What is a sales budget?

Written by ezmeralda lee
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A sales budget is a valuable tool that gives a direction to a company with regard to its targeted sales. It helps to improve the profitability of a company. The company makes a financial plan with regard to the amount of goods and services that it plans to sell in a year and the price at which the goods and services are to be sold. This plan is its sales budget.

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Features

The sales budget is the first component of the master operating budget. This is because sales affect all other parts of the master budget. It includes the total sales valued in quantity. It consists of three parts; break even, target and projected sales. The budget also includes sales by product, location, customer density and seasonal sales patterns. It provides a plan for both cash and credit sales. The basis of a sales budget is the sale price per unit of goods to be sold multiplied by the quantity of goods to be sold. A sales budget is planned around the competition, the material available, cost of distribution, government controls and the political climate.

Significance

A sales budget controls the finances allocated for achieving sales targets of a company. It is the standpoint for comparing the actual sales performance and the budgetary sales performance of a company. The budget guides the company with regard to how much money should be allocated to selling distribution and sometimes for advertising and marketing. A sales budget that sets realistic targets will help the company make a profit.

Effects

A good sales budget should serve as a guide to company with regard to its sales target. It should be flexible and resilient to the volatile changes in the market. The budget should not put too many restraints on the sales functions of the company. A sales budget is a financial plan for the sales of goods and services of a company. It is the basis on which all the financial decisions of a company with regard to sales are taken. The budget also controls the general sales prospects of a company. Online and off line marketing, marketing in the media and other advertising expenditures are planned around a sales budget.

Benefits

A sales budget helps a company achieve its sales targets. It helps prevent sales losses and provides a basis for sales evaluation. A sales budget helps to integrate all departments in a company because achieving a sales target is the secret of making profits. It helps each department to assess their performance and correct any mistakes in function. It helps a company distribute goods and services in a cost effective way. It also helps the company to keep its marketing expenditure within affordable limits.

Warning

A sales budget comes with inherent limitations and a good sales budget is made by overcoming these limitations. A sales budget cannot effectively forecast the future trends of events. It may not be easily accepted by all people in the organisation. Preparing a sales budget takes up too much managerial time. Usually sales budgets shy away from expenditure that will give returns in the long run.

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