Step-by-Step Breakdown of How to Prepare a Sales Budget (With Examples)

Aug 25, 2020

An effective sales budget is critical in helping drive many other important business decisions affecting your sales team and your company as a whole. From tweaking sales processes to deciding how many new sales reps to onboard and everything in between. Your sales budget is an essential component in helping your company remain profitable, especially in tighter times where every penny counts.

As a whole, the sales budget (and the process of creating it) acts as a guide, helping direct your company and its sales team over the rest of the month, quarter, and year. The more accurate your sales budget, the more effectively the company can be managed.

Here is a breakdown of what a sales budget is, the difference between a sales budget and a forecast, and the step-by-step process of budgeting sales.

Photograph of an Asian businesswoman with text reading "Introduction to sales budgeting"

What Is a Sales Budget?

More specifically, what does your sales budget determine? Put simply, a sales budget determines your total expected sales revenue during a specified period. This is achieved by multiplying the number of units expected to be sold by the selling price.

Several other factors, like your past sales data and current market trends, for example, are an important part of the sales budget process. These will help you determine an accurate estimation for what the expected number of units sold will be during the budget period.

In many cases, the sales budget is the first step in budgeting and financial forecasting. The revenue numbers from your sales budget will help in preparing most of your company’s other budgets. Such as the marketing, production, direct materials, or master budgets. Keep in mind, although they are an important part of your company’s master budget, a sales budget usually does not include the expected costs of conducting sales efforts.

The focus of a sales budget is solely on depicting how much money will be coming in during the budget period.

A sales budget is invaluable when it comes to both setting sales goals and increasing the efficiency and productivity of your sales team. For example, in looking at a completed sales budget for the year, the number of sales per fiscal quarter can then be broken down further into actionable sales goals. Allowing your sales team to create specific monthly or weekly goals. Thus giving your sales reps an easily digestible and motivating number to strive to meet or exceed.

Tracking and visualizing specific goals has a significant positive impact on sales productivity. Sales reps that are able to visualize progress towards sales goals through data visualization are more likely to improve their sales numbers. This will then help the company as a whole continue to grow economically and expand.

When it comes to efficiency, with sales managers able to assign clear and specific goals, driven by the sales budget, sales reps will be more motivated to continue to meet and exceed their metrics. Much less energy will be wasted on non-sales driving activities.

Sales Budget vs Forecast: What Is the Difference?

A sales budget and a sales forecast are two tools that are very similar to each other. So much so that they are frequently confused as being the same thing. But, it is important to understand that they are in fact different and exactly what the differences are between the two.

Your company’s sales budget is a quantified expectation of the sales numbers that will be achieved during a given period. One that summarizes the total expected revenue from all services or products sold. The sales budget will be put together first. Alternatively, the sales forecast is determined after the sales budget has been set and breaks down what exactly is forecasted to be sold during specific periods.

A more specific difference between the two is that sales forecasts are more often structured for smaller periods of time like per week or month. While a sales budget will look at long-term, annual numbers. Also, because it is broken down into shorter periods, a sales forecast accounts for seasonal sales trends much more than you would be able to see in an annual or even quarterly sales budget.

Put simply, the sales budget shows the desired direction and goal of your company over the course of a year while the sales forecast shows how likely your sales team is to stay on track and reach that destination on time.

How to Prepare a Sales Budget

A step-by-step breakdown for budgeting sales

You now understand exactly what a sales budget is, but you’re probably still wondering how do you prepare a sales budget? One of the most important things to keep in mind in preparing your budget is that it is realistic. This is done by taking into account both internal and external factors that will determine and affect sales numbers throughout the budget period.

Here are the steps to follow to create an actionable, accurate, and most importantly realistic, sales budget to help your sales team remain profitable.

Select a Period for the Budget

The first thing you’ll do is select the period you want to use for your budget. Sales budgets are most often structured as a quarterly budget with an annual total but they can also be set up as just an overall annual budget.

Gather Sales Prices

Have your current selling price of each unit or service on hand. If you have multiple products or services you will need the current selling price for each one. Also, if your company is planning on changing any sales prices later in the year (due to increased demand, anticipated increases in the cost of materials, etc), have those new prices on hand as well.

Pull Historical Sales Data

If you have been in business for some time now, this is your main starting point when creating a sales budget. Make sure to gather sales data from the same period you will be using for your budget. Find and pull this data in your sales CRM. Most CRMs now make it easy to quickly pull these numbers. If creating an annual budget, pull sales data from the entire previous year. If creating a quarterly budget, pull sales data from that same quarter last year, etc.

Look at Industry Benchmarks

If this is your company’s first year in business you will, of course, not have historical sales data to start with. The next best place to start is to look at your industry’s sales benchmarks. Benchmarks and sales data for public companies are available online. You can also get industry-wide growth estimates and other important financial data from the U.S. Bureau of Labor Statistics.

Whether you are a new company or not, using recent industry benchmarks can help create a more accurate sales budget.

Past sales numbers will give you a good foundation to start your sales budget. But, it is true that past performance does not always predict future results. That is why current market trends in your industry should also be a factor when preparing your budget.

Whether sales are rising or falling in your industry, you should account for any current trends in your sales budget. Another example of a market trend to factor in is increased competitor saturation this year versus last which could cause a slight decrease in sales, even temporarily.

Take the Size of Your Sales Team Into Account

Take a look at how many sales rep your team is working with going into the budget period. Compare this number to your past sales periods. If you have significantly fewer salespeople now, you may not have as many total sales. Alternatively, if you’ve onboarded more new reps recently, you will probably see higher sales numbers. So, when preparing your sales budget, decrease or increase your estimated sales figures accordingly.

