Understanding Sales budget
In every organization, sales budget is the principal budget. Hence, all other budgets are prepared on the basis of sales budget. The sales budget is prepared both in quantities and sales value to be achieved in a budget period. Every effort must be taken to achieve this figure. The reason is that sales budget is the key budget. The sales manager is fully responsible for preparing and execution of sales budget.
How to prepare a Sales budget?
While preparing the sales budget, a sales manager should consider the following factors.
1. Past Sales Figures and Trends
The sales manager should consider the sales figures of last year and general sales trend. The sales trend is identified with the help of three or more year’s sales figures. The trend may be either upward or downward. The proposed sales budget is prepared by considering the current market condition, last year sales figures and identified sales trend. Moreover, seasonal fluctuations of demand for the product and trade cycle are also considered in the sales budget preparation.
2. Sales-men’s Estimates
Salesmen have close contact with customers. Hence, they can estimate the sales in the days to come. The sales manager should consult with salesmen in this regard. However, it should be seen that sales-men’s estimates should neither be over optimistic nor too conservative.
3. Plant Capacity
The sales budget cannot exceed the plant capacity available. At the same time, the available plant capacity should be properly utilized. If new plant is acquired, the proposed plant capacity can also taken into consideration for preparing sales budget.
4. Availability of Raw Materials
Sometimes, the raw materials are in short supply. If so, the sales budget is prepared on the basis of availability of raw material.
5. General Trade Prospects
The trade cycle is also considered while preparing the sales budget. If the trade has prosperity, the sale is going up and vice versa. The information of trade prospects is collected from the financial papers and magazine like The Economic Times, Marketing Mastermind etc.
6. Orders in Hand
Some products have high demand in the market. If so, the customers may place the order well in advance. If so, the orders are in hand also included in the preparation of sales budget.
7. Seasonal Fluctuations
The sales manager should consider the seasonal fluctuations of the product in the preparation of sales budget. The seasonable fluctuation is not uniform year after year.
8. Financial Aspect
New branches and/or more salesmen are appointed to increase the sales. If so, the sales budget covers the sales of proposed branches and/or new salesmen. It requires more financial outlay. Hence, the sales manager should consider the financial position of the company before preparing the sales budget.
9. Return on Capital Employed
Every organization should earn minimum return out of capital employed. Hence, the sales revenue should cover at least minimum return on capital employed. In this way, sales budget is prepared.
The sales manager should consider the degree of competition prevailing in the market while preparing the sales budget. If so, a realistic and achievable sales budget can be prepared.
11. Miscellaneous Considerations
Over and above the points considered by the sales manager while preparing the sales budget, the following factors such as advertisements and other sales promotion activities, government policy and intervention, import possibility, cooperation of employees, product profitability etc. are also kept in view.
In this way, the sales manager prepares a sales budget. Moreover, the sales budget covers selling and distribution costs.
- Understanding Sales budget
- How to prepare a Sales budget?