What Is a Sales Budget?
A sales budget determines your total expected sales revenue during a specified period by multiplying the number of units expected to be sold by the selling price. Several factors, including past sales data and current market trends, help determine an accurate estimation for the expected number of units sold during the budget period.
The sales budget typically serves as the first step in financial forecasting. Revenue numbers from your sales budget help prepare most of your company’s other budgets, such as marketing, production, direct materials, or master budgets. However, a sales budget usually does not include the expected costs of conducting sales efforts — it focuses solely on depicting how much money will come in during the budget period.
A sales budget proves invaluable for setting sales goals and increasing efficiency and productivity of your sales team. When sales budgets are broken down into actionable quarterly or monthly goals, sales reps gain easily digestible and motivating targets. Tracking and visualizing specific goals has a significant positive impact on sales productivity.
Sales Budget vs Forecast: What Is the Difference?
A sales budget and a sales forecast are frequently confused as the same thing, but they are distinctly different tools.
Your company’s sales budget is a quantified expectation of the sales numbers that will be achieved during a given period that summarizes total expected revenue from all services or products sold. The sales budget is created first.
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. Sales forecasts are typically structured for smaller time periods like weekly or monthly, while a sales budget looks at long-term, annual numbers.
Because forecasts break down into shorter periods, they account for seasonal sales trends more effectively than annual or quarterly budgets. Simply put, the sales budget shows your desired direction and goal for the 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
One of the most important things to remember is that your budget must be realistic by accounting for both internal and external factors affecting sales numbers throughout the budget period.
Step 1: Select a Period for the Budget
Sales budgets are most often structured as quarterly budgets with an annual total, but they can also be set up as an overall annual budget.
Step 2: Gather Sales Prices
Have your current selling price of each unit or service on hand. If you have multiple products or services, gather the current selling price for each one. If your company is planning price changes later in the year, have those new prices available as well.
Step 3: Pull Historical Sales Data
If you’ve been in business for some time, this is your main starting point. Gather sales data from the same period you will use for your budget. Most sales CRMs now make it easy to quickly pull these numbers. For annual budgets, pull data from the entire previous year; for quarterly budgets, pull data from that same quarter last year.
Step 4: Look at Industry Benchmarks
If this is your company’s first year in business, you won’t have historical sales data to start with. The next best place to look is your industry’s sales benchmarks. Benchmarks and sales data for public companies are available online, and the U.S. Bureau of Labor Statistics provides industry-wide growth estimates and other important financial data.
Step 5: Factor in Market Trends
Past sales numbers provide a good foundation, but past performance does not always predict future results. Current market trends in your industry should be a factor when preparing your budget. Whether sales are rising or falling in your industry, account for any current trends. Consider increased competitor saturation or other market conditions that could affect sales.
Step 6: Take the Size of Your Sales Team Into Account
Look at how many sales representatives your team has going into the budget period and compare this to past sales periods. If you have significantly fewer salespeople now, you may not have as many total sales. If you’ve onboarded more new reps recently, you will probably see higher sales numbers. Adjust your estimated sales figures accordingly.
Step 7: Consider Any Changes to Your Business Model
Any changes made to your business model will affect the sales budget numbers. Changes may include increasing your range of products or services, expanding into new territories, discontinuing products, or recent price changes. Factor these changes into your new sales budget.
Step 8: Talk to Your Sales Reps
Your sales reps deal with customers daily in the present market. Get an idea from them about how many sales they anticipate having and what their individual pipelines look like. Their input will prove invaluable in creating an accurate sales budget.
Step 9: Talk to Your Customers
Your customers themselves are a great resource, 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.
Step 10: Evaluate Your Sales Prospect Numbers
Look at the percentage of prospects in your sales funnel last year that were converted into customers. For example, if 30% of your prospects last year were successfully closed, you can estimate that 30% of the prospects in your team’s sales funnel now will convert into customers this year.
Step 11: Create the Budget
Using the information gathered in steps 3 through 10, estimate the number of units expected to be sold over the next year. Create your actual sales budget, showing quarterly totals or one annual total. Multiply the expected number of units sold by the current sale price to get estimated revenue totals.
Step 12: Continue to Review Your Budget
After completing your sales budget, 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 adjusted if sales go much higher or lower than expected. This is especially important if you are selling products. After the projected sales period has ended, compare estimated versus actual sales. Variances can help create more accurate future budgets.
Three Sales Budget Examples
Example 1: Multiple Products or Services
Best for a company selling multiple products or services at different price points.
| Quarter 1 | Quarter 2 | Quarter 3 | Quarter 4 | Annual Total | |
|---|---|---|---|---|---|
| Pro Software | |||||
| Expected unit sales | 1,000 | 700 | 700 | 900 | 3,300 |
| Price per unit | $600 | $600 | $600 | $600 | |
| Total revenue | $600,000 | $420,000 | $420,000 | $540,000 | $1,980,000 |
| Enterprise Software | |||||
| Expected unit sales | 800 | 600 | 600 | 700 | 2,700 |
| Price per unit | $1,140 | $1,140 | $1,140 | $1,140 | |
| Total revenue | $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: Single Product with Price Increase
Best for a company selling one product or service with no sales discounts, but anticipating price changes.
| Quarter 1 | Quarter 2 | Quarter 3 | Quarter 4 | Annual Total | |
|---|---|---|---|---|---|
| Expected unit sales | 5,500 | 6,000 | 7,000 | 8,000 | 26,500 |
| Price per unit | $65 | $65 | $75 | $75 | |
| Total overall revenue | $357,500 | $390,000 | $525,000 | $600,000 | $1,872,500 |
Example 3: Single Product with Sales Discounts
Best for a company selling one product at a fixed price but offering bulk purchase discounts.
| Quarter 1 | Quarter 2 | Quarter 3 | Quarter 4 | Annual Total | |
|---|---|---|---|---|---|
| Forecasted unit sales | 6,000 | 6,400 | 6,600 | 7,400 | 26,400 |
| 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 achievable by following the steps outlined in this process and using these sales budget examples as a reference 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.
