chapter 11 sales budgeting and control-sales and distribution management (1)

8/2/2019 Chapter 11 Sales Budgeting and Control-Sales and Distribution Management (1)

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Copyright 2010, S L Gupta

Excel BooksSales and Distribution Management Text & Cases (2nd Edition) S L Gupta11-1

Sales Budgeting and Control

Basics of Sales Management

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Chapter11

Sales Budgeting

and Control


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IntroductionA sales budget is a programme designed for a stipulated time frame that

highlights the selling expenses and anticipated sales, quantitatively and in value

terms. This helps in making an objective estimate of net profit on the selling

operations. In a real sense, it is a statement aimed at comparing the revenue, net

profits, sales volume and the selling expenses relating to a particular product orthe entire business.

There are three types of sales expenses:

Fixed Expenses: These expenses pertain to the compensation of

salespersons, office rent, insurance and interest on fixed assets like vehicles,

office space, office equipment, etc.

Performance-related Expenses: These include commissions, incentives,

bonus and awards, etc.

Activity-related Expenses: These include travel and communication

expenses, etc.


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Sales BudgetSignificance of a Sales Budget

The importance of a sales budget cannot be overemphasised. Its

significance can be gauged from the factors given below:

It serves as a scale, or a yardstick, to measure the performance/progress ofthe company in terms of the performance of the sales personnel, regions,

products, marketing channels and customers.

It helps identify the areas in which the company needs to strengthen or

improve its performance.

It serves as an indicator to control the expenses associated with the sales

activity and to keep a constant watch on the net profits of the company.

It helps in comparing the actual performance with the budgeted performance

and takes corrective measures if drawbacks appear or to follow the strategy

if the performance is good.


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It helps the planners to frame policies for actual market situations and

provides the platform to establish ways and means to get the business where

they want it to be.

It provides vital statistics to relate and dedicate the resources in an effective

manner so as to realise the forecasted sales and convert these figures into

reality.

It helps keep expenses under control so that by using scarce resources, the

objective of net profits may be achieved.


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Factors Affecting Sales BudgetThe sales manager should take into consideration the following factors

while preparing the sales budget:

Past sales figures and trend

Salesmens estimates Plant capacity

General trade prospects

Orders on hand

Proposed expansion or discontinuance of products Seasonal fluctuations

Potential market

Availability of material and supply

Financial aspect


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Other factors

The nature and degree of competition within the industry

Cost of distributing goods

Government controls, rules and regulations related to the industry and

Political situation national and international as it may have an

influence upon the market.


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Sales ControlControl is a function of every management to ensure that operations are being

carried out as per the plan to achieve the objectives. Sales control ensures the

achievement of personal selling objectives. Sales coordination is very essential to

ensure proper conduct of sales operations by different functionaries in the field.

Types of Sales Control

Type of Control Prime Responsibility Purpose of Control Approaches

1 Annual plan control Top level managers To examine whether theplanned results arebeing achieved

-Sales analysis Market shares analysis Marketing expenses to sales ratio

2 Profitability control Sales controller

To examine where thecompany is making orlosing money

Customer attitude Trackingprofitability by Product territory Market share Trade channel Order size Sales audit


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Steps in Designing a Sales Control System

Objective setting

Designing different control levels

Designing a reporting system and a feedback system

Deciding tools and techniques of control

Variance analysis and reasons thereof


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Sales AuditSales audit is a comprehensive, systematic, independent and periodic

examination of a companys environment, objectives, strategies and activities to

determine problem areas and opportunities and recommend a plan of action to

improve the companys sales performance. The job of sales audit is performed by

a sales auditor.

The Aim of the Audit

The Aim of the sales audit in any sales organization is to :

i. Find out the true and accurate position of sales.

ii. To exercise control over future planning and over the results of the company.

iii. To analyse the past performance and learn from mistakes made in the past

iv. To bring alertness to the organization.

v. To award increments, promotions, giving extra rewards in case of

exceptional performances and to punish those whose actions have resulted

in loss to the company.


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Modes of Conducting Sales Audit

By internal staff of the company.

By outside auditors like chartered accountants or consultants experts in

particular type of business activities.

Timely sales audit at a regular interval and follow up of the recommendations as

given by the auditors can result in excellent results for future and help in devising

timely safeguards.


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Auditors Plans

The following questions can be considered by a marketing auditor:

What are the strengths, weaknesses, opportunities or threats to the company

(known as SWOT analysis)?

What are the changes in consumer behaviour? What are the major changes in market segmentation?

What are the changes in the major competitors strategies?

What are the changes in the competitive environment?

What are the pricing strategies of the competitors?

What are the main channels of distribution?

Have the marketing objectives been achieved or not?

