Purposes of the Sales Budget

1. Mechanism of Control

Control is the primary orientation in sales budgeting. The completed bud­get, which is a composite of sales, expense, and profit goals for various sales units, serves as a yardstick against which progress is measured. Comparison of accomplishments with relevant breakdowns of the budget measures the quality of performance of individual sales personnel, sales regions, products, marketing channels, and customers. These evaluations identify specific weak­nesses in operating plans, thus enabling sales management to make revisions to improve performance. Since it is a master standard against which diverse aspects of performance are measured, the sales budget itself serves as an instrument for controlling sales volume, selling expenses, and net profits.

Computerized information processing has enormously increased the effectiveness of control through the sales budget. Management is pro­vided daily with details of actual performance compared with budgeted performance. With current and complete information on sales volume and selling expenses, the sales manager spots variations from the budget and takes corrective action before they get farther out of line.

2. Instrument of Planning

The budgeting process requires complex sequences of planning decisions. The sales forecast shows where it is possible for the business to go, and during the budgeting process planners determine ways and means for the business to get from where it is to where it wants to go. The sales forecast reveals data on sales potentials, and the budget planners calculate the expenses of converting forecasted sales into actual sales.

The sales budget planners formulate the sales plan so that both sales volume and net profit objectives are reached. Showing how to achieve the targeted sales volume is not enough. The planners show how the targeted volume can be reached, while keeping selling expenses at a level that per­mits attainment of the targeted profit. Sales budgeting requires the drafting of alternative sales plans and selection of the one most appropriate for serving the company’s sales volume and net profit objectives.

Source: Richard R. Still, Edward W. Cundliff, Normal A. P Govoni, Sandeep Puri (2017), Sales and Distribution Management: Decisions, Strategies, and Cases, Pearson; Sixth edition.

One thought on “Purposes of the Sales Budget

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