Setting up a sales budget is the key to growing your business. It’s an essential tool for anyone who wants more customers, more orders, and more profit.
But how do you create a sales budget, and what does one look like? This article will answer that question by first defining the word “budget” and then outlining the process of setting up your own.
We’ll talk about why having a sales budget is essential for any company and why not having one can sink your business.
Finally, we’ll give you some tips on what to include in your sales budget.
What is a Sales Budget?
A sales budget is the sum of how much money you’re willing to spend each month on business expenses.
It includes all of your business expenses – sales taxes, advertising, marketing, etc.
But it also consists of some of your employee salaries, your lease or mortgage payments, and your electricity and water bill.
If you want to buy a new car or laptop for your employees, you’re spending some of your sales budgets.
The ideal sales budget is 50% of your annual sales. It is the amount that you can comfortably cover every month with your existing profits.
You can increase or decrease this amount if it stays close to 50% of sales.
If you spend more than that amount, your sales will drop. You can keep your sales budget in a bank account, a checking account, or a debit card.
Why are sales budgets important?
It’s hard to create a profitable company if you don’t know how to attract customers and convert them into paying customers.
Sales are how you make those customers and convert them into customers.
You can’t create customers unless you’re able to sell to them. That’s why it’s a critical element of any business.
Sales are about talking to and persuading someone to buy something from you. While we’re on the subject, that is a sales job. That’s why having a sales team is so important.
Sales are no longer about “coming on to the platform” and hitting up a few of your friends.
It’s a professional job, and it requires a professional company to sell on the platform.
Budgeting is another aspect of professional selling.
What is the purpose of the Sales budget?
The purpose of a sales budget is to help you decide how much you will spend on sales activities.
It will include advertising, sales promotions, customer service, and salespeople.
Why do you need a budget?
If you want to grow your business, you need to know how much you’re spending. You don’t have an established setup if you have just started up, so a budget will help you buy the things you need as you grow.
Not everyone has access to a large budget to be a helpful tool for smaller businesses.
Difference between sales budget and forecast
The term sales budget is often used interchangeably with the forecast.
However, a sales forecast is not what most people call a sales budget.
A sales forecast is simply an estimate of how much revenue you expect to receive in a given time frame.
On the other hand, a sales budget is used to set aside money to purchase new inventory, pay your salespeople, and fund your marketing campaigns.
A sales forecast is just that: an estimate based on historical patterns. Suppose we set aside time to look back in time.
In that case, we can determine how many sales are needed to be profitable at each company level.
For example, you might find that a manufacturer sells a particular range of products and then adds up how much revenue those products bring in per unit.
The objective of sales budgeting
The goal of a sales budget is to facilitate growth for your company. If you can grow faster and more consistently, then you have the potential to make more money.
And that, of course, is something you should want to do. Whether your goal is to make more money or increase your profit margins, sales budgeting is the easiest way to achieve that goal.
But this doesn’t mean that you need to rush into creating your sales budget right away. You can build a good one from the ground up.
When making a sales budget, there’s no need to start building a sales budget the second you create your company’s business plan.
Instead, use that document as an anchor to which you can hang your sales budget.
Types of sales budget
1. Fixed Budgets
Fixed budgets are the most straightforward kind of budget you can create.
It means you set a certain amount of money aside for each month.
Whenever you want to spend money, you add the money in the budget to the amount you’re putting in your account for that month.
2. Activity-based budgeting
Activities that can lead to the sale of a product or service. For example, scheduling appointments, taking customer calls, tracking customer leads, and finding new business partners.
For example, scheduling appointments, taking customer calls, tracking customer leads, and finding new business partners.
3. Value proposition budgeting
One of the essential principles in sales is to provide value for your customers.
When customers buy from you, they’re buying a product or service that you’ve developed with your unique expertise and resources.
While you’re developing your value proposition, you must ensure that it aligns with the needs of your target audience.
It is why, when creating your sales budget, you’ll want to consider using what’s called value proposition budgeting.
4. Zero-based budgeting
Zero-based budgeting is a strategy that dates back to the golden age of accounting. By creating a New Kind of Profit, Creating Profits Without Spending Money, and Transforming Your Business.
