Sales budgets are essential for business success. They act as a roadmap for financial management, let you allocate resources effectively, and offer you a way to set business goals that grow your bottom line. In short, they give your organisation a direction. Without one, you’re driving without a GPS, meaning you’re more likely to take an expensive wrong turn.
The good news is that creating an outstanding sales budget isn’t actually that complicated. You’ll be able to create one of your own if you follow the steps we’re going to provide in this guide. And when you do, your new sales budget will help you achieve your business objectives and reach your expected sales.
We’ll walk you through the process of creating your sales budget soon and provide some tips for best practices. We’ll also show you how to build a sales budget the easy way with Salesforce, a powerful customer relationship management (CRM) tool.
First things first, though. Let’s dispel some confusion by taking a look at what a sales budget means.
What is a sales budget?
Sales budgets are itemised documents that estimate expected sales and the revenue your company will make over a specific sales period. This period could be a single month or a quarter, but you’ll usually make one for the year.
The sales budget is based on your expected unit sales and price per unit, along with the insights of various departments, like marketing, sales, accounting, and management.
Why do you need a sales budget?
Sales budgets are more than a financial report. They’re a blueprint for achieving your sales objectives and driving revenue. Once you create one, you’ll have a roadmap that you and your team can use to set organisation-wide strategies and work towards collective goals.
Beyond setting realistic sales targets, sales budgets offer a benchmark that you can use to measure performance. You can compare your actual progress against your budget and use this to adjust your strategy or allocate resources to different areas.
Lastly, a sales budget is an excellent way to plan for costs. It lets you know how much you can expect to spend for every sale and use that information to plan ahead. Projected unit sales, for instance, can feed directly into your marketing budget, helping you identify how much you need to allocate to reach your targets.
Put simply, a sales budget lets you navigate the business landscape confidently. It offers a framework for you to monitor financial performance, track teams, make informed decisions, learn your strengths, and discover where there’s room for improvement.
Sales budgets vs sales forecasts: How do they differ?
There’s a common misconception that sales budgets and sales forecasts are the same, and that makes sense. They both predict sales performance based on data. However, there is an important difference.
A sales budget is a realistic but ambitious goal. It’s a planning tool that reveals where you’d like your business to be in an ideal world so you can create a roadmap to achieving it. Building a sales budget will help you allocate resources, set expectations, and create strategies.
In contrast, a sales forecast is grounded entirely in historical data. These predictive reports assess the company’s past performance and use it to forecast future results. While the sales budget helps you set goals, your sales forecast tells you how likely you are to reach those expectations.
For this reason, many organisations create a sales budget for the year and then periodically review progress towards that goal through forecasting. The two tools are best used in tandem.
Types of sales budgets
All sales budgets share a lot of familiar elements. Still, there are different approaches to the budgeting process depending on your needs. Here are some of the common types of budgets to consider:
Fixed vs flexible sales budgeting
This one’s self explanatory. With a fixed sales budget, the initial budget never changes despite market shifts or evolving trends. This is a great one-size-fits-all choice for smaller companies or those that operate within a stable sector.
In contrast, a flexible sales budget evolves based on different criteria. If the market changes, the company can adapt the budget to reflect that. This requires more legwork, but it may be a valuable choice depending on the size of your sales budget and business. It’s also a good idea to take this approach if you’re in a volatile industry.
Incremental budgeting vs zero-based budgeting
Incremental-based budgeting is the most basic type of sales budget. It involves taking the sales budget from the previous period and increasing or decreasing it by a fixed percentage. This is a useful approach if you operate within a relatively static market, but it might not consider all avenues.
With a zero-based budget, sales managers have to justify every expense. Budgets begin at zero, and the company adds expenses one by one. This approach enforces careful consideration and will typically result in a more accurate result, but it can be time-consuming.
Top-town budgeting vs bottom-up sales budgeting
A top-down budget is set by business leaders and managers and then dispersed to the lower levels of the organisation. This is a great way to make sure the sales budget aligns with the overall strategic vision of the company, but the frontline staff and teams often have insights that leaders don’t. For that reason, this type of budget might not offer the complete picture.
Meanwhile, a bottom-up budget begins with the insights of frontline personnel. It treats all teams as stakeholders and asks everyone to buy in and provide the data and knowledge they possess. This process requires more planning and a greater deal of communication, but it generally results in a more accurate sales budget compared with a top-down approach.
What elements should a sales budget include?
Before you start creating an effective sales budget, it’s important you have all the pieces. All sales budgets must include at least three core elements:
- Balance sheet: Your liabilities, equity, and assets for the period.
- Income statement: Your business’s net income for the period.
- Cash flow statement: Cash received and cash spent for the period.
Aside from that, your sales budget can include several other elements. Let’s talk about a few.
