Sales & Distribution Management

Chapter 7 : Sales Budgets

+Purpose of sales budgets

+Benefits of budgeting

 Principles of budgeting

+Types of budgets

+Methods of budgeting for sales force

+Requirements for successful budgeting

+Developing a sales budget

+Precautions in preparing sales budgets

Chapter Summary

A budget is a plan expressed usually in monetary terms. It is a process of allocating a portion of an organization’s resources for its various activities for a specified period of time. It helps in planning and coordination of the organization’s activities. Sales budgets are developed for the smooth functioning of the sales function. Developing sales budgets serve two purposes - as a mechanism of control and an instrument of planning. There are several benefits an organization derives from budgeting. They are -- improved planning, better communication and coordination, performance evaluation, psychological benefits and avoiding uncontrolled expenditure.

In practice, sales managers prepare three types of budgets - sales budgets, selling expense budget and administrative budget. A sales budget gives a plan showing the expected sales for a specified period in the future. Selling expense budgets details the schedule of expenses that may be incurred by the sales department to achieve planned sales. Administrative budget specifies the budgetary allocations for general administrative expenses that would be incurred by the sales department. The different methods for budgeting include the affordability method, percentage-of-sales method, competitive parity method, objective-and-task method and return-oriented method.

The success or effectiveness of each of these depends on the involvement and support received from the top management and the flexibility built into the budgets. To develop an efficient sales budget a manager has to follow certain steps like review and analysis of the situation, identifying specific market opportunities and problems, sales forecasting, communicating sales goals and objectives, preliminary allocation of resources, preparing the budget and getting approval for it.

A meticulously developed sales budget provides many benefits to an organization. But, like any other management concept, budgeting has its share of limitations. They include inability to project the course of future events, inability to gain acceptance by all people in the organization, consumption of significant amount of managerial time and avoidance of expenditures that will bear fruit only in the long run. Once adequate care is taken to overcome the limitations of budgeting, it will act as a tool to enhance the profitability of the organization.

Next Chapter>>