THE SALES PLANNING AND BUDGETING PROCESS

Sales planning and budgeting represents one of the key sales management functions in many organizations.

The first important function of the sales manager is to initiate the Sales Planning And Budgeting Process. This process should be implemented by the sales manager in accordance with realistic estimates of the sales volume likely to be achieved during the forthcoming fiscal period.

The sales planning and budgeting process normally entails three steps, as outlined below.

KEY CONCEPTS IN MARKET MEASUREMENT AND FORECASTING

 THE SALES POTENTIAL

There are several methods for determining the Sales Potential for products or services. 

SALES FORECAST

A Sales Forecast provides a quantitative estimate of the level of actual sales, expressed in monetary terms, or of units of product to be sold during a specified period of time. The sales forecast is usually prepared on an annual basis, taking into consideration several factors, as illustrated below.

IMPORTANCE OF THE SALES FORECASTS

The Sales Forecast provides an important foundation for the financial, production, and human resources departments to plan their work and ascertain their needs for the forthcoming budgeted period. Managers, however, must be careful in using the sales forecast estimates for two reasons, as outlined below.

SALES FORCE COMPOSITE OPINION

Sales Force Composite Opinion is a popular sales forecasting method frequently used by sales managers. 

In accordance with this method, each sales person is required to prepare Individual Sales Projections for the forthcoming fiscal year and to submit a detailed sales forecast to the sales manager. These projections, illustrated in the Detailed Sales Forecast below, must be based on realistic sales estimates, taking into consideration past results and future expectations. Subsequently, all sales projections must be added up in a Summarized Sales Forecast to obtain the final forecast of sales volume, as illustrated below. 

Active participation by each member of the sales team and preparation of the sales forecast by customer, product, and sales territory represent the major advantages of this method.

5. SMALL BUSINESS EXAMPLE: 
DETAILED SALES FORECAST

ABC Corporation
Detailed Sales Forecast 
Period: January 1, 2005 - December 31, 2005

6. SMALL BUSINESS EXAMPLE: 
SUMMARIZED SALES FORECAST

ABC Corporation
Summarized Sales Forecast 
Period: January 1, 2005 - December 31, 2005

A JURY OF EXECUTIVE OPINION

A Jury of Executive Opinion is another forecasting method commonly used by sales managers. This method is based on Sales Forecasts prepared by several members of the company's management team. All participating executives prepare an individual sales forecast using their own judgment. Subsequently, all individual sales projections are evaluated and finally added up. 

Active participation by the company's executives has proven to be useful in preparing accurate short-term forecasts. This method, however, demands substantial experience and understanding of overall requirements in the marketplace. Several factors that are usually considered during the Jury Of Executive Opinion procedure are outlined below.

A SURVEY OF BUYING INTENTIONS

A Survey of Buying Intentions can be used as an alternative or an addition to the above mentioned sales forecasting methods. This method entails surveying a sample of customers to determine the types and quantities of products they are likely to buy in the future. 

A survey of buying intentions may be conducted by using a broad range of communication media, as illustrated below.

IMPORTANCE OF USING SEVERAL SALES FORECASTING METHODS

In a Survey of Buying Intentions all customer responses are subsequently evaluated and added up to determine the total demand for each product. 

This method has proven to be useful in preparing sales forecasts for industrial goods in well-defined small market segments. However, it is often a time consuming and expensive method that does not guarantee that interviewed customers will always act according to their original answers and intentions.

Since most organizations offer a variety of products or services to different customers in a constantly changing market environment, it is often impractical to use only one sales forecasting method. For this reason, sales managers often use a combination of methods and utilize the input from sales people, executive managers, and customers at the same time.

 SALES STRATEGIES

Once the Sales Forecasts are prepared and overall Sales Objectives are established, it is necessary to develop a detailed Sales Plan which will provide guidance to the company's management in the process of achieving such objectives.

A well defined plan must be based on a set of appropriate Sales Strategies for the forthcoming fiscal year. These strategies represent the continuation of the Marketing Strategies which have been discussed in detail earlier in Tutorial 5. Some examples of sales strategies that could be adopted by a sales manager are outlined below.

THE SALES FORCE REQUIREMENTS

The next step in the sales planning effort entails Evaluation Of Sales Force Requirements to meet the company sales objectives. The sales manager must assess the overall sales plan and select on of the three most appropriate options, as illustrated below.

DISADVANTAGES OF USING OUTSIDE AGENTS

One of the prime disadvantages in dealing with agents is that their activities cannot be always effectively controlled by the sales manager. This represents a particular problem since agents plan their own movements in the marketplace.

COST OF USING SALES PEOPLE

The employment of sales people may represents a costly exercise. It is essential, therefore, to assess the need for additional sales employees and to estimate the total cost of their employment. Estimation of Sales Force size entails a number of considerations and may be carried out in several ways. Two methods commonly used by sales managers are illustrated below.