Sales Budget – Preparation of Sales Budget

Sales Budget

Making a sales budget is not easy. It is not for commercials that are in direct contact with customers. Neither for those responsible for operations and finances who must prepare the forecast of manufacturing or treasury based on the forecast of sales.

How to make a Sales Budget?

In this article we will explain how you can optimize your sales budget. By following the steps outlined above, you can more accurately predict the results and more accurately adjust production and cash flow to the needs of your business activity.

Data Collection

As the first phase consists of the collection of historical sales data. The more detailed the data, the better. Thus the breakdown can be by customer and by category.

However, quantity is not always associated with quality. There are many causes that may have affected sales in the past and diminish their usefulness in predicting future developments. That is why it is necessary to have qualitative information that allows us to put in context historical sales information.

The source of such qualitative information is the customers. It is important that customers provide information on the level of orders for the next periods. This information should be asked with some tact. As it could be confused with a pressure to buy more. Often, quantities may be distorted by negotiation between the parties.

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In any case, it is always better to have a reference provided directly by the customer. The commercial responsible for the account is usually responsible for collecting this information. Subsequently, the commercial will transmit the information to the person responsible for the forecast.

Consolidation

The next phase is consolidation. The consolidation task involves the following tasks:

• Filter the information received in the previous phase
• Organize the information
• Predictive calculations

Example

Imagine a company that manufactures plastic bottles for three customers. To make the forecast for the manufacturing treasury during the second half of the year. In fact the commercial department asks customers to estimate their orders for the third and fourth quarter.

The management control department is in charge of making the final forecast.

Information Provided by the Clients 

• A: orders for 30,000 currency units
• B: orders for an amount of CU50,000
• C: orders for an amount of CU20,000

Where A,B,C are the Customers.

As, the billing information of customers during the previous year was as follows:

• A: orders for 120,000 monetary units
• B: orders for an amount of CU20,000
• C: Requests for an amount of CU50,000

It is clear that data is missing in order to make a reliable forecast.

First, forecasts for orders should always be expressed in volume , not in monetary amount. This will avoid confusing the effect variations in price increments of product demand. For this case, we will assume that last year the price was 10 monetary units per unit of product. This price will be maintained throughout this year.

Additionally, the manager of the forecast needs to know qualitative information about each of the companies. Therefore, a list of questions to the commercial responsible for each account may suffice.

• Why has customer A had such an important drop in orders?
• Is the increase predicted by customer B reliable?
• Is there any element that could distort customer C’s forecast?

After completing the information with the sales managers, responsible for forecasting decides to apply an adjustment to the forecasts of each client.

• A: 3,000 units x 10 um / ud x 80% = 24,000 units
• B: 5,000 units x 10 um / ud x 30% = 15,000 units
• C: 2,000 units x 10 um / ud x 100% = 20,000 units

Total: 59,000 one

Having the breakdown between units and price, we can be sure that we will not confuse the effects of volume increase and price variation.

The correcting percentage is a qualitative estimate that makes the person responsible for the prediction based on his experience and the information collected. It is necessary to be able to argue this correction. Why do we need to correct data that comes directly from customers? Because often these forecasts are distorted upwards or downwards. In fact, we try to prevent an excess of production that generates obsolete stock or stock breaks due to insufficient production.

Communication

The last phase consists of the communication of the results of the forecast.

First an internal communication will be made. The head of the forecast will meet with the commercials. Then provide the information and share the corrective percentages used.

The utility of communicating these percentages is able to confirm that they are based on firm criteria. Sometimes they must be rectified.

Finally, the forecast will be communicated to the production and finance departments. So they can use it in their manufacturing and cash forecasts.

Predicting sales is always a complicated task. It is important to involve the commercial department in order to make a prediction that includes all relevant information. A correct sales forecast depends on the correct use of company resources. Therefore, is a task that must involve all departments.