Every sale starts with a successful plan. Often, these plans contain a variety of information about the tactics to be used, the KPIs and metrics to measure, and the overall sales budget. A sales budget is an essential, itemized, and detailed plan estimate the total revenue a company will make in a specific period. Understanding how sales budgeting works can help your business be more efficient.
What is a Sales Budget?
A sales budget is essentially a financial plan, used to estimate the revenue a company can achieve within a specific time period. Using a sales budget formula, companies can analyze the potential results of their sales relationships, and their capacity for profit.
When sales budgeting, companies take two important things into account: the number of products being sold, and the price points of these products. Notably, sales budgeting isn’t the same as “sales forecasting”. With a sales budget, you use accurate reports and data to understand your budget. With sales forecasting, you estimate potential future revenue.
A sales budget is also not the same as a “sales expense budget” which looks at how much the business might spend to acquire and convert customers.
Why a Sales Budget is Important?
Learning how to prepare a sales budget is important for helping businesses to estimate performance, and determine how much revenue they can make from a specific product. A sales budget can be included as part of a “sales rundown” for a product or service. It also assists businesses in making sure they’re getting the most out of their resources.
With effective sales budgeting, business leaders can gain access to a useful planning tool for setting benchmarks and goals. For instance, if a company has an overall annual sales budget of $1000, this can be divided by four to determine quarterly goals for the team.
Using these sales budget driven goals, business leaders can then determine how successful their organization might be in different time periods, by comparing the goals, to the sales achieved. Sales budgeting can also help with:
- Streamlining business processes
- Looking for opportunities to cut costs
- Building actionable sales strategies
- Improving cash flow management
How to Prepare a Sales Budget
There’s no one-size-fits-all sales budget formula which is guaranteed to be suitable for every business. To ensure success and growth, companies need to make sure they’re considering previous sales patterns and budgets for similar time periods, while setting targets for the future.
When preparing a sales budget, business leaders should ensure they:
- Keep their objectives clear: Ensure you understand what you want your professionals to achieve in the future sales period. Do you want to generate more revenue, customers, or products sold?
- Outline key activities: Make sure your sales professionals know what they need to do to achieve your sales budget goals. This could include setting benchmarks and making sure you have a plan in place for the tactics you’re going to use.
- Generate expense estimates: Make sure you know of any potential expenses you may need to handle in order to achieve your budget. For instance, you may need to pay for additional training for the sales team.
- Coordinate communication: Make sure your product, marketing, and sales teams are all aligned around the same sales budget strategy.
What is Included in a Sales Budget?
There are three essential elements often included in a sales budget formula. These include:
- The Sales forecast: Looking at previous data, organizations can create a forecast according to past trends. If your local sales network usually generates $1000 in sales in the month of December, you can assume they’ll do the same this year.
- Price per unit: The sales budget should also include the most recent price for the product or service you’re selling. Usually, it’s best to focus on one specific product or service at a time.
- Total revenue: The total revenue of your company is also important for calculating a sales budget. You can calculate this by multiplying the sales forecast by the price per unit.
How to Prepare a Sales Budget
Figuring out how to prepare a sales budget is something most companies will perfect over time. Although the exact nature of your sales budgeting strategy might vary, it will usually include the following steps:
- Choose a time period: Decide the period to look at with your sales budget. You can examine budgets monthly, quarterly, or annually, depending on your company.
- Gather sales prices: Make sure you have an accurate list of all the latest prices for your products and services. Consider any prices your company may use later too.
- Collect sales data: Collect as much information as you can about previous sales in the time periods you’re going to be looking at. This will give you information for benchmarking.
- Look at industry trends: Staying up to date on current market trends and fluctuations will help you determine whether you may need to adjust your sales budget.
- Communicate with customers: Consider reaching out to customers to get an idea of what they plan to spend within your time period. You can also look at loyal customer spending patterns.
- Create a forecast: Use the information gathered about customer intentions, market trends, and previous sales patterns to calculate your sales budget forecast.
- Compare results: Once your designated time period comes to an end, compare your prediction with your actual results.
Sales budget example
An example of a sales budget may look like this. If you sell books for $10 each from your publishing company, and you sell 1,000 books during your first quarter, you can predict a future sales budget of $10,000. If you sell 1,800 books during the next quarter, you may increase your sales budget to $18,000 for the second part of the year.