Consider Any Changes to Your Business Model

Any changes that have been made to your business model will affect the sales budget numbers. Changes may include things like increasing your range of products or services, expanding into new territories, discontinuing products, or recent price changes. For example, If 35% of your sales last year came from a product or service you no longer offer, this should be factored into your new sales budget.

Talk to Your Sales Reps

Your sales reps are the ones dealing with the customers on a day to day basis in the present market. Get an idea from them as to how many sales they anticipate having and what their individual pipelines are looking like from their prospecting efforts. Your sales reps’ input will prove to be invaluable in helping to create an accurate sales budget.

Talk to Your Customers

Your customers themselves are also a great resource when it comes to your sales budget. Especially long-term customers. What they intend to spend on your products or services over the next year compared to last year is a clear indicator of future sales.

Evaluate Your Sales Prospect Numbers

Take a look at the percentage of prospects in your sales funnel last year that were converted into customers. For example, let’s say 30% of your prospects last year were successfully closed. Then, you can estimate that 30% of the prospects in your team’s sales funnel now will convert into customers this year.

Create the Budget

When using steps 3 through 8 above you can boil down the data and information and confidently come to an estimated number of units that are expected to be sold over the next year. Now you can create your actual sales budget. As mentioned earlier, you can set the budget up to show quarterly totals or just one annual total. When you have the totals for your expected number of units sold, multiply that by the current sale price to get your estimated revenue totals.

Continue to Review Your Budget

After completing your sales budget, it is just as important to continue to review it regularly. Compare estimated sales totals versus actual totals throughout the year.

The sales budget is not set in stone and can be fluid. If sales start to go much higher (or lower) than expected, you may want to revise the numbers during the budget period. Especially if you are selling products. You do not want to run into a situation of not being able to meet demand or, alternatively, having a large excess of products. You also want to be able to realistically allocate revenue towards production, marketing, etc, and proactively have an idea of where sales process adjustments might need to be made to remain effective.

After the projected sales period from your budget has ended, compare the total numbers of estimated sales versus what was actually sold. Any variances can be used to help you create more accurate future budgets.

3 Sales Budget Examples

Using a spreadsheet or template, you can set up your sales budget to clearly show the numbers for expected units sold and the total expected revenue from those sales. But, as mentioned above, there are variations in how exactly it is set up. This will depend on the budget period, how many different products or services your company sells, price variations, etc.

Here are a few examples of how to format your sales budget in various scenarios:

Example #1

Best for a company that is selling multiple products or services

In this first example, the budget period is broken down quarterly for a company that sells SaaS at two different levels, Pro and Enterprise. Both of these have a fixed price that is billed annually. As you can see, each different product level has a separate row for unit sales, price per unit, and total revenue. The company has consistently seen the highest overall sales numbers in the first quarter over the last several years so that has been factored in as well.

Sales Budget Example #1
Quarter 1 Quarter 2 Quarter 3 Quarter 4 Annual Total
Expected unit sales of Pro level software 1,000 700 700 900 3,300
x Price per unit $600 $600 $600 $600
= Total revenue of Pro software $600,000 $420,000 $420,000 $540,000 $1,980,000
Expected unit sales of Enterprise level software 800 600 600 700 2,700
x Price per unit $1,140 $1,140 $1,140 $1,140
= Total revenue of Enterprise software $912,000 $684,000 $684,000 $798,000 $3,078,000
= Total overall revenue $1,512,000 $1,104,000 $1,104,000 $1,338,000 $5,058,000

Example #2

Best for a company that is selling one product or service with no sales discounts needing to be factored in

In this second example, the budget period is broken down quarterly for a company that only sells one product. But, in this example, the company has factored into its sales budget an expected increase in the price of the product in the second half of the year due to increased demand.

Sales Budget Example #2
Quarter 1 Quarter 2 Quarter 3 Quarter 4 Annual Total
Expected unit sales 5,500 6,000 7,000 8,000 26,500
x Price per unit $65 $65 $75 $75
= Total overall revenue $357,500 $390,000 $525,000 $600,000 $1,872,500

Example #3

Best for a company that is selling one product or service but does offer sales discounts in some cases

In this third example, the budget period is broken down quarterly for a company that only sells one product at a fixed price. This company does not expect to raise the price of their product this year. But, it does offer a discount for customers who purchase the product in bulk. So, after looking at the previous year’s sales numbers, this sales budget is factoring in anticipated discounts of a quarterly average of 3% of gross sales through the budget period.

Sales Budget Example #3
Quarter 1 Quarter 2 Quarter 3 Quarter 4 Annual Total
Forecasted unit sales 6,000 6,400 6,600 7,400 26,400
x Price per unit $125 $125 $125 $125
= Total gross sales revenue $750,000 $800,000 $825,000 $925,000 $3,300,000
– Sales discounts $22,500 $24,000 $24,750 $27,750 $99,000
= Total net sales $727,500 $776,000 $800,250 $897,250 $3,201,000

Utilize an Effective Sales Budget to Be More Tactic-Driven and Profitable

Budgeting sales in a structured and accurate way is not extremely difficult to do. Following the steps outlined in the process above and using any of the sales budget examples to give you an idea of the structure should now provide you a clear starting point. You can create a realistic sales budget that will help both your sales team and your company as a whole remain profitable and able to grow. Put together your sales budget today!