Sales Budget

What is a Sales
Budget?

It includes estimates of sales volume

and selling expenses

Sales volume budget is derived from

the company sales forecast generally
slightly lower than the company sales
forecast, to avoid excessive risks

Selling expenses budget consists of

personal selling expenses budget and
sales administration expenses budget

Sales budget gives a detailed breakdown of estimates of sales revenue and

selling expenditure

What is meant by a Sales Budget?

It is a blueprint for making profitable
sales.
It is a projection of what a sales program
means in terms of
sales volume,
selling expenses and
profit.

Key Decision Points

1. The kind of sales personnel
2. Sales force size

Purposes of the Sales

Budget

Planning
Coordination
Control

Planning Decisions
Sales volume objectives are derived from the
sales forecast and is broken down into
1. The quantities of products that are to be sold.
2. The sales districts and people to sell them.
3. The customers that are to buy them.
4. The quantities that are to be sold during
different time segments in the operating
period.

Sales Budget Process

Many firms follow a process for

preparation of annual sales and company
budgets. It generally includes:
Review
past,
current,
and
future
situations
Communicate information to all managers
on budget preparation guidelines,
formats, timetable
Use build-up approach, starting with firstline sales managers
Get approval of sales budget from top
management
Prepare budgets of other departments

Sales Budget Formats

Pg 525 Cundiff n Still

Methods of Sales Budgeting

Percentage of Sales method
All you can Afford
Following the Competition
Executive Judgment method
Objective and task Method

Budgeting Methods
Features

Percent of Sales
Fixed percent of sales, often
based on past expenditure
patterns.
Comparative Parity
Budget is based largely
upon what competition is
doing.
Objective and Task
Set objectives and then
determine tasks (and costs)
necessary to meet the
objectives.

Limitations

Percent of Sales
The method is very arbitrary.
Budget may be too high when
sales are high and too low when
sales are low.
Comparative Parity
Differences in marketing
strategy may require different
budget levels.
Objective and Task
The major issue in using this
method is deciding the right
objectives so measurement of
results is important.

Budget Determination
OBJECTIVE AND TASK METHOD HAS
A STRONGER SUPPORTING LOGIC
THAH THE OTHER METHODS.
Budget
Determination
Media/
Creative
Scheduling
Strategy

CREATIVE STRATEGY

The creative strategy is guided by the market

target and the positioning strategy.

Product

Distribution

Price

Promotion
Advertising

(How to communicate
intended positioning to
buyers and others
influencing the purchase.)

Provide a unifying concept

that binds together the
various parts of the
advertising campaign.

Creative
Strategy

Before setting the objectives for advertising we

need to check what we need to set the
objectives:
1.The budget for advertising
2.Determine who the target audience is
3.Advertisement content
4.Media to use
5.Advertising frequency
6.Measure the effectiveness of advertising

The decisions can be summarized as

follows:
1.Objectives (why)
2.Target (who)
3.Copy platform (what)
4.Media (where)
5.Creative platform (how)
6.Timing (when)
7.Budget (how much)
8.Schedule
9.Response
10.Evaluation

MEDIA / SCHEDULING
DECISIONS

Television

Radio

Magazines

Online

Website

Outdoor

Factors Influencing Media

Decisions
Access to the
target audience
Favorable
access to cost

Unfavorable access to
cost
Cost of reaching the
target group(s)

Media advertising can achieve the following:

Alter perception/ attitudes
Convey information
Create desires
Establish connections
Direct actions
Provide reassurance
Remind
Give reasons for buying
Demonstrate
Generate enquiries

Role of the Advertising

Agency
Target Audience
Advertising Objectives

Advertising Budget

Creative Strategy

Advertising
Agency

Advertising Media and

Programming
Evaluate the Effectiveness of the
Strategy

ADVERTISING STRATEGY
IMPLEMENTATION AND
EFFECTIVENESS
Decide how to measure effectiveness
before implementing the
strategy.
Assign responsibility for
performance.

tracking

Assessing the quality of advertising is

important.
Exposure to advertising is
not a very
sensitive
measure of effectiveness.

