What do you use the sales budget for?
The sales budget helps you assess whether you have reached your sales goals. If you are behind the sales goals defined, it may be an idea to plan how to increase sales. In case you experience unforeseen changes in sales, which may be familiar to many companies in relation to Covid-19, you can up or down-grade your sales budget, dependent on which type of products and services you sell.
A sales budget is based on projections for the future and is for that reason subject to some uncertainty. You may benefit from basing your sales budget on figures and experience from earlier years. The look of the sales budget may vary for different trades and sizes of business. Consequently, there is no specific way to prepare your sales budget, but the actual need for a sales budget is often the same; a wish to decide what it takes to maintain the current production and market share, what is required to improve these figures, and where and how to direct your sales efforts to achieve company goals and still remain competitive in the market.
How to prepare a sales budget?
The sales budget can be made by month, quarter, or year; often it includes an entire calendar or financial year. In this case, the break-even method is commonly used. This goal refers to the amount of sale to be generated on a monthly or quarterly basis for the business to work at its current level regarding production and sales. The sales budget is also important in relation to the total operating budget, as turnover from sales is a crucial factor for what the company can afford in the budget year to come.
There are two different approaches to creating a sales budget; the direct and the indirect method. Your choice may depend on the size of your business or whether it is a service, manufactoring, or trading company. Below you can learn more about where the two methods are most suitable.
The direct method
The direct method is suitable for businesses offering a relatively limited number of services or products. The reason for this is that the direct method is not based on a total assessment of your company’s turnover. Instead, you operate at product level and relate to individual item numbers.
In other words, you make a sales budget based on each individual item no. in your business or each service you provide. Therefore, this method is most suitable if the amount of item numbers is relatively small, as it would otherwise be too time-consuming compared to the outcome.
The indirect method
Does your company offer many different types of products or services? In that case it makes sense to choose the indirect method with many item numbers to relate to.
When using this method to prepare your sales budget, you do not look at each individual product or service. Instead, you focus on the total range or maybe some superior product categories. This method is less time- and resource consuming as you can group your items.
However, you must be aware that this method does not consider any different sales patterns of your products. The solution to this challenge is to group the most comparable products in category groups of their own.
Would you like to learn more?
This short text about the sales budget has reached the end. I hope you learned a few things along the way.
In the InfoSuite blog you can learn more about other interesting topics, such as sales forecasting and when it is time to lose the spreadsheets.