Sales projections
The core of any sales budget is the projection of future anticipated revenue. This involves analysing historical sales data and market trends, as well as industry forecasts, to arrive at realistic sales targets. Accuracy in these sales forecast projections is essential. They serve as the foundation for all subsequent budgeting decisions.
Cost of goods sold
Determining the cost of goods sold (COGS) is critical for sales budgeting. This refers to the direct costs of producing or acquiring the goods or services sold by the business. Understanding COGS lets you calculate gross profit and set appropriate pricing strategies.
Sales incentives and commissions
Sales incentives and commissions motivate and reward sales personnel. Clearly define these incentives in your budget. Ensure that compensation aligns with what the company expects sales-wise in relation to performance.
Overhead expenses
Overhead expenses are the indirect costs of the sales process. They cover things like operating expenses (rent, utilities, salaries) and marketing costs. It’s important to accurately budget these expenses. Doing so will help you manage expectations and understand where to allocate resources.
Understanding sales budget stakeholders
A sales budget is a cumulative effort. It requires data and insights from various teams and individuals. Your B2B marketing team, for instance, might have a different view of consumer behaviour than the sales team.
Therefore, the sales budget process involves combining information from every stakeholder in the business to form the complete picture. Here are some of those key stakeholders and the roles they play.
- Sales managers provide the sales and customer insights that are the backbone of the sales budget. They often have a deeper understanding of the market, meaning they can analyse past sales data in context and spot trends that could completely change the goals of the budget. They’re responsible for making sure targets are ambitious while still attainable.
- Executive leaders have a deep understanding of the company’s vision, meaning they are responsible for overseeing the budget’s creation and making sure it aligns with the business’s long-term objectives. During this process, your strategic management team will also act as mediators, communicating between teams and collating information to inform your budget.
- Finance teams are unique because they have the complete picture of a business’s financial accounting. They know profit margins and projected sales better than anyone, making them invaluable for setting realistic targets. They will make sure the business’s annual sales budget aligns with the overall financial goals of the company. In short, they take the ambitions of leaders and sales managers and use financial analysis to ensure they are sustainable over the long term.
- Product management and development teams can offer insights into new product launches, changing products and sales prices, or discontinuations. All of this information can have a huge impact on sales budgets. For instance, a sales discount, sales promotion, or new product could significantly alter long-term revenue opportunities.
- IT and data teams facilitate the process by providing the tools and equipment to collect data insights. They can support data analysis and create forecasting models using machine learning to provide important insights that act as a foundation for goal-setting.
- Customer service teams are the frontline of the business, meaning they often have more direct, current insights into customer behaviour than many other teams possess. They can use this experience to identify unique opportunities and also set realistic expectations.
- Legal and compliance teams will ensure the sales budget and related objectives comply with business laws and business ethics. This process supports risk management by ensuring your sales plan falls within the bounds of legislation.
- Supply chain management will ensure the organisation can meet demand for its forecasted sales amount. This involves assessing the capacity of suppliers and sourcing the necessary inventory in alignment with the organisation’s objectives.
- Human resource management will ensure everyone is in the right position to hit their sales targets once the budget is created. They will ensure everyone has the correct training and design incentive plans to motivate everyone to reach the business goals.
There’s no shortage of critical personnel in the sales budget process. Any business team member can and should contribute. Effective sales budgeting is a joint effort. The more people who can provide information, the stronger the budget will be.
10 steps to creating a sales budget
Creating a sales budget for the first time can be daunting. However, if you follow the process below, you’ll find that it’s quite straightforward. Here are the ten steps we recommend to create a total net sales budget that helps you achieve your financial goals.
- Set a time frame
The first step is to set a time frame. This could be a month, a quarter, or a year. Many businesses opt for a year-long sales budget so they can track performance over a longer period. Whichever time frame you choose, this is the place to start. - Determine your pricing
Next, you need to determine your pricing. How much is each unit selling for? This will depend on your competition and your target market, plus the product or service you offer. Remember that, if you plan on holding promotions, or the prices are going to vary at some point, you need to factor this in. - Estimate your sales volume
The next step is to estimate your sales volume. Look at historical sales data, as well as market research and industry trends. Remember to be conservative here, as this will let you create a plan that is realistic and actionable. - Define your sales goals
Now that you’ve looked at historical data, it’s time to define some sales goals. These goals should be realistic and achievable. When you set them, consider your past sales trends and performance, as well as your current market conditions. Also, don’t hesitate to communicate with your team. They may have insights that you can use to refine your objectives. - Calculate your cost of goods sold
The cost of goods sold (COGS) is the direct cost of producing your product or service. This includes the cost of materials, labour, and overhead. Accuracy is crucial here. - Estimate your overhead expenses
Overhead expenses are the indirect costs of doing business. This includes rent, utilities, salaries, and marketing. Accuracy is a virtue here. The better you can estimate your expenses, the more realistic your budget will be. - Factor in sales incentives and commissions
If you offer sales incentives or commissions, you need to factor these into your sales budget. Sales incentives and commissions can be a great way to motivate your sales team, but they can also add to your costs. - Create your sales budget
You should now have an idea of how you can expect to sell and how much you’re selling them for. Combined with all of your other expenses, this should give you a good launchpad to create your sales budget. - Create a timeline for budget execution and review
Once you have a budget spreadsheet, you need to create a timeline for budget execution and review. This will help you stay on track and make sure that your sales budget is being followed. - Monitor and adjust as needed
After your sales budget is in place, all that’s left to do is monitor and iterate. You could, for instance, conduct a sales forecast every month to check if you’re on track. This will help you identify any variances between your actual sales and your budgeted sales so you can make adjustments and need them.
