Business Blog No. 10 – Strat Planning – Sales Budget Part 1

This week is the first of a 2-part topic focussed on developing a Sales Budget for the next financial year.

This topic can be a bit dry and challenging, but I ask you to stay with me and take the time digest the materials in this week’s newsletter. If you need some help with any of the materials don’t hesitate to call me on (03) 9554-3128.

Existing Businesses – Current Year Sales Forecast

The first step in developing next year’s Sales Budget is to put together a Sales Forecast for the current financial year. A simple spreadsheet is a handy tool for this purpose (see Figure 1 below).

If yours is an existing business, do you know your current year-to-date (YTD) sales volumes by product or service or customer category and the actual total sales dollars YTD for each? Your accounting system should have this information. Put this YTD information in columns in a spreadsheet (refer Figure 1 columns A and B as an example), and compute average selling price by dividing sales dollars by volume.

Next add another 3 columns to your spreadsheet and put in the forecast sales volume, unit price and forecast sales dollars for the remainder of the current financial year (refer Figure 1 column C).

Adding your actual YTD units and YTD dollars plus your remaining period forecast units and dollars gives you a full year sales forecast by category. Compute your average unit price for the full year (refer Figure 1 column D).

Existing Businesses – Next Year Sales Budget

Now you have your current full year Sales Forecast, add some additional column on your spreadsheet for your 2016/17 Sales Budget (volume, price, budget sales $ columns, refer Figure 1 column E). Next make some assumptions about economic growth in your industry (say 2.5% as an example). To keep your existing market share, you will need to grow volumes by at least that amount. Increase your forecast volumes by the assumed growth % to come to a first-cut Sales Budget Volumes by product/service or customer.

The next part of the equation is Price. Make an assumption about inflation in your industry for the next 12months (say 2.5%). If you don’t recover inflation increases, your sales dollars won’t keep up in real terms. Multiply the forecast average prices by inflation to come up with new Budget Sales prices by product/service/customer.

Multiplying your Sales Budget volumes by your Sales Budget unit prices, you get your first-cut 2016/17 Budget Sales dollars by product/service or customer.

blog 10 spreadsheet

New Businesses

If your business is just starting out, your approach by necessity will be different. Have you got any sales data so far, or do you have a feel for any sales you may make before the end of this financial year? Using your market research and Sales and Marketing Strategy, start by estimating how many customers by week by month you think you will get and how many sales orders you expect to fill by quantity for each of these target customers. Organise this information by product or service for each customer. Using your selling price assumptions, you can come up with projected sales dollars by product/service offering or customer, in other words a Sales Budget. It can be quite difficult to estimate these figures with confidence, but the best thing to do is make a start. As the saying goes, “the greatest journeys start with that first step”.

Use this week to develop your ‘first-look’ Sales Budget for the next financial year using a full year Sales Forecast for the current financial year as a starting point. Next week we will expand on this draft Sales Budget to get to a final draft Sales Budget to provide a sound foundation for business success.

Come and visit us at our stall at the Smart Manufacturing 16 Expo on Tuesday May 17.

Smart Manufacturing logo may 2016

Business Blog No. 9 – Sales and Marketing Strategy

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