Sales Budgeting and Forecasting

Definition Sales Budget

(a) Revenue goals (b) Expense ceilings.

Sales Budget- Basic Approaches

Top-down approach. Bottom-up approach.

Features & Objectives of Sales Budget

Sample Sales Budget

Factors Influencing Sales Budget

Market size Companys intention to curb selling expenses. Companys financial resources. Market potential. Sales potential. Production efficiency.

Steps in Determining Sales Budget

Methods of Determining Sales Budgets

Percentage of Sales Method. Competitive parity method. Objectives and task method. What you can afford method.

Percentage of Sales Method

Advantages

Simple and easy to calculate. Maintains balance between revenues and selling expenses. Effective for stable marketing environment.
Lacks logic. Percentages are subject to approximation. Not applicable for new products. Suicidal for fluctuating market situations.
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Disadvantages

Competitive Parity Method

Advantages

Comparatively a safe practice. Reflects the collective wisdom of the industry. Prevents marketing warfare.
Less practical as sales objectives and problems of companies are different. No assurance that competitors spending policy is correct. Inability to reach target customers meaningfully.

Disadvantages

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Objectives and Task Method

Advantages

Element of realism. Flexible. Periodic review of budgets possible.

Sales mangers need to posses sufficient knowledge and wisdom. Difficulty in understanding major sales objectives. Ignores past sales, forecasted sales and competitors budgets.
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Disadvantages

What You Can Afford Method.

Capacity to spend decides the budget. Advantages

Simple, safe and flexible.

Disadvantages

Lacks planning process. Arbitrary discretion in deciding budget levels.

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Sales Forecasting

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Objectives of Sales Forecasting

To decide on sales quotas and territories. To determine sales budget. To attain proper control of inventories. To set up performance standards. To identify sales opportunities. To research out sales and market potentials of the firm. To gather idea of the image of the firm.

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Factors Influencing Sales Forecasting

Fluctuations in business environment. Future state of the economy. Political conditions of a nation. Market characteristics. Situational factors.

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Importance of Sales Forecasting

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Approaches of Sales Forecasting

Top-down Approach

Bottom-up Approach

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Methods of Sales Forecasting

Qualitative

Quantitative

Jury of Executive opinions. Delphi techniques. Sales force composite. Survey of buyers intentions.

Moving average method. Exponential smoothing. Regression analysis. Time series analysis. Econometric models.
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