Remember that your sales budget is not always set in stone. You may need to adjust throughout the year. This could be due to changes in your market conditions, increasing costs, or evolving goals. Don’t be afraid to be flexible and make changes.
Examples of sales budgets
To help you understand how a basic sales budget might look in practice, we’ve provided a handful of examples below for different business types.
Small business
A small business sales budget might include the following elements:
– Sales revenue: $100,000
– Cost of goods sold: $50,000
– Sales incentives and commissions: $10,000
– Overhead expenses: $20,000
Large corporation
A large corporation’s sales budget might include the following elements:
– Sales revenue: $1 billion
– Cost of goods sold: $500 million
– Sales incentives and commissions: $100 million
– Overhead expenses: $200 million
Non-profit organisation
A non-profit organisation’s sales budget might include the following elements:
– Sales revenue: $500,000
– Cost of goods sold: $250,000
– Sales incentives and commissions: $0
– Overhead expenses: $100,000
SaaS company
A SaaS company sales budget might include the following elements of sales prices:
– Sales revenue: $10 million
– Cost of goods sold: $5 million
– Sales incentives and commissions: $2 million
– Overhead expenses: $3 million
Startup
A startup sales budget might include the following elements:
– Sales revenue: $0
– Cost of goods sold: $0
– Sales incentives and commissions: $0
– Overhead expenses: $50,000
These are just a few examples of sales budgets. The specific elements that should be included will vary depending on your business’s needs.
Sales budget metrics and analysis
Once your sales budget is in play, you should regularly assess it to evaluate how effectively your business is working towards its goals. There are numerous metrics you can use to measure this, but here are some we deem essential:
Monthly sales growth
We suggest tracking your sales growth each month and comparing that with the predicted growth in your sales budget. This is one of the most basic but effective ways to ensure you’re on track.
Sales per rep
In addition, it’s worth regularly tracking the revenue generated by each of your sales reps. This is excellent for resource management. If a rep’s personal selling is significantly below the average, what extra support could you provide to help them reach your organisational goals?
Sales cycle length
Based on previous sales, regularly measure how long it takes on average for your sales department to convert a lead into a paying customer. This will allow you to root out inefficiencies and streamline bottlenecks in your sales pipeline.
Customer acquisition cost (CAC)
How much does it cost to acquire a new customer from beginning to end? This metric is essential for evaluating your actual costs against your budget. A higher acquisition cost may indicate that you need to optimise your sales funnel to hit your goals.
Customer lifetime value (CLTV)
Your CLTV tells you the total amount of revenue you can expect to generate per customer over the entire duration of the relationship.
Tracking your CLTV alongside your customer acquisition cost (CAC) can help you determine the efficiency of your sales and marketing strategy. If your lifetime value is significantly higher than your CAC, this indicates an efficient sales budget and a strong ROI. Conversely, if acquisition costs are close to your CLTV, it’s time to reassess and refine.
Common sales budget challenges and how to overcome them
As sales budgeting is often based on theory, there’s a lot of room for error. It’s essential to understand the challenges that may arise so you can put yourself in a position to overcome them. Here are five common problems and how to navigate them.
1. Inaccurate forecasts
Sales budgets live and die by accuracy, but estimating sales (and reliably predicting future sales) is understandably a serious challenge. Limited historical data, inconsistent sales cycles and overambitious sales estimates can all contribute to a business budget that is unrealistic and inaccurate.
How do I overcome this challenge?
When creating your sales budget, it’s important to make it a joint effort. Rather than relying solely on marketing and sales leadership, talk to your frontline sales team and gather insights from customer service and marketing. This brings diverse perspectives that provide a more holistic, realistic forecast.
In addition, be conservative. If you have access to a financial team or even an accountant, they can evaluate your budget from a purely financial perspective. If your budget is overstating how much you can expect to sell, they should let you know.
2. A lack of context
Analysing past sales data is only one piece of the puzzle for sales budgeting. Looking only at historical sales doesn’t provide the complete picture because you aren’t reviewing the data in context.
