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Sales Budget: A Tool To Help Increase Business Efficiency

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You’re probably wondering how your business can benefit from a sales budget. Well, before we jump right in, let’s get something out of the way. Something you should always keep in mind. Note this, “what is not measured cannot be managed”.

A sales budget is where to get started if you aim to maximize how much revenue you can get from a certain product, service, or business.

But is that all that is to it? Of course not. A sales budget will also help you improve how you manage your cash flow, build concise reliable strategies to reach sales, determine overhead costs and streamline your business processes.

If this is what you are looking for, then you are in luck. In this article, you will get a good sense of what a sales budget is and how it can help you achieve all of its benefits and more.

Note that regardless of your company size, every organization including yours, can benefit from planning a sales budget.

Also read: 10 Top-Notch Strategies To Scale Your eCommerce Business

It is not only powerful to help you determine if your business is going to be successful, but good managers like you also use it to determine corrective actions to take to be more efficient. And a sales budget helps them to achieve this by examining how closely it is to reach a set sales target.

Familiar with the subject matter or not, at the end of the day, the aim is to get you started at setting specific achievable sales standards for your business to begin maximizing the utilization of your resources through sales budgeting.

Table of Contents

Now, let’s go over a list of things you should be doing when planning a sales budget for your own business. Shall we?

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1. Get Your Fundamentals

Fundamental to your success in planning a sales budget as three elements, collectively called the financial statements. They include an income statement, balance sheet, and cash flow statement. They are particularly useful because they provide you with data you can extrapolate from.

You also get a bird’s view of how the company is doing in terms of sales. Once you have your statement ready, only then are you set for forecasting.

2. Select a Period

The next step is to decide on a budgeting time frame. In most cases, the norm is monthly, quarterly, or annual. You can’t go any lower than a month, and you can’t go any higher than a year. Anything less will almost certainly be incorrect.

Most of the time, the time frame you choose will be determined by the frequency and amount of sales in your firm. If your items are stable throughout the year, a monthly budget may be the best option. If your items change with the seasons, a quarterly budget might be best for you.

As a result, the former may be better suited to a daily-traffic retail business, whilst the latter is better suited to a road construction enterprise.

3. Take an Inventory of Your Products And Prices

To predict future sales, you must first know what your prices are and what products you have available. Find out whether or not these will change. Will the prices remain the same? Is it possible to raise them? Bringing them down? Will you be obtaining any new products or retiring ones that you already have? These questions will assist you in more properly forecasting your potential sales.

4. Review Your Prior Sales Information.

You should look at statistics from the prior period that corresponds to the current sales budget period. This makes your predictions not only easier but also more reasonable. Here, you will find information in the financial statement very valuable.

5. Compare Your Information With That Of The Current Industry

It’s critical to match your objectives to the present market and competition. You can obtain perspective on where your sales goals fit and where they might need to be adjusted by comparing your sales data to that of other similar organizations.

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Use data from information banks such as Google or the U.S. Bureau of Labor Statistics website, etc to obtain sales statistics from different companies. 

When you compare data, you can get a fair understanding of how well your company is fairing relative to the competition. It can be encouraging to find that a bad outing sometimes could mean some years are just easier or more difficult for specific industries or goods.

6. Contact Your Sales Representatives And Customers

Your sales staff and customers can both provide useful feedback that can help you plan your sales budget. Because your sales agents are close to our consumers, they can provide you with more information about buyer expectations, disappointments, and desires. Sales reps for a soap company, for example, will be aware of which smells the company should invest in based on customer demand. 

Of course, those who use your product will have information to give as well. To learn what your customers are thinking, feeling, and experiencing, ask for feedback. Communicating with clients builds trust in your business and is an excellent social selling strategy.

The market can be unpredictable at times, just as the pandemic taught us. Hence the need to always account for extra factors for unforeseen circumstances.

Also, Keep in mind that even your most devoted customers might be affected by current events.

8. Establish Your Budget

It’s now time to start putting together your budget.  If you’ve followed steps one through six, you should be able to develop an accurate, transparent, and goal-oriented sales budget.

With the listed factors, you can get a solid feel for how many units you can expect to sell. And, in turn, put together an accurate sales budget.

9. Review And Optimize

It’s just as crucial to keep reviewing your sales budget after you’ve finished it. Throughout the year, compare estimated and actual sales totals. In essence here is where you measure and keep things managed for optimization.

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Your sales budget should be flexible. You should optimize the statistics during the budget period if sales start to go considerably higher (or lower) than projected. Especially if you’re trying to sell something. 

Compare the total amount of predicted sales with what was sold once the projected sales period from your budget has ended. Any discrepancies can be used to help you construct more precise budgets in the future.

So once you can put a sales budget together what does this mean for your business. In what way does it make your business better?

It means you will be able to determine your total expected sales revenue during a specified period. This, in simple mathematics you can achieve by multiplying the number of units expected to be sold by the selling price.

It also means you are able to find a good use for your financial statements. The data they provide helps you determine an accurate estimation of what the expected number of units sold will be during the budget period.

Essentially, the sales budget is the first step in budgeting and financial forecasting. Once you can follow the steps outlined in this article, figures from your sales budget will help you to prepare most of your company’s other budgets. You become empowered to proactively tell what you can afford to spend. Be It marketing, production, direct materials, and so on.

At the core of any sales budget is the increased efficiency and productivity of your sales team. The reason is not far-fetched. The visuals and tracks that your sales budget presents can help your sales team stay motivated and goal-oriented And the outcome of this can only mean expansion for your business.

As I gradually bring this article to a close I think it’s important that we also consider what a sales budget is not.

Most of the time a sales forecast gets confused for a sales budget. While both are similar tools, it is imperative to understand that they are different.

Let’s now consider what the differences are between the two

Since the sales budget for your firm is a calculated estimate of how much money you’ll make in a specific period. It is the first to be created. The sales forecast, on the other hand, is determined after the sales budget has been established and breaks down what is expected to be sold during specific periods

Sales forecasts are more commonly organized for shorter periods such as per week or month, which is a more particular difference between the two. A sales budget, on the other hand, will consider long-term, annual figures. A sales forecast also accounts for seasonal sales trends considerably more than an annual or even quarterly sales budget because it is split down into smaller periods.

In simple terms, the sales budget depicts your company’s desired path and goal for a year, but the sales forecast depicts the likelihood of your sales force staying on track and arriving at that destination on time.

Final Thoughts

In conclusion, you will agree that creating a sales budget is highly instrumental to the growth of your business.

The information provided in this article can help guide you to collect the important data you need to get started on creating a sales budget.

You are now able to identify key differences between a sales budget and a sales forecast such that you can tell them apart.

Finally, now you know better than to continue doing business haphazardly to ensure much less energy is wasted on non-sales driving activities. Remember, what’s not measured cannot be managed efficiently.

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