Which of the following is accurate in the context of sales and advertising

Every company needs a sales plan. Without a plan, it’s easy to lose track of sales goals, lose momentum, and ultimately, lose money. Sales budgets can help—they make it easier to form concrete sales plans and greatly simplify sales management.

In this article, we’ll cover what a sales budget is, why it’s important, and how to best create one for your business. We’ll also explore a few examples of sales budgets for different tracking periods.

What is a sales budget?

A sales budget is a financial plan that estimates a company’s total revenue in a specific time period. It focuses on two things—the number of products sold and the price at which they are sold—to predict how the company will perform.

A sales budget isn’t the same as sales forecasting, which is the process of estimating future sales revenue. But a solid sales budget may be used to inform a sales forecast. A sales budget is also different from a sales expense budget, which focuses on company expenses over a certain period of time.

What is a sales budget used for?

The sales budget is a planning tool that allows companies to manage resources and profits based on expected sales. It takes into account previous sales patterns and budgets for similar time periods so that each department can have a big-picture idea of where they stand financially. This helps companies be more efficient in reaching their goals and maximizing their profit.

The sales budget is also invaluable when it comes to setting realistic targets. For instance, a sales team may have a sales goal of increasing customer subscriptions by 50 percent, but the sales budget will keep expectations leveled by reflecting an annual increase of 20 percent. This doesn’t mean 50 percent isn’t achievable; it simply means that when budgeting based on revenue, the 50 percent should be a bonus, not an expectation.

Importance of a sales budget

Sales budgets are crucial for managing expenses—no department wants to exceed their allotted budget—as well as setting sales goals. Clear, specific goals drive teams forward as they work together to achieve growth, even if it’s a simple 1-percent increase in sales productivity.

How to make a sales budget

Now that you understand what a sales budget is and why it’s important in your business, let’s explore how to make one.

What’s included in a sales budget?

When diving into sales forecasting or budget preparation, it’s important to ensure your components are prepared and accurate before starting your plan. Depending on the size of your business, you may have a larger or smaller sales budget spreadsheet than others, but all sales budgets should include three key elements:

1. Income statement: contains the net income of the company and gives a general financial overview of how the company is doing.
2. Balance sheet: lists a company’s liabilities, assets, and equity for a given budgeting period.
3. Cash flow statement: reports cash received and cash spent for a certain budgeting period.

Once these three documents are compiled, you’re ready to prepare your sales budget.

A step-by-step guide to creating a sales budget

There are seven basic steps to preparing your sales budget.

1. Choose a time period

First, you must decide on the budgeting period. This time period is usually monthly, quarterly, or annual. Anything shorter or longer is generally either not useful or inaccurate. The period you choose will depend on what your business sells and needs. If your products are consistent year-round, then a monthly budget might be best. If your products change depending on the season, then a quarterly budget might suit you better.

2. Take stock of your inventory and prices

In order to know what your sales might be in the future, you need to know what your prices are and what products you have available—and if that will change. Will you be keeping prices the same? Raising them? Lowering them? Will you be getting new products or discontinuing any? These questions will help you predict your expected sales more accurately.

3. Look at your past sales data

You’ll want to review data from the previous period that matches your current sales budget period. This not only makes your predictions easier but also makes them more realistic. If you’re putting together a sales budget for August and the two previous Augusts show less than a 2-percent increase in sales, then it’s probably not a great idea to predict a 10-percent increase in sales for the upcoming August.

4. Compare your data to the current industry

It’s important to align your goals with the current market and competition. By comparing your sales data to that of other similar companies, you can gain perspective on where your sales goals fit and where they might need adjusting. You can view the sales data of other businesses on the U.S. Bureau of Labor Statistics website.

Comparing data can also be reassuring. You might be panicking because your sales fell in 2020, but the reality may be that there was a drop in sales across your industry. Some years are simply easier or harder on certain sectors or products.

5. Talk to your sales reps and customers

Both your sales reps and customers can provide valuable feedback to inform your sales budget. Your sales reps are close to your customers, so they can tell you more about buyer expectations, disappointments, and wants. For example, sales reps for a soap company will know if there are certain scents the company should invest in due to customer interest.

Of course, the people using your product will also have insights to share. Request customer feedback to learn what your buyers are thinking, feeling, and experiencing. Communicating with your customers also increases trust in your company and is a fantastic social selling tool.

6. Factor in market trends and current events

Sometimes, the market is beyond your control. As the pandemic continues to impact businesses, 2021 and 2022 sales budgets need to take additional factors into consideration. How much might you need to charge for shipping if in-store purchases stay low? If your products are luxuries, might you expect a decrease in sales? Keep in mind how current events can affect even your most loyal customers.

7. Create your budget

Now it’s time to build your budget. We’ll dig into an example of a monthly and an annual sales budget below, but if you’ve done steps one through six, you should be in good shape to create an accurate, clear, objective-focused sales budget.

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