Ans. MEANING OF SALES BUDGET: Sales budget is an estimate of future sale units, sale value, selling expenses and total profits from sale operations. It specifies that how much quantity is to be sold, in what territories goods are to be sold, to what type of customers goods are to be sold, what will be estimated/projected amount of sales and selling expenses and how projected sales and projected selling expenses will affect our profits. Sales budget generally has two parts. These are (i) Revenue part, (ii) Expense part. Revenue part is related to estimating sale units and sale value for a certain future period of time. Expense part is related to estimating selling expenses to be incurred to achieve estimated sales.
Sales budget is a basic budget which influences budgets of other departments like production budget, purchase budget, labour budget, overhead budget, cash budget, etc. Budgets of other departments can be finalised only after preparing sales budget. Production budget is decided on the basis of anticipated sales volume; purchase budget is decided on the basis of anticipated production; cash budget is decided on the basis of anticipated sales revenue and anticipated expenses. Similarly other budgets like labour budget, overhead budget, plant budget etc. are also based on sales budget. So, sales budget plays an important role in formulating plans, policies, strategies of other departments also. Sales budget is also important in exercising control over sales force as sales budget sets standards before the sales force. Performance of sales force is evaluated by comparing their actual performance with these standards, weak points are identified and necessary remdial measures are taken to overcome such weaknesses.
According to Cundiff and Still, “Sales budget consists of estimates of the probable dollar sales (in monetary terms) and unit sales and expenses of obtaining them.” From this definition, it is clear that sales budget is related to forecasting sales and estimation of selling expenses.
Sales budget is prepared by sales department with the assistance of other departments under the guidance of top officials.
SALES BUDGET PROCEDURE/SALES BUDGETING PROCESS/STEPS IN FORMULATING SALES BUDGET: Sale budget procedure is generally of two types: (i) bottom up or build up method (ii) top down or break down method. In bottom up approach, sales budgeting process starts at lower level, then these are compiled by top officials. In case of top down method, budget process starts at top level, then it is allocated among different territories and products. Build up method is more commonly used, as salesmen and sales managers are in direct contact with customers, market conditions, regional problems etc. so they are in a better position to estimate sales. Following are the main steps in sales budgeting process:
(1) Preliminary Analysis: Preliminary analysis is done by convening the meeting of sales managers working at different levels and in different regions. In this meeting, past trends of sales are analysed and present sales problems are discussed. Various internal and external factors affecting the future sales viz. level of competition, phase of business cycle, stage of product life cycle, prevailing economic conditions, promotional measures, price policy, government policy, etc. are discussed in this meeting. This discussion helps to analyse and understand the present position of organisation in the market.
(2) Development of Sales Forecast: After analysing the present situation, the sales manager takes up the task of sales forecasting. Sales forecasting is a quantitative estimate of future sales expressed in units and in rupees for a specific time period, under given marketing programme and market environment. In sales forecasting, projections are made about the anticipated level of sales, keeping in view the whole marketing environment. The figures for forecast are expressed in terms of amounts and units. While developing sales forecasts various statistical and non-statistical methods are used for sales forecasting viz. Time Series Analysis, Regression Analysis, Experts Opinion, Sales Force Opinion, etc.
(3) Determination of Sales Activities: For achieving sales targets, various sales activities are determined which are to be performed to achieve sales target. These sales activities can be – total sales call to be made, number of customers to be contacted, number of repeat sales call; if the product could not be sold in the earlier calls, mileage to be travelled to cover various sales territories, contacting the customers to whom products have been sold so as to enquire about their complaints, difficulties with the products and solving such complaints etc.
(4) Determination of Selling Expense Budget: After identifying various sales activities to achieve sales targets, cost of various selling tasks/activities to be performed is estimated. The total of such costs will determine selling expense budget. In selling expense budget, amount of selling expense is fixed for each territory. The objective of determine expense budget is to control wasteful selling expenses. Various financial and non financial incentives are given to sale force to control selling expenses. When selling expenses are fixed, sales force operates with more efficiency to reduce selling expenses. The company can use various methods for determining selling expense viz. percentage of sales method, competitive parity method, objective and task method, affordable method, etc.
(5) Finalisation of Projections at Departmental Level: After fixing sales targets, selling expenses and deciding sales activities, final shape is given to all these projections at departmental level. In final projection, various selling activities are coordinated and reviewed. At this stage, sales budget and selling expense budget are finalised by sales department. These budgets are prepared on month or quarter basis.
(6) Presentation before Top Management: After the sales budget and selling expense budgets are finalised by sales department, these are presented before top management of the organisation for review and approval. Top management examines such budget proposals in the light of available resources, marketing environment, production capacity, proposed changes in marketing mix, etc. If the top management finds the proposed budget satisfactory and in line with the resources of organisation, then it may approve the budget. Otherwise it may refer back this budget to sales department for further review. The top management may give its suggestions to the sales department in case the budget is referred back for review.
(7) Review: If proposed budget is not approved by top management then sales department will revise the proposed sales budget in the light of suggestions made by top management. Sales department will also review the selling expense budget.
(8) Approval: Revised budget proposals are submitted before top management for final approval. Top management will analyse various items of sales budget. It may finalise the sales budget as it is or with some modifications. After the approval of top management, proposed sales budget becomes an authorised document, on the basis of which sales department is authorised to incur selling expenses.
(9) Allocation and Assignment: After the approval of sales budget, sales department finalises sales quota and selling expenses quota for each territory, product and for each sale-personnel. In this step, approved sales budget is allocated among various territories, sales force, and products. This division of sales quota and selling expense quota serves as the standards with which actual performance of sales force will be compared to evaluate their performance.
(10) Follow-up: When the budget is being implemented, it is reviewed at different time intervals to ensure that all activities are moving in line with sales budget. This follow up is made by officials of sales department on the basis of progress report of different territories compiled by Field Sales Supervisors. If it is found that sales force is facing some problems, then necessary assistance is given to the sales force. In some cases, they may be allowed extra selling expenses with the approval of top-management.
What is Sales budget? Discuss the steps involved in preparing sales budget.