What major advertising media are being used by the competitors?


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Credit Control

Steps in Designing a Credit Control System

1. Identifying credit distributors and wholesalers or consumers on the basis of

past experience.

2. Processing the credit sanction.

3. Circulating and implementing the credit sanction.

4. Aging analysis (see the format given below).

5. Reviewing credit sanctions from time to time.


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The following factors should be taken into consideration in the credit rating

of dealers/distributors:

Organisational set-up of the firm

Market reputation

Trade line of dealers/distributors

Financial position of dealers/distributors

Analysis of financial statement

History of payments.


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Budget PurposesBudgets are formulated for many reasons, including the major ones of planning,

coordination, and control.

1. Planning: Corporations and their functional units develop objectives for

future periods, and budgets determine how these objectives will be met.2. Coordination:The budget is a major management tool for coordinating the

activities of all functional areas and subgroup within the entire organization.

3. Control:Allocation of budgeted funds gives management control over their

use. Sales managers estimate their budget needs, are given funds to

operate their units, and then are held responsible for reaching their statedgoats by using their budgets effectively. As the sales program is

implemented and income and expenses are actually generated, managers

assess results against the amount budgeted and determine whether they are

meeting objectives.


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Factors to be considered while preparing sales budget

The sales manager should take into consideration the following factors

while preparing the sales budget.

1. Past sales figures and trend

2. Salesmen's estimates

3. Plant capacity

4. General trade prospects

5. Orders on hand

6. Proposed expansion or discontinuance of products

7. Seasonal fluctuations

8. Potential market

9. Availability of material and supply

10. Financial aspect


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Budget Analysis (Reporting)

Budgeting Analysis cover the following application areas:

1. Sales Analysis

2. Sales Orders

3. Finance Accounts Receivable

4. Finance Accounts Payable

5. Finance General Ledger

6. Inventory

7. Purchasing

8. Manufacturing


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Budgetary Control

Budgetary control has become an essential tool of management for controlling

costs and maximising profits. The technique of budgetary control is, in fact, a

must for every business enterprise. To exert control over the budgets, every

organisation has to set up an effective budgetary control system. The following

factors should be examined at the time of budgetary control reporting:

What changes are most likely in the business environment?

What are the major objectives to be achieved?


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Market Share Analysis

Market performance can be evaluated on the basis of the market share analysis.

If the market share of a company is increasing, it is a sign of progress; if it is

decreasing, the company must take the necessary measures to arrest, and

possibly push back, this trend.


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Ratio Analysis

Ratio analysis is a powerful tool of marketing control. It helps in correctly

identifying the financial strengths and weaknesses of a company. Different ratios

can be calculated for different purposes. For example, profitability ratios help

determine the profitability of a company.

Following ratios are useful for management control:

i. Current ratio ii. Liquidity ratio

iii. Proprietary ratio iv. GP ratio

v. NP ratio vi. Operating profit ratio

vii. Earnings per share viii. Dividend payout ratio

ix. Dividend per share x. Debtors turnover ratio

xi. Average collection period xii. Working capital turnover ratio


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Advantages of ratio analysis:

Ratio analysis helps in planning and forecasting.

It helps in intra-firm comparison.

It simplifies financial statements.

It helps in coordination, control and communication.


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Variance Analysis

Comparison of standards with actual performance is required to understand the

performance of sales. The difference of the actual from the standard is known as

variance. The variance may be favourable or adverse according to

circumstances. Sales variance is used in marketing control. It has many types.

SALES VARIANCE

Sales Value Variance Sales VolumeVariance

Sales Price Variance

Sales Mix Variance Sales Quantity Variance

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Sales Price Variance : Standard Sales - Actual Sales

Sales Volume Variance : Budgeted Sales - Standard Sales

Sales Value Variance : Budgeted Sales - Actual Sales

Sales Mix Variance : Standard Price (Revised Standard Quantity Actual

Quantity)

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Sales Analysis

Sales analysis is the detailed examination of sales volume by territory,

salesperson, customer, product line, etc. It works on the basic principle that the

trends of the total sales volume conceal rather than reveal the market reality. The

following methods are used for sales analysis.

a. Sales Analysis by Territory

b. Sales Analysis by Salesperson

c. Sales Analysis by Product Line

d. Sales Analysis by Customer

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Sales Cost Analysis

Sales cost analysis is a detailed examination of the costs incurred in the

organisation and administration of the sales and marketing functions and its

impact on sales volume. The following are the important sales costs which should

be kept in mind by a sales manager:

Cost of goods per rupee of sales

Profit per rupee of sales

Cost per segment

Cost per territory

Cost per salesperson

Cost per channel member

Average cost per order.

chapter 11 sales budgeting and control-sales and distribution management (1)

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