Sales Budget Preparation

Sales Budget is a forecast of total sales expressed and incorporated in quantities and/or money. An accurate sales budget is the key to the entire budgeting in some way. If the sales budget is sloppily done then the rest of the budgeting process is largely a waste of time.

Sales Budget

A sales budget may be prepared by expressing turnover under any one or combination of the following:

  • Product or product group;
  • Territories, areas and countries;
  • Types of customers, e.g., National, Government, export, home, wholesale or retail;
  • Salesmen, agents or representatives, and
  • Period, such as quarter’s months, weeks, etc.

A sales budget may be prepared with the help of any one or more of the following method:

  1. Analysis of past sales with-adjustment for current conditions. Analysis of past sales for a number of years, say 5 to 10 years, viz, long-term trend, seasonal trend, cyclical and sundry other factor. The long-term trend represents the movement of the fluctuations of a business over many years. The seasonal trend may affect many types of business and hence this factor must be taken into account when studying figure or consecutive months over a number of years. The cyclical trend represents the fluctuations in the business activity due to the effect of the trade cycle. In order to study-the cyclical land it is desirable to disregard the effects of the long term and seasonal trends. Sundry factors include, such as a strike in the industry or a serious fire or flood. From such analysis it will be possible to suggest future trends. In analyzing such sales, considerable help can be obtained from statistical efforts produced by the trade units and commercial intelligence units, government obligations, etc.
  2. Field estimates by own sales staff. The salesman in each are should have, an intimate knowledge of the factors likely to affect his sales inthe next few months of years. He can probably make a guess about the unsold stock in the shops of his customers. He is then in a position to make an estimate of future sales. When such estimates are available for a number of years, the actual sales for the year can be compared with the estimated sales and a correction factor calculated to allow for each salesman’s tendency to over-estimate.
  3. Analysis of the potential market for the firm’s product. Market research people may report on the state of the market, population in area, fashion, trends, the type of products design required by customers, purchasing power of people, activities of competitors and the prices the consumers are likely to pay.
  4. Studying the impact o factors affecting sales. Any change in the company policy or-methods should always be considered. For example, introduction of special discounts, special salesmen, a new design of the product, new or additional advertising campaigns, improved deliveries; after-sale services should have some market effect on a sales budget. While preparing such forecasts, the sales manger must consider the opinion of divisional managers did other sales staff, the budget officer and the accountant. It will be observed that the preparation of a sales budget involves many factors and calls for a high degree of knowledge of conditions, and of ability to deduce from the known facts and various estimates the probable course of sales over the budget period. If sales were the principal budget factor, then the sales budget is prepared first. If production is the key factor, the production budget should be built up first and the sales budget must be drawn up within the limits imposed by the production budget.

Sales Budget generally forms the fundamental basis on which all other budgets are built. The budget is based on projected sales to be achieved in a budget period. The Sales Manager is directly responsible for the preparation and execution of this budget. He usually takes into consideration the various organisational and environmental factors while preparing the sales budget