With zero-based budgeting, “the number of sales expected per quarter is the new starting point for every decision, cost, and expense—even to determine salary increases or changes in compensation.
What should I include in a sales budget?
1. Income and expenses
A few things will affect your income and expenses.
First, any costs you incur when delivering products (such as cell phone charges, gasoline, insurance, etc.) affect your income.
Then there’s also the difference between the income you make and the sales taxes collected and remitted to the state (taxes like income, excise, employment, etc.).
Lastly, the investment of money and other assets (loans, etc.) can affect your income and expense amounts.
Sales and revenue A reasonable sales budget should include an analysis of your sales data and profits.
A sales number doesn’t make much sense if you don’t know what profit looks like and how much to expect to make in sales.
Knowing what to expect helps you make plans and allocate your resources.
It’s generally assumed that marketing needs to be included in a business plan.
Still, a reasonable sales budget is more than just marketing. A sales budget should have a set amount of money for all marketing activities—from ad placements to online promotion to social media.
Sales Process A sales process is a set of steps a salesperson takes to acquire a customer.
When setting up your sales budget, you need to consider the steps your salesperson goes through, whether those steps include face-to-face interaction or emailing a prospect.
3. Sales forecasting
The key to making your sales budget work is forecasting sales and predicting growth.
Sales are highly dependent on weather and other seasonal factors.
For example, up to 75 percent of your sales will occur during the spring and summer months.
In addition, many customers often want to buy a new product or service in the winter, when they have more time.
Just as not every customer will want to buy in the winter, not every salesperson will want to sign up in the summer either.
When creating your sales forecast, it’s essential to know what products, services, and trends to target.
4. Cash flow forecasting
One of the biggest mistakes many business owners make is not focusing on their cash flow.
Suppose you don’t ensure that your bank accounts are healthy and adequately forecasting.
In that case, you could find yourself on the losing end of the business.
A simple cash flow spreadsheet. Monthly and quarterly balances—cash buildup month to month.
Cash credit (Cash on hand is added to the balance to show working capital). Future sales contracts (they are paid monthly).
How to prepare a Sales Budget?
1. Decide Budget Period
As we mentioned, you will need to decide your sales budget and when it will kick in.
There are two significant ways you can do this.
You can figure it out based on your projected sales, or you can do it based on your financials, a broader overview of your business, and where the money comes from.
Whatever the case may be, start with the financials. Taxes Starting your budget is probably the easiest thing to do.
It will typically be based on your annual income for larger businesses, just as you determine any other financial plan.
2. Collect Previous Sales Data
Before you can create a sales budget, you must have data to back up your estimates.
Sales data helps you see what has been working and what has not in the past. Some of this data might be limited, like a few weeks or months’ worths of sales.
Still, some are probably easier to collect. For example, when you start a new sales campaign, you’ll likely have some historical information for it to reference.
Alternatively, you can use your current sales team as a starting point and then add additional sales managers in the future.
After you’ve collected this data, you can begin using it to set your budget.
It’s essential to ensure that your information accurately reflects what has been going on with your business.
3. Gatter Industry sales data
A sales budget is a set amount of money used to pay for items sold to customers.
If you’re going to sell something to a customer, chances are you’ll need to purchase the product.
The two most essential items to buy are promotional items (posters, pamphlets, etc.) and products (computers, advertising, websites, etc.).
Before we get to those items, however, let’s define what a “sale” is. A sale is when someone buys something from you.
If your customer buys something from you for free, you don’t call it a sale; you call it a customer.
It is because the customer didn’t give you anything.
4. Explore Market Trends
When planning your sales budget, you should know the marketplace conditions your industry is experiencing.
That way, you can figure out the new markets and channels that will give you a better chance of selling your products.
Before you start planning your budget, look at the industry trends in your industry and the market segments that are most likely to produce sales.
Look at the market in general and think about whether you’ve yet to discover an untapped niche.
You may have hundreds of unmet needs that have yet to be met.
5. Measure Production Capacity
Before you start working on your sales budget, you need to determine your total production capacity.
