Top sales executive must argue effectively for an equitable share of funds from the marketing division.

4.

Selling the management:

Sales

Budget

to

the

top

The top management receives more proposals than it is financially able carry out simultaneously. Consequently, it is necessary to sell the sales budget to the top management. The budget is presented to the top management.

ERRORS IN BUDGETARY ESTIMATES

Operating condition sometimes differ from those assumed at the time of budget preparation. Sales volume, expanse and profit objectives may prove too high or too low, either due to change in demand or change in price levels. Some expanses vary directly with volume, such as, sales force commissions. When the estimates of number of units to be sold differ from the number of units actually sold, significant variations occur. Incorrect estimated unit sales volume may lead to impaired selling expanses.

FLEXIBILITY IN BUDGETING
As some companies may go wrong in forecasting, it is better to adopt alternative budgets. Flexible budgets are created by making use of standard costs (historical/ judgemental) for different revenue forecasts. Whenever flexible budgeting is used, plans must be made on the basis of a wide range of probabilities. With the use of flexible budgeting companies can take full advantage of new market opportunities as they appear.