29 Aug Sales Budget
What is a Sales Budget?
Definition: A sales budget provides an estimate of the volume of goods and services that a company proposes to sell in a future period. It is usually made for the following year. Most sales budgets include monthly and quarterly figures as well. Additionally, the budget provides details in both dollars and units.
What does a sales budget mean?
A company accesses data from various sources when it prepares a sales budget for the next year. Here is how it gathers the information to make the budget.
⇨ Sales in the previous year – most firms try to exceed last year’s sales figures. This can be done by selling more to the same customers or by venturing into new markets. A company could also try to increase its sales by launching new products.
⇨ Estimates provided by regional or branch offices – it is crucial to get feedback from the salespersons who interact with the firm’s customers. They can give a realistic figure for the sales expected in the next year.
⇨ The backlog of orders – the orders that are pending at the end of the year will be converted into sales next year.
Of course, the management also has to take various constraints into account when preparing the sales budget. The company could face a shortage of raw materials or trained manpower. This could lead to lower production and consequently, lower sales.
It’s important to remember that a sales budget is usually the starting point of the budgeting exercise for a firm. Based on its sales budget, the company can prepare its manufacturing budget, its financial budget, and its employee budget.
Example of sales budget
Ludis Sporting Goods, a manufacturer of sports gear, prepares its sales budget for 2019.
The average unit cost for the sports gear that Ludis sells is assumed to be $100.
A sales budget provides details of the amount of money that a firm estimates it will receive from the sales of its goods and services in a particular period.