The sales budget is an essential component to keeping the company profitable and seizing opportunities in the future.
The sales budget (and the process for creating it) is a guide and helps steer the company and its sales team through the rest of the month, quarter and year. The more accurate the sales budget, the more effectively the business can be managed.
We distinguish between the sales budget and the sales forecast. To get those clear, a brief explanation: A sales budget defines the total expected sales revenue over a given period of time. This is achieved by multiplying the number of units sold by the selling price.
Several other factors, such as previous sales data and current market trends, are an important part of the budgeting process. Allows you to accurately estimate the expected number of units sold during the budget period.
In many cases, the sales budget is the first step in budgeting and financial forecasting for the rest of the organization. After all, all the activities your company undertakes can be paid for by customers willing to pay money for your product or service. The sales budget’s revenue figures will help with most of your company’s other budgets, such as marketing, production, direct materials or master budgets. Note that the focus of a sales budget is to show how much money comes in during the budget period.
Set concrete goals
A sales budget is invaluable when it comes to both setting sales goals and increasing the efficiency and productivity of your sales team. Empower your sales team to create specific monthly or weekly goals. This gives your salespeople an easily digestible and motivating number to strive for, meet or exceed. Research shows that salespeople who are given clear and specific goals by their managers, based on a good sales budget, are more motivated to meet and exceed their goals.
Tracking and visualizing concrete goals has a positive effect on sales productivity. Salespeople who can visualize progress toward sales goals through data visualization improve their sales numbers faster than others. Much less energy is wasted on non-sales related activities.
Sales budget versus forecast: what’s the difference?
A sales budget and a sales forecast are two tools that are very similar. So much so that they are often confused as being the same thing. But it is important to understand that they are in fact different and what exactly the differences between them are.
The sales budget is a quantified expectation of the sales that will be achieved during a given period. One that summarizes the total expected sales of all services or products sold. First, the sales budget is put together. Alternatively, the sales forecast is determined after the sales budget is set and breaks down exactly what is expected to be sold during specific periods.
A more specific difference between the two is that sales forecasts are more often structured for shorter periods of time, such as by week or month, while a sales budget looks at the long term. Because it is broken down into shorter periods, a sales forecast takes into account seasonal sales trends much more than in an annual or even quarterly sales budget.
Simply put, the sales budget shows the desired direction and goal over the course of a year, while the sales forecast shows whether the sales team stays on track and reaches that destination on time.
Example: Client Factory writes most quotes between October and January, while we write most orders in the months of March through June and in September. We divide our 100% sales budget between the months. For example, we forecast that in vacation months we realize “only” 5% of our budget, whereas in October we want to acquire at least 15%.