In the name of Allah the mostbeneficent and merciful.
Sales Budgeting Presentation by: Gohar Majeed Aitzaz Abdul Haseeb Khan Aamir Ayyaz Zia ul Mustafa Syed Muhammad Rizwan
Presentation objectives Definition of sales budgeting Use of sales budgeting by sales management Explain major types of selling expense budgets. Identification of steps of sales budgeting procedure Actual sales budgeting practices
Budget: Financial statement that outlinesa firm’s intended actions and resultingcash flow statements.Sales Budgeting: Estimating future levels of revenue,selling expenses, and profitcontributions of the sales function.
Major budget categories Major budget categories Sales budget Selling expense budget
Budget categories Sales budget: Projection of revenue computed from forecast unit sales and average prices. Selling expense budget: Approved amounts that management will spend to obtain the revenues projected in the sales budget.
Allocating Sales Costs Fixed cost: Cost that don’t vary with output level and are incurred whether or not sales effort is made. Variable cost: Costs that fluctuate directly with level of sales activity Semi variable costs: Costs that vary, but not in direct proportion to sales volume.
Major Selling Cost CategoriesSelling Compensation( salary, commission, bonus, incentives) Travel and entertainment Prospect seminars Discounts and AllowancesPromotion Cooperative advertising allowances Catalogs, brochures, price lists Fairs and exhibits Samples, models, displays Selling aids
Major Selling Cost Categories Fulfillment Packaging and shipping Billing Credit Warranty Returns Servicing Distributor and customer training Technical Counseling
Major Selling Cost Categories Support Recruitment and selection Training and development Sales meetings Customer service Warehousing Administration Office expense Telephone and postage expense
Methods of funding sales force Affordable Method Percentage of sales method Competitive parity method Objective and Task method Other methods• Bidding Method• Return on investment
Methods of funding Affordable Method: Sales budgeting method in which management decides what share of revenues above and beyond the cost of goods sold it is prepared to spend on selling and administrative costs, after achieving a predetermined profit level. Law of diminishing returns: Additional units of input will first produce increasing, then diminishing and finally producing negative returns.
Methods of funding Percentage of sales method: Sales budgeting in which the funding level is found by multiplying sales revenues by a given percentage. Competitive Parity method: Sales budgeting method based on the competitive practices in an industry. Bidding System: Sales budgeting method in which functional areas compete on basis of expected payoffs. Return on Investment: Rate of return is determined by dividing net income by total assets employed to earn the income.
Sales Budgeting Procedure Situation Analysis Identification of problems and opportunities Development of sales forecast Formulation of sales objectives Determination of sales tasks Specification of resource requirements Completion of projections Presentation and review Modification and revision Budget approval
Tips for winning budget warsPut things on hold Do not include new projects and venture in the budget during a slow businesses period Do not try new, untested programs Set priorities and stick with themBe Realistic If cuts have to be made, make them Show management that you are willing to do your part It is better for you to make the cuts then for someone outside the department to mandate them
Tips for winning budget warsBe Flexible If management wants still more cuts, be prepared to bargain Find out what management thinks is most important Be willing to compromiseAvoid Confrontation Try to understand upper management’s point of view Do not disagree with them on every issue Remember to save your best arguments for the really important projects.
Sales Budget ProcedureBudgeting cycle Develop corporate Evaluate sales Integrate, review mission, and marketing and approve all Management Corporate objectives, and plans and make budgets and one strategies tentative resource year resource allocation allocation Call for marketing plans Call for budgets Recommended Request functional Submit budgets Management sales and and Marketing Develop marketing marketing plans developmental objectives and budgets and resource strategies needs Call for action Evaluate Coordinate, review plans programs and and approve alternatives budgets Management Develop action Submit sales Sales programs budgets for approval Perform situation analysis Develop sales budgets
Advantages of budgeting Define goal and objectives Communicating Think about and plans plan for the future Advantages Coordinate Means of allocating activities resources Uncover potential bottlenecks
Flexibility of sales budgeting To increase the flexibility of budgeting process some firms have adopted other budgeting approaches. Rolling budget Flexible budgeting Alternative budgeting
Flexibility of sales budgeting contd. Rolling budget: Budget using periodic updates that eliminate the immediate past period; the budgets for the following period are modified as needed, and another period is added at the end of the cycle.
Flexible budgeting (contd.)Flexible budgeting: A budgeting process in which a base budget geared to average conditions is drawn up and then adjusted in accordance with the actual sales results.
Flexible budgeting (contd.)Alternative budgeting: Budgets based on envisioned best case, most likely, and worst case scenario in order to achieve emergency preparedness.
Benefits of budgetinga) All levels of management plan ahead.b) Definite objectives for evaluating performance.c) Early warning system for potential problems.d) Coordination of activities within the business.e) Management awareness of the entity’s overall operations.f) Motivates personnel throughout organization to meet planned objectives.