Chapter 11 Sales Budgeting and Control-Sales and Distribution Management

Copyright 2010, S L Gupta
Excel Books
Sales and Distribution Management Text & Cases (2
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Edition) S L Gupta 11-1
Sales Budgeting and Control
Basics of Sales Management
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Chapter
11
Sales Budgeting
and Control
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Introduction
A sales budget is a programme designed for a stipulated time frame that
highlights the selling expenses and anticipated sales, quantitatively and in value
terms. This helps in making an objective estimate of net profit on the selling
operations. In a real sense, it is a statement aimed at comparing the revenue, net
profits, sales volume and the selling expenses relating to a particular product or
the entire business.
There are three types of sales expenses:
Fixed Expenses: These expenses pertain to the compensation of
salespersons, office rent, insurance and interest on fixed assets like vehicles,
office space, office equipment, etc.
Performance-related Expenses: These include commissions, incentives,
bonus and awards, etc.
Activity-related Expenses: These include travel and communication
expenses, etc.
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Sales Budget
Significance of a Sales Budget
The importance of a sales budget cannot be overemphasised. Its
significance can be gauged from the factors given below:
It serves as a scale, or a yardstick, to measure the performance/progress of
the company in terms of the performance of the sales personnel, regions,
products, marketing channels and customers.
It helps identify the areas in which the company needs to strengthen or
improve its performance.
It serves as an indicator to control the expenses associated with the sales
activity and to keep a constant watch on the net profits of the company.
It helps in comparing the actual performance with the budgeted performance
and takes corrective measures if drawbacks appear or to follow the strategy
if the performance is good.
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It helps the planners to frame policies for actual market situations and
provides the platform to establish ways and means to get the business where
they want it to be.
It provides vital statistics to relate and dedicate the resources in an effective
manner so as to realise the forecasted sales and convert these figures into
reality.
It helps keep expenses under control so that by using scarce resources, the
objective of net profits may be achieved.
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Factors Affecting Sales Budget
The sales manager should take into consideration the following factors
while preparing the sales budget:
Past sales figures and trend
Salesmens estimates
Plant capacity
General trade prospects
Orders on hand
Proposed expansion or discontinuance of products
Seasonal fluctuations
Potential market
Availability of material and supply
Financial aspect
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Other factors
The nature and degree of competition within the industry
Cost of distributing goods
Government controls, rules and regulations related to the industry and
Political situation national and international as it may have an
influence upon the market.
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Sales Control
Control is a function of every management to ensure that operations are being
carried out as per the plan to achieve the objectives. Sales control ensures the
achievement of personal selling objectives. Sales coordination is very essential to
ensure proper conduct of sales operations by different functionaries in the field.
Types of Sales Control
Type of Control Prime Responsibility Purpose of Control Approaches
1 Annual plan control Top level managers To examine whether the
planned results are
being achieved
-Sales analysis
Market shares analysis
Marketing expenses to sales ratio
2 Profitability control Sales controller

