In the previous edition, we identified the four minimum management functions as planning, organising, leading and controlling. We posited that planning is key and the place to start. As in other industries, planning is essential for pharmaceutical managers; and In fact, this is the season of planning for sales and marketing leaders.
Planning is the function that determines in advance what should be done. Planning is formally defined as the act of determining the organisation’s goals and the means of achieving them. A plan is a blueprint for action that specifies:
What is to be done – in numbers preferably, and SMART resources and resource allocations actions necessary for attaining goals schedules.
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. Typically, organisations state this on a monthly, quarterly or yearly basis.
Sales budgets are important tools to help businesses estimate their overall performance and how much revenue they may make from a certain product. It helps companies forecast sales and maximise the utilisation of their resources. A sales budget also serves as a planning tool for organisations to use in setting specific standards for achievements.
The figure below is the overview of budget and budgeting.
The first thing you need to be aware of is that the sales budget drives many parts of the organisation: production/importation schedule, overheads, cash-flow, expenditures, including Cap Ex, profitability, etc. It is thus a serious business!
Sales budgeting therefore involves estimating future levels of revenue from sales, selling expenses, and profit contributions of the sales function. From the foregoing, there are three dimensions of a sales budget:
Sales budget – projection of revenue computed from forecast unit sales and average prices.
Selling expenses budget – the amount that the department may spend to obtain the revenues projected in the sales budget.
Profit budget – merged sales budget and the selling expense budget to determine gross profit. This, I have found from experience, is usually ignored by most sales managers. Yet, how will the company survive and grow if it is ignored by chief revenue officer?
Sales forecasting is an estimate of a company’s sale for a specified future period. Sales forecasting provides the starting point for assumptions used in various planning activities. It is also used for short-term financial control systems. The financial budget is dependent upon the sales forecast for the projected revenue figures. There are five levels of concern in sales forecasting: market potential, sales potential, actual sales forecasts, sales quotas, sales budgets. Let’s break them further down:
Market potential – it is the highest possible expected industry sales of a good or service in. a specified market segment, for a given time period. For instance, the market potential for the sales of computer in Lagos state might be two units annually. This is based on buyers’ ability to buy and willingness to buy.
Sales potential – refers to an individual firm’s market share of the market potential, where market share is defined as the percentage of market controlled by a particular company or product. It is the maximum sales a firm can hope to obtain.
Sales forecasts – the sales estimate the company actually expects to obtain, based on the market conditions, company resources, and the firm’s marketing plan. The sales forecast is less than the sales potential, since it is based on realistic set of circumstances.
Sales quota/target – is a sales goal assigned to a sales person, region or a team. They are usually derived from the sales forecasts. Sales goals and objectives sought by management.
Sales budget – a management plan for the expenditures to accomplish sales goals. Derived from sales target, but like a more realistic target. Most sales managers are assessed based on budget, while lower-level sales managers are assessed based on target. The difference is usually between 10 per cent and 20 per cent
Sales budgeting process
Below is a summary of the process to develop a useful sales budget:
Situational analysis – sales managers have to look at the magnitude of past differences between budgeted and actual figures and the reasons for these differences.
Identification of problems and opportunities – The actual potential threat and challenges have to be assessed and addressed to determine the probabilities of occurrence and potential impact.
Development of sales forecast – The manager is equipped to forecast sales, using one of the various methods. Projections are made about the anticipated levels of sales by territory, product or type of account. It is expressed both in units and dollars.
Formulation of sales objectives – once the forecast has been developed, the sales force has to be told what sales target to strive for and what objectives to pursue.
Determination of sales tasks – the sales manager and the entire sales force have to carry a broad array of sales activities, ranging from recruitment to evaluation, and from prospecting to after sales service.
Specification of resource requirement – that is, the resources that will be required to implement the specified activities and achieve the objectives.
Completion of projections – here, all the inputs and requests from the various units of the sales function are assembled and tied into a comprehensive package.
Presentation and review – presentation and defending of the sales budget proposal before the management.
Modification and revision – sales managers have to engage in a series of compromise sessions. Here, the sales targets and budgets might be adjusted by the higher management, reflecting both the needs of the company and the true potential of the marketplace.
Budget approval – final levels are eventually approved and authorised for both the sales and the selling expense budgets. Here onwards, budgets are reviewed periodically, by looking at the ongoing market conditions and other external forces.
Finally, you must know that the sales budget and the sales target are not exactly the same, though sometimes used interchangeably. Needless to say that there is a very direct relationship between them and that the sales target is necessarily higher than the sales budget
Tunde Oyeniran, a sales/marketing strategist, selling/sales management trainer and personal sales coach is the lead consultant, Ekini White Tulip Consulting Limited, Lagos. We deliver training, recruitment and field force management solutions. Feedback Channels: 080-2960-6103 (SMS/WhatsApp) /firstname.lastname@example.org or check out https://fb.me/EkiniWhiteTulipConsulting