Sales Budget

A sales budget consists of estimates of unit and rupee sales during

operating period as well as selling expenses; so as to estimate
the profit target.

Once the budget is set, it can be broken down by region, product

groups and/or account types

Also, sales budget talks about the optimum profitability in a given

period; since firms typically look for profit maximisation in the
long term; while it seeks sales maximisation in the current
period.
Sales Budget
Purposes of sales budget:

1) It serves as a mechanism of control, as the company can

measure actual performance against benchmarks. According
to the degree of non conformance, revisions can be made in a
timely manner
2) Planning can be better done through sales budgets; where
planners try to maintain the balance between sales budget
and sales expenses; and how they may be optimised to meet
business objectives
Sales Budget
Sales budget: figures in ‘000 units

North South East West Total

Region

Product

A 80 25 32 40 177

B 90 45 12 57 204

C 30 70 60 34 194
Sales Budget
Sales department budget is the cost running the marketing function in the
budgetary period. It is normally split into 3 components:

1) Selling expenses budget: Costs attributable to the selling process: Sales

personnel salaries and commission, sales training and sales expenses

2) Advertising Expenses: Expenses attributable to above the line and below

the line promotions:

a) Percentage of last year’s sales

b) Competitive parity in line with a larger player
c) Affordable method
d) Objective and task method
e) Long term ROI of advertising
Sales Budget
3) Administrative expenses: Accounts staff, market research sales
administration, etc.
Sales Budget
Estimating selling expenses: In the long run, the goal is profit
maximisation; but in the short run, one may have to incur loss
in pitching for new accounts, doing extensive follow up,
providing incentives for business development; mean that sales
optimisation becomes the short term goal

The management may like to plan well in advance for the

accounting period immediately succeeding the current one.

After the sales target is made, activities are defined to achieve the
same; after which costs are estimated. For instance: the target
requires sales people to travel 1,00,000 km a year, and the
allowance per km. is Rs.8, the budgetary allocation would be
Rs.8,00,000…
Sales Budget
Also management can measure change in standard costs over time

If standard costing is not possible, estimates like cost per unit sale
may be used. Companies may also adjust this cost for inflation,
changes in competitive landscape, market conditions, etc.
Sales Budget
Planning styles:

1) Top down: The top management gives sales and profit targets
to various organisational units and unit heads make plans to
achieve those objectives
2) Bottom up: Unit heads and their subordinates team up in the
setting of the sales and profit objectives and also plans to
meet them.

Ideally the budgeting should be more democratically done, as the

top management is away from the realities in the field; but at
the same time, juniors may tend to understate what they can
achieve in the period.
Sales Budget
In the normal scenario, each division will make a budget and send it to the next
higher authority for approval

The division must also discuss its plans for the forthcoming period for the sake of
better evaluation. Every level must lead to more conciseness in detail

If there is a cutback, then the division has to obviously decide where to cut corners.

It will be similar for other departments, where they will present an estimation of
their costs.

Top management has to carefully evaluate and allocate budgetary expenditure in

the best interests of the company
Sales Budget
When there are budgetary deviations, there are two options:

1) Analyse if this is a result of poor performance

2) If there were genuine reasons, the budget itself can be
revised