What is a sales budget?

A sales budget is a type of financial plan outlined by a company that participates in sales, and it details estimates of how much the company will make from sales within a specific timeframe. The time frames companies use concerning sales normally are either for:

• Monthly sales projections

• Quarterly sales projections

• Annual sales projections

When determining a sales budget a company is likely to consider several different factors, including:

• Previous sales budgets

• Previous sales patterns

• Market research concerning its competitors

• Current economic conditions

• Projected economic conditions

Sales budgets are extremely important tools that assist companies by projecting overall sales performances and how much profit they can expect to gain from a specific product, product line, or service.

Sales budgets also help to focus objectives, for instance, if a company divides its annual sales budget by four, then it will know what it needs to earn in each quarter. Companies can then determine how successful they are in terms of performance on a monthly, quarterly, and annual basis. Here are some other benefits for organizations that use sales budgets:

• Improving cash flow and cash flow management

• Developing strategies to reach sales goals based on a sales budget

• Figuring out how much the company is spending on overhead costs

• Streamlining business processes to be more effective and efficient

There are three key elements to a sales budget, these include:

• Sales forecast

By looking at previous performances relative to its sales budget a company can then create a sales forecast based on these past trends. This figure is the number of products and/or services the company expects to sell within a specific timeframe. Sales forecasts can apply to specific salespeople, sales teams, departments, or the company overall.

• Price per unit

The price per unit is included in a sales budget and this is the figure that is charged for a company's specific product and/or service. When companies expect prices to fluctuate during a sales period, they will include this in the sales budget as well.

• Total revenue

This is the final component of a sales budget. Total revenue is the overall sum of profit the company expects to make when the sales period within the sales budget is completed. Companies can calculate this by multiplying the price per unit by the sales forecast figure.