Creating a sales budget is an area of business that many companies rely on for many other components of their operation. The sales budget is a document that attempt to forecast how much will be sold over a specific period of time. This is a very important document for a number of reasons.
Key to Budgeting
One of the reasons that sales budgets are so important is because all of the other business budgets are based on this one document. Without the sales budget, you cannot forecast anything else that will go on your business. You do not know how much you should spend on advertising, how much you should spend on production or any other component of your business. While you know your fixed expenses like rent and utilities, the rest of the expenses will largely depend on how much you sell.
Another reason that a sales budget is so important is because it helps set a specific goal for the sales staff to reach. The budget can be a rallying point for groups of sales people when they are trying to reach a certain threshold. Many businesses give their sales staff a specific bonus if they hit their sales budget. This can help motivate the sales staff to work harder and sell more. Sales managers can rely on these numbers to know exactly what they are expected to do each month.
Most businesses spend a large amount of money on advertising on a regular basis. If the business has been doing this for some time, it most likely has an idea of how many sales are generated from the advertising. If the company has a projection on how much it will sell during a given period of time, it also knows approximately how much to spend on advertising to generate these sales. This will help the company avoid spending more money than is necessary when it comes to advertising campaigns.
The process of developing a sales budget helps a company know how much it can expect to sell during a given period of time. If the company determined that this is not enough money to meet its current obligations, it can begin the planning process of looking at other income-generating activities. For example, the company might wish to expand into other products or markets to increase revenue if needed. Without planning ahead, the company could be caught off guard.