Relationships among sales target, the sales forecast, and the sales budget vary from company to company. Relationships depend not only upon the procedures used in forecasting, budgeting, and target setting but upon how the planners integrate these three procedures. The greater the integration, the more effective targets are as mechanisms for controlling sales efforts. Planning a company sales effort begins with a sales forecast and evolves naturally into a sales budget, thus setting the stage for the controlling phase, which involves, among other things, determination of sales targets for use as performance standards.
A review of the sales planning process is in order. Basically, a sales forecast is a sales estimate tied to a marketing program and assuming certain environmental factors. When management arrives at the sales estimate, it has, in effect, decided the sales volume objective; then, after determining the expenses of obtaining this sales level, management computes the net profit contribution, brings all these figures together into a sales budget, and sets the objective for net profit. Management now decides how much of the estimated sales volume should come out of each territory, how much expense should be incurred in each, and how much profit contribution each should produce. Here management determines quantitative objectives, such as targets, to assign to individual sales personnel (or to other organizational units of the sales department, or to distributive outlets). However, as is made clear later, setting sales targets is not a matter of simply dividing companywide estimates into smaller parts.
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.
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