Everything you need to know about the sales budget

The sales budget It is the calculation that gives you the profit that your company will generate during a certain period of time. Through the balance between the number of products or services sold, the price at which they will be sold and the data you have about the environment, you can calculate how profitable your business will be.

A very important tool that will allow your company to start off on the right foot is the sales budget. With it, it will be possible to answer the question “how profitable is my business?”, and thus, have the exact amount of income that you can generate. But in addition, you will establish goals and have visibility on the effectiveness of your sales force. You want to know more? Keep reading!

What is the sales budget and what is its purpose?

The sales budget is a tool that allows you to calculate the profitability that you can expect from your business for a product or service that you sell during a specific period of time.. It is one of the financial budgets that allow you to manage your monetary resources optimally.

The purpose of the sales budget is to calculate how much profit you will make when a good you sell goes on the market. The profit calculated on the sales of said product can help you determine the resources that you will use to support those sales, and as an extra, it will be possible to monitor and improve the performance of your commercial team.

As you reach the estimated sales for your budget, you will know if your sales process is optimal or has an opportunity to improve. And of course, the higher the profit you get from those sales, the higher the profitability and general health of your business.

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What is the purpose of making a budget?

The objective of making a budget is to have a detailed report that allows you to have visibility of a financial project and the amount of money it can generate if it is carried out successfully.in addition to giving you detailed information that will allow you to make decisions to improve it.

In the specific case of a sales budget, the objective is to know the possible profits that we will obtain when selling a product or service.improve the management of the resources we use when selling, detect adjustable costs or expenses and refine our strategy in order to improve our sales.

When a company develops a sales budget with as much information as possible, not only will it have a detailed financial tool to calculate profitability, it will also be able to set goals for its sales team that allow them to act with better direction, in addition to achieving the goals set within your .

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What is the difference between sales budget and sales forecast?

The difference between sales budget and sales forecast is in the moment when you make each one; while the sales budget arises at the beginning of the planning of the sale and contemplate a whole period of time, you prepare the sales forecast on the flywith real data of the sales already made, which allow you to calculate a more precise estimate of what you will sell.

Also the objective of both is different. The sales budget is made to keep visible the profitability of the products or services that you will sell, while the forecast details how many of those sales you will complete and in how much time..

Although it is possible to make a sales forecast in the early stages of sales planning (or even as part of the sales budget), the reality is that for the forecast to be more accurate, its calculation needs to be fed with real information from the period to be measured. .

Let’s put it this way: your sales budget can tell you how much you expect to make for a whole year selling a product, while your forecast will tell you, after calculating the first three months’ sales, how likely it is that you’ll actually hit those profits at the end of the year. year.

The sales forecast is a complement to any sales plan and, of course, supports the execution of the sales budget. The more accurate the calculation is to make the forecast, the better the strategic decisions you make around it.

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How is a sales budget prepared?

To prepare a sales budget, it is first important to understand the four key elements that this tool must contain:

• A) Quantity in units expected to be sold of a product.
• B) Price per unit of the product.
• C) Period of time covered by the budget.
• D) Information on the economic environment.

Once you have these elements, it’s time to put together the budget. As usual in financial matters, there are multiple methods to do it, but in essence, they all have the same four basic steps:

• 1) Collection of information.
• 2) Consolidation of information.
• 3) Budget calculation.
• 4) Conversation and strategy.

Let’s start by detailing each key element and then continue with the steps for creating the budget, do you think?

📦 A) Quantity in units that a product is expected to sell.

Basically, you need to know how many units you have of what you want to sell. And remember that this applies both to those who produce to sell and to those who buy to sell; In this second case, you need to know the sales capacity of your suppliers to know exactly how many goods you will have to market.

💲 B) Price per product unit.

This is the price per unit determined by the (what is the monetary value that you should set for that product according to different internal and external factors), but in addition, it is necessary to consider the competition, the behavior of the market, if there is a time period that you should take advantage of or a strategy that requires a fit at that price.

🕔 C) Period of time covered by the budget.

This is the period in which you are going to divide the sales of your product. This depends on the goals you set for yourself, as well as the periods you want to measure. Some products will be measured by month, quarter, or annual performance. It is even possible that the same budget contemplates measuring several periods or being aligned to your fiscal calendar.

💻 D) Information on the economic environment

Here comes all the financial intelligence that helps you have more accurate information for the other three elements. Do you have sales data from the same period, but from the previous year? What about market reports that indicate what the average price of a product like yours is? Do any of your competitors sell their version of one of your products? All of that works! The more complete the environment framework, the more accurate—and useful—the budget will be.

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Now, let’s review each of the steps to make the sales budget. Remember that, although there are several methods in which the number of procedures varies, these are the basic steps that will allow you to generate a budget for your business:

❓ 1. Collection of information

This is the stage that feeds data into the four key elements of the sales budget.. Each company is different and therefore, the data you obtain may vary, but the information that will help you to generate a better report is the following:

• Market study to know the position of your product within the field where you want to compete.
• Historical sales of the product in your business. If the product is new, information about the performance of similar products or its segment helps.
• Production capacity to find out if you as a producer or reseller of a product will be able to have all the units you want to sell.
• Orders and sales by type of customer. Which buyers always buy the same amount from you? Which ones ask for more in strong seasons? Who responds well to wholesale offers?
• social listening or social listening to find out, courtesy of social networks, how sought after or requested your product is. Remember that a couple of tweets do not make a summer; rely on tools such as or to know the real search interest of your potential buyers.
• Marketing support and campaigns in the past. How well did they perform and how did they support your numbers in previous efforts? Perhaps it is worth reducing costs for unit acquisition in order to invest in a campaign that supports the sale?
• Well-defined income and expenses. A strong season is coming, but remember that in addition to the costs to have the product you are going to sell, there are other types of expenses that you must consider. The precision in the numbers will give you a much clearer picture.

📋 2. Consolidation of information

For this stage it is important to divide the information obtained according to the element to be supported.. So, you must have four large groups to accommodate your data: units to sell, price, timing and environment data that support the rest. For example, the same annual sales report can help you nurture all groups.

Once the data is grouped, you must filter the information to know its relevance and its weight for each element. Perhaps on this occasion you want a budget more focused on covering a profit goal per quarter, then you will require all that information to help you anticipate decisions regarding the price and the period of time.

In the same way, if your interest is in measuring your sales capacity in order to know if you are capable of outputting all those transactions generated by your online store, the data you obtain related to the units to be sold and the environment will be more useful to you. tools.

📊 3. Budget calculation

Now yes, With much clearer data, it was time to generate the document. A spreadsheet will help you organize the information and develop any of these three types of budget, each focused on one of the key elements. Let’s look at the examples with cookies (our favorites):

a) Budget for net sales

This is probably the most used type of budget to know profitability. As its name indicates, its objective is to calculate the total income that will be generated by the total sale of the available products. It also works the other way around: your budget can tell you how many units you need to sell to reach a target profit.

For this example, the owner of Choko-Latozas generated a calculation of the net income that he will obtain from the sale of his cookies during the last quarter of the year, and also how many he must sell to reach his goal of 10% additional profit over the year. last year. All this considering that it had a price adjustment for the costs of its raw materials, and of course, applying deductions for commissions to its sellers. 🤝

b) Budget by product

This type of budget is very useful when…