How do I overcome this challenge?
Stay abreast of current market trends and consumer habits to get the complete picture of what your data represents in context.
It’s important to have individuals in your business that keep their fingers on the pulse of the market. Business development representatives, for instance, should factor in market trends and have a firm understanding of the opportunities and obstacles facing a business. It’s also vital to have a data science expert that can explore information and use data visualisation to place it in context.
3. Economic uncertainty
The market is always changing. Economic downturns, shifting preferences, fresh competition, and new trends can make it difficult to create accurate long-term sales budgets with a high degree of accuracy.
How do I overcome this challenge?
One of the most effective ways to combat economic uncertainty is through scenario planning.
This is the process of developing multiple budgets for every situation. For instance, you could create three budget scenarios based on market conditions, with one being the best case, one being the worst case, and the last being the most likely scenario. This helps you prepare for every outcome and ensures you won’t be caught off guard by volatility.
In addition, regularly review your sales budget and refine it as necessary. Track metrics like your overall revenue growth and carry out regular sales forecasts. If things aren’t going according to your business plan, you may need to adjust the revenue you expect to generate.
4. Collaboration
A sales budget is a cumulative effort between various departments. As such, it can be challenging to break down silos and ensure everyone is aligned on the same goals.
How do I overcome this challenge?
Encourage regular and open business communication between all departments. Executive leaders and managers can facilitate this by acting as mediators between teams and ensuring that everyone is aligned on the same objectives.
5. Data quality
Another concern with sales budgets is ensuring you have enough data and, more importantly, enough high-quality data to make an accurate prediction. For instance, if your digital marketing department needs to collect more information for marketing analytics, this can create an enormous deficit when it comes to making reliable forecasts.
How do I overcome this challenge?
The key to collecting high-quality data is automating your processes with technology. If you need to rely on a sales rep to log every interaction with a customer, you’re setting yourself up for many challenges.
Instead, use a sales CRM (customer relationship management) system that can automatically monitor sales engagements and provide valuable sales analytics insights into behaviour, sales trends, and performance metrics. This will let you make consistently accurate budgets and more informed decisions.
Sales budget best practices
Lastly, we’re going to run through some best practices. You should keep these in mind throughout the process to avoid common errors and get the best out of your budget.
Break down strategies into tactics
You’ve got your goal in mind, and you have a broad strategy to reach it, but this doesn’t necessarily help your frontline employees.
It’s important to break down all of your objectives into sales activities. What are the day-to-day tasks that are going to help your marketing and sales teams reach their goals?
For instance, if you want to improve lead generation to grow sales by 5%, how will your sales team achieve this? You might request ten blog posts a week from your content writer or ask that a sales rep host three webinars in a month. This breaks down your strategy into actionable tactics that your team can follow.
Communicate constantly
Sales budgeting is a joint effort. Involve all key stakeholders at every stage to gather the most insights. Often, your frontline employees have insights that you don’t.
As a bonus, including your teams helps foster ownership and accountability. It means everyone is on board and aligned with your strategy.
Expect the unexpected
If we could predict the future 100% of the time, we’d probably spend more time winning the lottery and less time creating sales budgets.
But as it stands, we have to take it as it comes. Remember that unforeseen circumstances are just part of the game. Economic downturns, technological advances and shifting consumer preferences mean it’s important to be ready to make changes whenever required. Maintain an agile budget that allows you to evolve. This will keep your
Lastly, embrace change and be willing to adjust your sales budget as needed. Unforeseen circumstances, such as economic downturns, industry shifts, or technological advancements, may necessitate revisions to your financial plan.
By maintaining a flexible mindset and being open to change, you can ensure that your sales budget remains aligned with your organisation’s evolving needs and market realities.
Building your sales budget with Salesforce
Salesforce is a powerful customer relationship management (CRM) tool that creates and manages sales budgets. The Sales Budget Template from the AppExchange is a great starting point. This template includes pre-built reports and dashboards that make it easy to track your sales performance and adjust your budget as needed.
In addition to the Sales Budget Template, you can use Salesforce Reports to create custom reports on your sales data. These reports can track everything from total revenue and expenses to gross profits. You can also use Salesforce to create a custom dashboard that displays your sales data visually. This makes it easy to see your sales performance and identify areas for improvement.
The Opportunity Forecasting tool in Salesforce can be used to forecast sales during a specific period of time. This tool takes into account various factors, such as past sales data, current market conditions, and your sales pipeline. The Sales Performance Management tool in Salesforce can be used to track the performance of your sales team. This tool provides insights into your team’s activities, such as the number of calls they make, the number of emails they send, and the number of deals they close.
By using Salesforce to create and manage your sales budget, you can better understand your sales performance and make more informed decisions about your budget. Salesforce can help you improve your sales forecasting, track your sales team’s performance, and adjust your budget.