Who

What

How
Where
When

Result

Budget
Schedule

target audience, - what do they already know about the product

or service? What do they know about the competitors?
What kind of people re they?
How do we describe identify them?
Response do we wish to achieve through advertising? Are these
specific communications objectives?
How can we embody our communications objectives in an
appealing form? What is the evidence that we have is that is
acceptable and appropriate and acceptable to our audience?
Which are the most cost effective places to make our
communications?
When are communications going to be made to clients? What is
the reasoning for our scheduling of advertisements/
communications over time
What results do we expect? How are we planning to measure the
results?
Do we intend to measure results and if so do we need to do
anything beforehand?
How much money do the activities need? How much money is
available?
How is expenditure going to be controlled?
Who is to do what and when? How much is to be spent on what,

Rating
Services
Test
Marketing

Controlled
Tests

MEASURING
ADVERTISING
EFFECTIVENESS

Sales and
Expense Analysis

Recall
Tests

SALES PROMOTION
STRATEGY

SALES PROMOTION consists of various

incentives, mostly short term, intended
to stimulate quicker and/or greater
purchase of particular goods/services by
end-user consumers or value chain
organizations.
The strategy process is similar to the
design of advertising strategy.

Sales Promotion Activities

and Targets
Activities include trade shows, specialty
advertising, contests, displays,
coupons, recognition programs, and
free samples.
SALES
PROMOTION
TARGETS

Consumer
Buyers

Salespeople
Business
Buyers

Value Chain

Types of Sales Promotion

Money
Target market

Direct

Indirect

Goods
Direct

Consumer

Trade

Extended
credit Delayed
Dealer loaders invoicing sale
Free gifts Trial
loyalty
or return
offers Trade-in
schemes
coupons
offers
incentives
vouchers
money
equivalent

Bonus
commission

Indirect

Stamps
Free goods
coupons
premium offers vouchers
free gifts trade- money
in offers
equivalent
competitions

coupons
vouchers
Price reduction money
equivalent
competitions

Sales force

Services

Coupon
vouchers
Points system Free gifts
Money
equivalent

Coupons
Vouchers
Points systems
Money
equivalent

Direct

Indirect

Guarantees
group
participation
events special
exhibitions and
displays

co-operative
advertising
stamps coupons
vouchers for
services

Guarantees
group
participation
events Free
services Risk
reduction
schemes

Stamps,
coupons
Vouchers for
services
Competitions

Free services
Group
participation
events

Coupons
Vouchers points
systems for
services Event
admission
Competitions

Sales Quotas

Sales Quota

Using quotas is to control the sales efforts

What are Sales Quotas?

Sales quotas are sales goals or
targets set by a company for its
marketing / sales units for a time period

Marketing / sales units are regions,

branches, territories, salespeople, and
intermediaries

Generally, company sales budget is

broken down to sales quotas for various
marketing units

Objectives of Sales Quotas

To use quotas as performance
standards or performance goals
To control performance
To motivate people by linking
quotas to compensation plans

To
identify
strengths
and
weaknesses of the company

Types of Quotas
Organizations set many types of
sales quotas:
(1) sales volume,
(2) financial,
(3) activity,
(4) combination

Sales volume quotas

For effective control, sales volume

quota should be set for the smallest
marketing units, such as salesperson,
districts / branches, product items /
brands

Sales volume quotas can be stated in (a)

rupees / dollars, (b) units, or (c) points

Rupees / dollars sales volume quotas

are appropriate when salespeople are
required to sell many products

Unit sales volume quotas are suitable when

Salespeople are selling a few products

Prices of the product fluctuate rapidly

Price of each product / service is high

Point sales volume quotas are appropriate
when the company wants salespeople to
sell products that contribute more to
profits

Financial Quotas
Gross-margin / Net-profit quotas

Calculate gross margin by subtracting cost of

goods sold (i.e. cost of manufacturing) from sales
volume. Sales managers are not responsible for cost
of manufacturing
Net profit quotas are generally accepted by sales
mangers as it is calculated by subtracting direct
selling expenses from the gross margin
Expense quotas

In many companies, expense quotas are stated as

a percentage of sales

Expense quotas to be administered with flexibility,

to make salespeople cost conscious, allowing
reasonable expenses

Activity Quotas
These are set when salespeople perform
both selling and non-selling activities

Objective is to direct salespeople to

carry out important activities

For effective implementation, activity

quotas are combined with sales volume
and financial quotas

E.g. Calling on high potential customers,

payment
collection
from
defaulting
customers

Combination Quotas
Used when companies want to
control Salesforce performance on
key
selling
and
non-selling
activities
Focus on a few types of quotas, to
avoid confusing salespeople.

