selling expenses are those necessary so that the good you sell can reach your client. These expenses include expenses related to the dissemination, distribution and marketing of the product or service that you are going to sell.
For your business to be profitable, the ratio between your income and expenses must be healthy. For this reason, having visibility of the expenses that are generated during the operation of your company is very important. Here you will learn to distinguish, classify and develop a budget to be clear selling expenses that generates your business.
What are the selling expenses?
Expenses necessary to publicize, distribute and complete the sale of your products or services are known as sales expenses. They include what you spend on marketing, logistics, your sales area and all those expenses necessary for what you sell to reach the hands of those who buy it.
They are important for your company because, being a consequence of the sales process, these can be raised or lowered according to the amount of sales you make. In addition, like any expense within a business, it must be monitored in a timely manner to ensure that your company does not have leaks that harm the balance of the operation.
by the research firm CB Insights, showed that 38% of new companies fail because they have liquidity and incoming capital problems, derived from poor planning of income against expenses. This shows the relevance of detecting those expenses that can take a significant bite out of your profitability.
Finally, the selling expenses (the amount you pay to sell what you do), together with the administrative and general expenses (the amount you pay for the management and proper functioning of what you do) make up the operating expenses (the total that it costs your business to do everything it does).
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What are the types of selling expenses?
Like many of your company’s expenses, selling expenses can be classified into four general groups according to their appearance and recurrence characteristics:
- Direct
- indirect
- Fixed
- variables
Let’s see each one of them with examples so that they are clearer and in the end, you will be able to classify what types of sales expenses your company generates, okay?
💲 Direct
To locate direct expenses, think of all those that are closely linked to the sale of your product, that is, those that are activated just when the transaction with your client is made.
Examples of direct selling expenses: what it costs you to package and ship the product to the buyer, the commission that your sellers will receive for each sale made, the amount you paid to move a product from your warehouse to your physical store to deliver it to the customer.
💲 Indirect
They are those expenses that you will have to pay before or after finalizing the transaction with your client and that you see as part of what supports the product to reach the buyer.
Examples of indirect selling expenses: marketing campaigns to promote a new product, the telephone or online contact your sales force makes with customers, the salaries you pay to promoters for selling your products or services at an expo.
💲 Fixed
In this type of expenses All those expenses that you must contemplate enter, regardless of whether a sale is made or not, as they are an intrinsic part of the sales process and do not fluctuate if sales go down or up. You are not saved from these! 😅
Examples of fixed selling expenses: the rental of collection equipment that you are charged each month, the payroll that covers your sales department, the fee for the use of a customer relationship management (CRM) platform.
💲 Variables
When an expense fluctuates if your sales go up or down, we talk about variable expenses. That yes, that they increase does not necessarily mean that your sales rose, since this increase may be due to the sum of accumulated expenses, an unforeseen event during the sale or the rise in the price of an element necessary for the sale.
Examples of variable selling expenses: the commission payment for semi-annual goals achieved by your sales team, the total payments for shipping insurance (because they depend on the number of products you ship), the payment of an online lead generation campaign (each lead you get, raise the amount).
What characteristics do selling expenses have?
The main characteristic of selling expenses is that they are intrinsically related to the sales process.. That is, they appear only during those steps linked to the marketing of your products or services.
As we explained before, depending on what you sell and how your company is organized, Selling expenses can be classified as direct, indirect, fixed or variable.
But, if we consider that for a business dedicated to sales to be profitable, it must sell, then we can consider that Another important characteristic of many of the selling expenses is that they are semi-variable, since most of them depend on how much you sell..
Finally, Another characteristic of this type of expenses is that, although they are closely related to the volume of sales, their increase does not necessarily imply more sales.. An example of this would be spending on a Facebook advertising campaign for which you paid a lot because each lead generated a cost, but since it was not well segmented, these leads are not qualified and do not necessarily translate into sales.
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What is the difference between selling expenses and selling costs?
The difference is that Selling expenses are expenses related to the process of selling a product or service, while selling costs have to do with the amounts that the company must invest to manufacture a product that it will sell for a certain time.
To further clarify this difference, the trick is to understand what ‘expense’ and ‘cost’ mean. In addition to making it easier for you to understand everything better, it will also save you HOURS of discussion with your economist and manager friends. 😉 So, let’s see:
▶ Expense is that type of expense in a business that it is not part of the amount necessary to produce or acquire what you are going to sellbut it is necessary for those elements or activities necessary to market the product.
🔁 Cost is the amount you will invest as part of the production process or buy what you plan to sell. And right here lies the difference, because the cost is an amount that you expect to recover once the transaction is completed, as part of the entire sales process.
So, in other words, the cost of sale talks about how much it will cost you to produce or acquire something to sell it during a specific period, while the sale expense will be the money that you will need to spend to support and make the sale of that product.
Examples of Selling Expenses and Costs of Sale
Do you need an example to better understand the difference between selling expenses and selling costs? Here are two for you:
1) In a store that sells cookies, the monthly sales cost refers to the amount that will be invested in producing all those cookies during a given month (From the raw materials, to the payment for gas and the salary of the cooks). This cost may be accompanied by an estimate of profit, which is the amount expected to be recovered from that investment if those cookies are sold.
In that same example, A monthly selling expense would be what the company spends to create sample packs that it gives away to customers of its brick-and-mortar store.. Although these samples are also made with small cookies manufactured by the company that seek to encourage sales, it is not an expense linked to a direct recovery, since giving a sample does not necessarily translate into a sale.
2) An online store that sells accessories fitness you need to know the selling cost of some dumbbells, this in order to know if your current national supplier has a competitive price against a new supplier that offers the same product, but with direct shipment to the buyer from its warehouse abroad.
A sales expense for this case would be the commission that the owner of the online store will pay to all its training partners who will give a unique code to their customers and friends to buy products in said store. The more times they use the code in each sale, the higher the commission expense.
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What is the selling expense budget?
The sales expense budget is the calculation of expenses generated by the process of selling a product or service. A practical way to create it is to take into account the three key moments of marketing:
- Presale
- during the sale
- after sales
In this example, we apply this method to our previous case of cookies, in order to find out the total selling expenses of a new location in a shopping mall. This will help you better understand how to put together a selling expense budget:
To amortize all those monthly selling expenses, the owner of Choko-Latozas must sell a lot of cookies! 🍪
Calculating the sales expense budget allows you to know exactly how much money you will spend to sell a specific product that will reach your client. But beware, you should not confuse it with a sales budget, which focuses on anticipating how profitable your business will be. Check out this article to learn more.
What are selling and administration expenses?
Administrative expenses are those originated by the organizational structure that manages your companywhile Selling expenses are those that originate exclusively during the sale process..
In the first, you contemplate those expenses linked to covering salaries and managerial, administrative, and organizational payments necessary for your business to operate, and the second are those elements that you pay so that the sale of your product or service can be completed.
Both types of expenses are part of the operating expenses of your company, that is, the amount you pay so that your business can do everything it does. Neither of these two types of expenses are related to the cost of production, which is the investment you make to produce what you sell.
Examples of administration expenses They would be the monthly salary of your human management staff, also the payroll of those who run the company and all the administrative staff.
In summary
Selling expenses are all those expenses required to complete the process of selling your products or services.. Whether it is the salary of a sales agent, a marketing campaign or the disbursement you make to pay for the transportation of your products to your distribution point, these expenses are considered sales.
It is important to monitor sales expenses becauselike any expense of your company, this impact your profitability and the areas where you are spending money so that your product reaches the…
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