To examine where the
company is making or
losing money
Customer attitude Tracking
profitability by
Product territory
Market share
Trade channel
Order size
Sales audit
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Steps in Designing a Sales Control System
Objective setting
Designing different control levels
Designing a reporting system and a feedback system
Deciding tools and techniques of control
Variance analysis and reasons thereof
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Sales Audit
Sales audit is a comprehensive, systematic, independent and periodic
examination of a companys environment, objectives, strategies and activities to
determine problem areas and opportunities and recommend a plan of action to
improve the companys sales performance. The job of sales audit is performed by
a sales auditor.
The Aim of the Audit
The Aim of the sales audit in any sales organization is to :
i. Find out the true and accurate position of sales.
ii. To exercise control over future planning and over the results of the company.
iii. To analyse the past performance and learn from mistakes made in the past
iv. To bring alertness to the organization.
v. To award increments, promotions, giving extra rewards in case of
exceptional performances and to punish those whose actions have resulted
in loss to the company.
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Modes of Conducting Sales Audit
By internal staff of the company.
By outside auditors like chartered accountants or consultants experts in
particular type of business activities.
Timely sales audit at a regular interval and follow up of the recommendations as
given by the auditors can result in excellent results for future and help in devising
timely safeguards.
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Auditors Plans
The following questions can be considered by a marketing auditor:
What are the strengths, weaknesses, opportunities or threats to the company
(known as SWOT analysis)?
What are the changes in consumer behaviour?
What are the major changes in market segmentation?
What are the changes in the major competitors strategies?
What are the changes in the competitive environment?
What are the pricing strategies of the competitors?
What are the main channels of distribution?
Have the marketing objectives been achieved or not?
What major advertising media are being used by the competitors?
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Credit Control
Steps in Designing a Credit Control System
1. Identifying credit distributors and wholesalers or consumers on the basis of
past experience.
2. Processing the credit sanction.
3. Circulating and implementing the credit sanction.
4. Aging analysis (see the format given below).
5. Reviewing credit sanctions from time to time.
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The following factors should be taken into consideration in the credit rating
of dealers/distributors:
Organisational set-up of the firm
Market reputation
Trade line of dealers/distributors
Financial position of dealers/distributors
Analysis of financial statement
History of payments.
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Budget Purposes
Budgets are formulated for many reasons, including the major ones of planning,
coordination, and control.
1. Planning: Corporations and their functional units develop objectives for
future periods, and budgets determine how these objectives will be met.
2. Coordination: The budget is a major management tool for coordinating the
activities of all functional areas and subgroup within the entire organization.
3. Control: Allocation of budgeted funds gives management control over their
use. Sales managers estimate their budget needs, are given funds to
operate their units, and then are held responsible for reaching their stated
goats by using their budgets effectively. As the sales program is
implemented and income and expenses are actually generated, managers
assess results against the amount budgeted and determine whether they are
meeting objectives.
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Factors to be considered while preparing sales budget
The sales manager should take into consideration the following factors
while preparing the sales budget.
1. Past sales figures and trend
2. Salesmen's estimates
3. Plant capacity
4. General trade prospects
5. Orders on hand
6. Proposed expansion or discontinuance of products
7. Seasonal fluctuations
8. Potential market
9. Availability of material and supply
10. Financial aspect
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Budget Analysis (Reporting)
Budgeting Analysis cover the following application areas:
1. Sales Analysis
2. Sales Orders
3. Finance Accounts Receivable
4. Finance Accounts Payable
5. Finance General Ledger
6. Inventory
7. Purchasing
8. Manufacturing
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Budgetary Control
Budgetary control has become an essential tool of management for controlling
costs and maximising profits. The technique of budgetary control is, in fact, a
must for every business enterprise. To exert control over the budgets, every
organisation has to set up an effective budgetary control system. The following
factors should be examined at the time of budgetary control reporting:
What changes are most likely in the business environment?
What are the major objectives to be achieved?
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Market Share Analysis
Market performance can be evaluated on the basis of the market share analysis.
If the market share of a company is increasing, it is a sign of progress; if it is
decreasing, the company must take the necessary measures to arrest, and
possibly push back, this trend.
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Ratio Analysis
Ratio analysis is a powerful tool of marketing control. It helps in correctly
identifying the financial strengths and weaknesses of a company. Different ratios
can be calculated for different purposes. For example, profitability ratios help
determine the profitability of a company.
Following ratios are useful for management control:
i. Current ratio ii. Liquidity ratio
iii. Proprietary ratio iv. GP ratio
v. NP ratio vi. Operating profit ratio
vii. Earnings per share viii. Dividend payout ratio
ix. Dividend per share x. Debtors turnover ratio
xi. Average collection period xii. Working capital turnover ratio
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Advantages of ratio analysis:
Ratio analysis helps in planning and forecasting.
It helps in intra-firm comparison.
It simplifies financial statements.
It helps in coordination, control and communication.
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Variance Analysis
Comparison of standards with actual performance is required to understand the
performance of sales. The difference of the actual from the standard is known as
variance. The variance may be favourable or adverse according to
circumstances. Sales variance is used in marketing control. It has many types.
SALES VARIANCE
Sales Value Variance Sales Volume
Variance
Sales Price Variance
Sales Mix Variance Sales Quantity Variance
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Sales Price Variance : Standard Sales - Actual Sales
Sales Volume Variance : Budgeted Sales - Standard Sales
Sales Value Variance : Budgeted Sales - Actual Sales
Sales Mix Variance : Standard Price (Revised Standard Quantity Actual
Quantity)
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Sales Analysis
Sales analysis is the detailed examination of sales volume by territory,
salesperson, customer, product line, etc. It works on the basic principle that the
trends of the total sales volume conceal rather than reveal the market reality. The
following methods are used for sales analysis.
a. Sales Analysis by Territory
b. Sales Analysis by Salesperson
c. Sales Analysis by Product Line
d. Sales Analysis by Customer
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Sales Cost Analysis
Sales cost analysis is a detailed examination of the costs incurred in the
organisation and administration of the sales and marketing functions and its
impact on sales volume. The following are the important sales costs which should
be kept in mind by a sales manager:
Cost of goods per rupee of sales
Profit per rupee of sales
Cost per segment
Cost per territory
Cost per salesperson
Cost per channel member
Average cost per order.

Chapter 11 Sales Budgeting and Control-Sales and Distribution Management

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Chapter 11 Sales Budgeting and Control-Sales and Distribution Management

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Copyright 2010, S L Gupta

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