An Example

Type
Quota

of

Quota

Actual

Perce
nt
Quota

Weight
(Importa
nce)

Sales
Volume
(Rs)

5,00,0
00

4,50,0
00

90

Perce
nt
Quota
x
Weigh
270
t

Receivabl
es (days)

45

50

89

178

New
Customer
s (Nos)

04

05

125

125

Total

573

Total point score=573/6=95.5 for a

salesperson
Typically use points as a common measure to
resolve the problem of different measures used by
various types of quotas

Methods for Setting

Sales Quotas
Several methods are used for establishing sales
quotas
In practice, companies use more than one of
the following methods to increase their
confidence in sales quotas

Total market estimates

Territory potential

Past sales experience

Executive judgment

Salespeoples estimates

Compensation plan

Total Market Estimates

Method
The Process followed by established companies
is as under:
1) Estimate next years total market demand,
or industry sales forecast, using sales
forecasting methods
2) Decide the companys estimated market
share for next year
3) Companys next year sales forecast= (1) x
(2)
4) Find each territorys percentage share out of
the total company sales in the previous year
5) Territory sales quota = (3) x (4)

Territory Potential Method

1) Estimate next years industry sales forecast
or market potential, using sales forecasting
methods
2) Estimate multiple factor index (MFI) for
each territory, based on factors that influence
sales of the product. These factors are given
weights corresponding to the degree of sales
opportunity.
3) Industry sales forecast in a territory (or
territory market potential=(1)x(2)
4) Territory sales quota = (3) x estimated
market share of the company in the territory

Past Sales Experience

Method
The process consists of taking past one years
sales (or an average of previous 3 to 5
years
sales),
adding
an
arbitrary
percentage (or a percentage by which the
market is expected to grow), and thus
setting each territory sales quota

The assumption that future sales are

related to past sales may not be always
correct

This method should not be the only

method used

Past sales should be one of the factors

used for deciding sales quotas

Executive Judgment Method

Senior executives use their
judgment
when
the
product,
territories, and the company are new
or very little market information is
available

Executives predict company sales

budgets and also territory sales
quotas

This method should generally be

used along with other methods

Salespeoples Estimate
Method
Some firms ask their salespeople
to set their own quotas

Many salespersons either set very

high or too low sales quotas
For setting proper quotas, many
sales managers use 2 or 3 of above
methods, discuss with salespersons
to get their inputs, and decide sales
quotas

Compensation Plan Method

Some organizations set quotas to fit
with their sales compensation plan

E.G. A company wants to pay a

monthly salary of Rs 5000, and a
commission of 3% on monthly sales
above Rs 1,00,000. The quota of Rs
1,00,000 is set in such a way that
salesperson would find it very difficult to
cross total compensation of Rs 8000 per
month (5000+3000)

Sales quotas should not be based

only on this method, because it would
put the cart before the horse

Insight into Setting &

Administration of Sales
Quotas
Set realistic quotas
Understand problems in setting quotas
Ensure salespeople understand quotas
By allowing salespeople to participate in
the process

By continuous feedback to salespeople

on their performance compared to quotas

Have flexibility in administering quotas

Change quotas in cases of major changes
in market demand or company strategies

Use monthly or quarterly quotas for

incentives
and
annual
quotas
for
performance evaluation

Select a few quotas that have

relationships with marketing environment
and sales situations

Developing quotas:
Factors to Consider
Company and department objectives
Customer mix
Individual salespersons capability
Diversity of product line and mix
desirable
Importance of service and follow up
Environmental factors

Ten Most Important Elements in

Assigning Quotas
1.
2.
3.
4.
5.
6.
7.
8.
9.
10.

Business concentration in the territory

Geographic Size of territory
Business growth in the territory
Sales manager's commitment to help
Complexity of product
Salesperson's past performance
Extent of the product line
Sales force compensation
Relationship of products in the product line
Clerical support given salespeople