Ch-11
Chapter
11
11-1
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Ch-11
Introduction
A 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 or the 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. Copyright 2010, S L Gupta
Text & Cases
11-2
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Ch-11
Sales Budget
Significance 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 of the 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. Cont. Copyright 2010, S L Gupta
Text & Cases
11-3
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Ch-11
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
11-4
(2nd Edition)
S L Gupta
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Ch-11
11-5
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S L Gupta
Excel Books
Ch-11
Other factors
11-6
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Excel Books
Ch-11
Sales Control
Control 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.
Prime Responsibility
Top level managers
Purpose of Control
To examine whether the planned results are being achieved To examine where the company is making or losing money
Approaches
-Sales analysis Market shares analysis Marketing expenses to sales ratio Customer attitude Tracking profitability by Product territory Market share Trade channel Order size Sales audit
Cont. Copyright 2010, S L Gupta
Profitability control
Sales controller
11-7
(2nd Edition)
S L Gupta
Excel Books
Ch-11
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
11-8
(2nd Edition)
S L Gupta
Excel Books
Sales 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 :
Find out the true and accurate position of sales. To exercise control over future planning and over the results of the company. To analyse the past performance and learn from mistakes made in the past To bring alertness to the organization. To award increments, promotions, giving extra rewards in case of exceptional performances and to punish those whose actions have resulted Cont. in loss to the company. Copyright 2010, S L Gupta
Text & Cases
11-9
(2nd Edition)
S L Gupta
Excel Books
Ch-11
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.
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Ch-11
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)?
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Excel Books
Ch-11
Credit Control
Steps in Designing a Credit Control System 1. Identifying credit distributors and wholesalers or consumers on the basis of
past experience.
2. 3. Processing the credit sanction. Circulating and implementing the credit sanction.
4.
5.
(2nd Edition)
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Excel Books
Ch-11
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.
(2nd Edition)
S L Gupta
Excel Books
Ch-11
Budget Purposes
Budgets are formulated for many reasons, including the major ones of planning, coordination, and control.
1.
2.
Planning: Corporations and their functional units develop objectives for future periods, and budgets determine how these objectives will be met.
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 stated goats 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. Cont.
Text & Cases
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Excel Books
Ch-11
Factors to be considered while preparing sales budget The sales manager should take into consideration the following factors while preparing the sales budget. 1. 2. 3. 4. 5. 6. 7. 8. 9. Past sales figures and trend Salesmen's estimates Plant capacity General trade prospects Orders on hand Proposed expansion or discontinuance of products Seasonal fluctuations Potential market Availability of material and supply
Cont. Copyright 2010, S L Gupta Text & Cases
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Excel Books
Ch-11
Budget Analysis (Reporting) Budgeting Analysis cover the following application areas: 1. 2. 3. 4. 5. 6. 7. 8. Sales Analysis Sales Orders Finance Accounts Receivable Finance Accounts Payable Finance General Ledger Inventory Purchasing Manufacturing
Text & Cases Copyright 2010, S L Gupta
(2nd Edition)
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Excel Books
Ch-11
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?
(2nd Edition)
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Excel Books
Ch-11
(2nd Edition)
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Excel Books
Ch-11
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. iii. v. vii. ix. xi. Current ratio Proprietary ratio NP ratio Earnings per share Dividend per share Average collection period ii. iv. vi. Liquidity ratio GP ratio Operating profit ratio
viii. Dividend payout ratio x. xii. Debtors turnover ratio Working capital turnover ratio
Cont. Copyright 2010, S L Gupta
(2nd Edition)
S L Gupta
Excel Books
Ch-11
(2nd Edition)
S L Gupta
Excel Books
Ch-11
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
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S L Gupta
Excel Books
Ch-11
: : :
Standard Sales - Actual Sales Budgeted Sales - Standard Sales Budgeted Sales - Actual Sales
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Excel Books
Ch-11
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.
c. d.
(2nd Edition)
S L Gupta
Excel Books
Ch-11
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.
Text & Cases Copyright 2010, S L Gupta
(2nd Edition)
S L Gupta
Excel Books