Sales budgets are projections of the amount of sales that will be generated within given time frames. The figures related to this type of budget are commonly presented in units of the local currency, along with expectations of when and how the revenue will be generated. Many businesses make use of the sales budget to plan out overall operating budgets, since the revenue generated by sales helps to determine what the business can and cannot afford over the course of the upcoming budgetary period.
It is not unusual for a sales budget to cover an entire calendar or company year. Within the scope of the coverage, most budgets will break down the anticipated sales figures in three different ways. One goal inherent in the budget is known as the break even component. This is the amount of sales that must be generated each month or each quarter in order to allow the company to continue functioning at its current level of production.
Along with identifying what constitutes essential sales generation, the sales budget will also often allow for what is known as targeted sales budgeting. This is the amount of sales that the sales force believes can reasonably be generated during the period under consideration. Ideally, this figure exceeds the amount of sales needed to keep the current level of production intact. Sale managers often use this figure to help plan out commission structures that provide incentives to the sales team as well as protect the interests of the company.
A final component in the sales budget is known as the return on sales. This is simply allowing for the cost of supplies, marketing efforts, and other factors that may or may not be fixed during the entire period. Allowing for some increases in production costs over the span of the year makes it easier to ascertain the likely impact on the real value of the sale to the company, and plan accordingly.
Many factors go into preparing a well-crafted sales budget. It is necessary to not only allow for the possibility of changes in the costs of production, but also shifts in how competitors market and produce similar goods. Doing so helps make it easier to identify how the sales team plans on managing upselling efforts among existing customers, while also attracting new business from new customers, and thus thwarting the attempts of the competition to gain a larger market share. Often, this means breaking down the sale budget so that it reflects the costs associated with each sales territory, and the return that must be generated to cover those expenses and earn additional profits for the company.
There is no one right way to prepare a sales budget. The budget for a locally owned business that operates with one store will be quite different from the sales budget needed by a multinational corporation. There are also differences in how a brick and mortar business would prepare a sales budget versus a company that operates exclusively in an online environment. While allowing for the differences, just about every budget will begin with the need to determine what is necessary to maintain current production and market share, what is necessary to move beyond those figures, and how to most effectively position the sales effort to accomplish those goals while remaining competitive in the marketplace.