Do you know how much your company will sell in 2019? Do you know the budget distribution of each area? Does the commercial department meet the objectives? If you do not find an answer to these questions, you do not have a sales budget. We give you the keys to use the sales budget as a management tool for the commercial department.
The utility of the sales budget
Every company and every department must work oriented to obtain results following commercial objectives. These must be in harmony with the organization’s mission, vision, and values. The sales department is decisive in generating income and production volumes of the company. Therefore, you must have precise, achievable, and realistic objectives.
The sales budget stands as the main tool for the commercial department’s administration, management, and control. It is a document that offers estimates of sales levels and helps to know the profitability of the company. It acts as a schedule to contemplate financial estimates and calculate the business’s sales potential.
Many companies rely on information and data extracted from the sales budget to make financial decisions. This has a direct influence on the level of production. If it is estimated that sales will increase, production must be proportionally increased to meet the demand. If it is the opposite, production must be adjusted to economize and make the most of resources.
The budget is an indispensable part of the general operating budget of the company, so it must gather clear and precise information for strategic planning. All sales budgets must meet several fundamental characteristics:
- It includes a list of all the products or services marketed by the company. It is the basis on which the company’s financial decisions are based.
- It serves as a guide on the sales objectives for the company.
- The estimated sales must be valued according to the quantity, the number of units, and economic value.
- To be flexible and elastic.
Kyes to make an effective sales budget
Analyze the current situation of the company and count on the opinion of those responsible for each area
They will provide you with detailed information to make the sales forecast since they know the department’s activities well. They will be able to make a more approximate calculation of the investment for each employee and the necessary tools and resources.
Keep what worked and try to learn from the mistakes of the past. It is imperative to know your strengths and weaknesses to find opportunities.
Set clear and realistic goals
Use the sales forecast logically by contrasting the historical information with the situation of the sector and the general economic situation. It is better to compare previous years’ results (approximately 2) by analyzing the variances of quantity or price without taking them as absolute truths.
Determine if your goals are growth, increase in profitability, expansion of product lines, or increase in market share. You must consider the known factors that will intervene during the year, such as expenses and production volume, commercial and advertising and promotion expenses, structure, distribution, investments in new products, or entry into new markets, depending on the planned objectives.
Seasonality and trends are key elements to consider
Since the sales are not linear, the budget cannot be equitably divided into 12 periods. You have to consider promotions, stock liquidations, launch new products, and reflect them in the budget individually. To do this, you must create a calendar and set the different amounts of the budget assigned to each time of the year.
Segment your types of clients and their location
Remember that both customer service and distribution processes generate expenses that must be stipulated in the budget. It is advisable to differentiate the client types and divide the budget allocated to each group.
It is essential to keep part of the budget for the new customer niches that may arise during the budgeted period. The emergence of new market segments, innovation, and the use of opportunities is something you must have when preparing your sales budget.
Set an adjusted but flexible price
Usually, the prices are stipulated concerning the costs of the volume of sales that is wanted to obtain, like an answer to the competition or according to its value for the client. Everything depends on your objectives, past experiences, and the clients to whom it is addressed. It is also vital that you know the competition’s prices as a point of reference.
Consider first what it costs you to produce, promote and have your product and service ready for sale and add an additional% as a profit margin. So, you can know the limit line on which you must set your prices and how many customers you will need for service to “cover expenses,” and that the sale is profitable.
Do not forget to consider the margins for promotions and rebates in specific periods that make the offer of your product or service attractive.
No cuts in operating expenses or innovation
Balance your manufacturing and budget capacity. It is not advisable to skimp on some necessary resources such as:
- Hiring workers or suppliers sacrifices the quality of the product or service
- Sources of raw materials and general supplies
- Availability of capital to finance production
- Availability of alternative distribution channels; redesign of old products, the introduction of new products, and changes in sales territories