You can’t put the cart before the horse. You have to be realistic about what you can make and how much you can afford to spend.
But if you don’t know precisely what you’ve got, you can’t allocate any money towards expanding your capabilities.
6. Prepare Sales Budget
A sales budget is not the same thing as a profit and loss statement. Profit and loss statements are used to track a company’s expenses and expenses against the profit and loss.
They are not intended to track sales results and often cannot be appropriately used as such.
A sales budget is designed to predict the number of sales you will make and is not a document that goes into the amount of profit.
7. Comparing Sales Results
Before you can start looking at a sales budget, you need to determine what your company makes.
Do you know how many clients you have?
Do you know how many products or services you sell?
The answer to both questions is “yes.” But for some companies, these two numbers are not the same.
Most people start with the goal of growing their number of clients. When you start a business, you can count on customers to keep coming back. Their business depends on yours.
However, for most companies, the first thing that is noticed is what you make in sales.
People want to know how much you sold, not how many clients you have.
When you can demonstrate that you’re making sales, your company can grow. But it all comes down to numbers.
Why Affect the Sales Budget?
1. Fluctuation of Sales Trend and Capacity
It doesn’t take a rocket scientist to figure out that when a market is saturated and there’s very little competition, sales will be consistent, if not dropping off.
Sooner or later, we all get in a place where we’re experiencing a slump in sales.
How do you know when you’re in a slump?
It’s possible to feel those symptoms yourself without understanding them, which is why it’s so important to understand the difference between your business and the market.
You don’t want to be in a slump because you’re failing to anticipate the level of competition in your market or where your market is headed.
It’s also a good idea to understand that fluctuations in sales will occur at any time and in any way.
If the industry is experiencing a slump right now, you might not be. That’s ok.
2. New Launches Product
The launch of any new product can be an essential part of a sales budget.
It’s a new way to reach new customers, which means it can also be a good source of customers for you.
However, it also requires a new level of patience and persistence. Many new products fail, which means your potential customers are looking for something else, probably not you.
So be sure you have a new product that will appeal to those customers and that you have the patience to wait for them to become convinced to buy.
3. Advertising and Marketing
Setting up a sales budget is the next step after starting your business.
All startups must consider advertising and marketing, as it’s a vital part of growing any business.
There are plenty of opportunities for marketing your business, whether that’s to your current customers or potential ones.
But, there may affect your sales budget due to advertising and marketing.
4. Price changes
It’s essential to ensure that your company price matches the cost of your products, especially if you are selling very expensive or unique items.
The most common reason you will want to price your product is if you are going to sell it online to customers, such as in a shop or over the Internet.
A great way is to set a price per unit (refer to my previous article on price). If you sell an item for $10 but sell it at $15, you will still profit (remember, margins are not zero).
However, if you sell it at $12 but sell it at $15, you are losing money on the sale.
5. Increasing Competition
Without a budget, your company is working with a mind of its own. It’s doing what it wants when it wants.
But, sometimes your sales budget may be affected due to high competition. So, keep in mind competition during budgeting.
6. Due to Government Policies Change
If any change in Government policies, your budget could be affected.
Therefore, it’s essential to make sure that you’re tracking your sales to adjust your sales budget in the event of changes.
Read the Small Business Administration’s policy change for more details, and see if your company is affected.
Planning Your Sales While getting a sales budget up and running may seem like a complicated and involved process, it isn’t as bad as it sounds.
As the above reasons illustrate, a sales budget is vital for any business.
7. Changes Economic Situations and Technology
Up until the 1960s, it was virtually impossible to control your sales budget.
Getting more customers required getting as much business as possible, regardless of the cost to get it.
In the 1980s and 1990s, however, the economy was starting to turn around.
Not only was demand increasing for your products, but you could now create products that didn’t require a massive investment in the initial research.
Building a sales budget isn’t rocket science, but it can seem very daunting at first.
But don’t worry – you’re not the first entrepreneur to struggle with this issue.
We’ve illustrated some key concepts that you’ll need to know to set up your own sales budget in this article.
We’ve also given you the following tips to help you set your sales budget.