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How To Create a Sales Budget: Steps & Tips
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How To Create a Sales Budget: Steps & Tips

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Last updated on
February 3, 2025
Published on
January 15, 2025
How To Create a Sales Budget: Steps & Tips
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"Company leaders will often consider the sales budget first because it forms the basis of other budgets which are key to the company’s success," says Mike Gibson of the Institute of Sales Professionals. 

A sales budget determines the direction in which a company will go(to its fall or to the peak), making it one of the most important foundations for business growth. It is also crucial to pick the right kind of sales budget for your company and plan accordingly.

Sales budgeting doesn’t come without challenges but as they say “where there’s a blog, there’s a solution.” Jokes apart, we’ll provide you with some solutions for common budgeting problems too.

Even if this is your first time creating a sales budget, worry not. Through this blog, we’ll take you through the steps involved in creating a sales budget. We’ll also cover the types of sales budgets to help you pick the right one.

Happy reading!

What is a sales budget?

A sales budget is a financial document that allows the owner of a business to estimate the expected revenue the company will make in a specific period of time.

It focuses on the number of products sold and their prices to predict how the company will perform.

All sales budgets include 3 key elements:

  • Income statement: Comprises net income of the company
  • Balance sheet: Comprises company’s liabilities, assets and equities for a specific budgeting period
  • Cash flow statement: Comprises cash received and cash spent in a specific budgeting period

Why do you need a sales budget?

  • Helps measure financial performance
  • Helps plan for costs
  • Helps track teams
  • Helps identify strengths
  • Helps allocate resources
  • Helps in decision making
  • Helps discover areas of improvement
  • Helps in risk management
CategorySales BudgetSales Forecast
DefinitionA financial plan that estimates the expected revenue a company will make within a specific period of time A prediction of future sales based on historical data, market trends and other factors
Time spanTypically fixed for a specific periodMay be updated periodically based on real time data and market conditions
FlexibilityLess flexible; serves as a target and reference for financial managementMore flexible;adapts to changes in the market
RelevanceCritical for resource allocation and expense controlCritical for forecasting demand and guiding operational decisions
FocusFocuses on achieving desired sales outcomes and staying within financial constraints Focuses on predicting how much sales is likely to occur under current conditions

<Types of sales bugets>

What are the types of sales budgets?

Incremental budgeting

This kind of budgeting involves creating a budget using the previous period’s budget and increasing or decreasing it by a fixed percentage. This kind of budgeting is useful if you operate in a relatively static market.

Zero-based budgeting

In this kind of budgeting, budgets start at zero and the business adds expenses one at a time. Sales managers have to justify each expense that has been made and hence this kind of budgeting encourages in depth review of expenses.

Fixed budgeting

In fixed budgeting, the initial budget doesn’t change with changing market trends. This is suitable for small businesses or those involved in a stable sector.

Flexible budgeting

As the name suggests, this kind of budgeting is flexible in nature and sales targets and expenses can be adjusted based on changes in sales volume or revenue. This kind of budget easily adapts in case of market fluctuations.

Top-down budgeting

In this kind of budgeting, the sales budgets are determined by the senior management and passed down to other departments.

Bottom-up budgeting

In this kind of budgeting the input provided by frontline sales reps is used to develop the sales targets and budgets.

Activity-based budgeting

This kind of budgeting involves allocating sales budgets to specific sales activities like lead generation, customer visits etc.

Rolling budgeting

This kind of budget is continuously updated throughout the year. A new period is added to the end of the budget at the end of each quarter or month to ensure that the sales plan aligns with changing conditions.

Cash-flow budgeting

This kind of budgeting estimates the cash inflows and outflows related to sales activities.

Divisional or product line budgeting

This kind of budgeting involves creating different budgets for different divisions, product lines or geographic regions so that resources are well aligned with specific business units.

What are the components of a sales budget?

  • Sales forecast: This helps predict the volume of sales expected within a specific time span.
  • Revenue projections: Revenue projections help estimate the revenue the volume of sales (based on sales forecast) is expected to generate.
  • Cost of goods sold: This refers to the estimated direct costs that will be involved in the production of goods sold.
  • Selling expenses: These are the direct costs associated with the selling process, like salaries and commissions of sales reps, advertising, etc.
  • Overhead expenses: This refers to the expenses incurred for sales operations that are not directly related to selling or production like office supplies, utilities, etc.
  • Capital expenditure: This refers to investments in technology, machinery and other facilities that will help boost sales.
  • Break-even analysis: This kind of analysis helps evaluate the point where total revenue and total costs are the same and there’s neither profit nor loss. This analysis helps in understanding the risks and durability of the sales plan.

<Image: Steps in budgeting process>

What are the steps involved in creating a sales budget?

Step 1: Choose a period of time

A budgeting period can be quarterly, monthly, or annual. The time period you choose depends on what your product and business need. 

Step 2: Make a note of product inventory and sales prices

In order to know your future sales, you need to know what your prices and products are. Whether you’ll increase, decrease, or keep the prices the same. Whether you’ll be bringing in new products or discontinuing previous ones. All these things need to be kept in mind.

Step 3: Compare past sales data to current industry trends

Reviewing data from a previous period that aligns with your current budgeting period can be useful. This helps make predictions easier and more realistic.

Step 4: Talk to your sales reps

Talking to sales reps is a good way to set expectations, as they deal with customers directly and can provide valuable inputs.

Step 5: Talk to your customers

Interacting with customers is a great way of getting useful feedback.

Step 6: Factor in market trends

Make a note of the current trends in your industry and ensure that they align with your expectations.

Step 7: Sales incentives and commissions

If sales reps are to receive sales incentives and commissions, these need to be included in the sales budget.

Step 8: Consider the size of your sales team

Ultimately, it’s your sales reps that drive sales, so ensure that the sales budget aligns with the sales team’s capacity.

Step 9: Create your sales budget

By now, you’d have a good enough idea of what you’re planning to sell and at what costs; this should be a good enough foundation to create a sales budget.

Step 9: Create a timeline for budget execution and review

It’s important to create a timeline for budget execution and review once your budget spreadsheet is ready. This helps your sales team stay on track and also ensures that the budget is being followed.

Step 10: Make adjustments  wherever necessary

The sales budget may need to be adjusted throughout the year owing to market conditions, increasing costs, etc.

What are some sales budget metrics to track progress?

Once the sales budget is in place, it’s useful to track sales metrics to get an idea of how the company is progressing. Some of these metrics are:

  • Customer lifetime value
  • Customer acquisition cost
  • Sales per rep
  • Length of sales cycle
  • Monthly sales growth

What are the factors influencing sales budget?

Internal factors:

  • Past sales trends including total sales done in the past year
  • Sales promotion measures like advertising
  • Efficiency of the sales team
  • Price policy of the company
  • Production capacity including future expansion plans
  • Types of customers i.e. manufacturers, middlemen or direct customer
  • Total marketing area whether it’s regional, national or international

External factors:

  • Government policies
  • Standard of living of the masses
  • General trend of industrial activities in the country
  • Current population and growth rate
  • Economic condition of the country
  • Purchasing power of general public

What are some examples of sales budgets?

Monthly Sales Budget Example:

Quarterly Sales Budget Example:

What are the best sales budgeting practices?

Even with the right tools for sales budgeting, it’s useful to follow these tips to ensure a seamless sales budgeting process where the sales team is well informed to achieve business goals.

  • Set clear objectives
  • Outline key sales activities
  • Generate accurate expense estimates
  • Regular and effective coordination and communication
  • Be prepared for the unexpected

What are some sales budget challenges and how to overcome them?

1. Inaccurate Sales Forecasting

Solution: Speaking with frontline sales staff and collecting insights from customer service and marketing teams can help in creating a better sales budget rather than simply focusing on the sales forecast.

2. Economic Uncertainty

Solution: Plan different budgets for different scenarios and also how you can accommodate necessary changes into your current budget in case of market fluctuations.

Consistently keeping track of sales metrics and making adjustments can also be useful.

3. Non-alignment with business goals

Solution: Speaking with frontline sales staff and collecting insights from customer service and marketing teams can help in creating a better sales budget rather than simply focusing on the sales forecast.

4. Difficulty procuring high-quality data

Solution: The best way to collect high-quality data is to automate various processes using technology. A CRM is an especially useful tool that monitors sales engagements, which provide valuable insights to make an accurate sales budget.

5. Unattainable targets affecting sales team motivation

Solution: Take time to understand your sales team’s capacity and ensure that the budget aligns with the same. Sales teams would be more motivated to work if they know that the targets are achievable.

6. Over Expenditure

Solution: It may often be difficult to ensure compliance with budgeting policies and maintain accountability for adherence to budgets, especially in bigger organisations. Effective monitoring and enforcement mechanisms help in preventing overspend and ensuring that budgets are only used as intended.

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