Financial Planning for Sales

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Financial Planning for Sales

L7Prepared by: Sherif AL Kammash


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Sales Management

Planning

PersonalSales RepsSales

Managers

Recruiting

Training

Motivating

Supervising

Managing a sales force involvesrecruiting, hiring, training, supervising,compensating salespeople, motivating them to become problem solvers, and

providing the proper planning and backup supportso they can perform theirjobs properly.

1) Automation2) Forecasting

3) Financial Planning

4) Quotas

5) Time and Territory

OverviewSales

Environment


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Why is budgeting important?


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Why Budget

Three major reasons for budgeting

Planning

So the firm has a direction and goals for the future

Coordination

Sales must be coordinated with production to ensure that enough products are available to meet

demand

Know how much capital is available

Control Allocation of budgets give more control over their use

(Source: Futrell)


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Who is responsible for setting and makingsure the budget is met?


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Responsibility

Sales manager

District sales manager

National sales manager

Director of marketing

Committee of sales and marketing executives(source: Hite and Johnston)


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Objectives

Define budgeting

Methods for making the budget

Making the budget

The budget process

Understand why budgeting is important


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Define

Sales force budget-is the amount of money available or

assigned for a definite period, usually one year. It is based on

estimates or expenditures during that period and on proposals

for financing the budget.

(Source: Futrell)


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Methods for Making the Budget

Three basic methods to determine how money should be allocated

1) Arbitrary percentage of sales

2) Executive judgment 3) Cost of each sales program

(Source: Futrell)


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Making the budget (costs)

Salespeoples expenses

Sales force compensation

Salaries

Commissions

Bonuses

Traveling expenses Lodging

Food

Transportation

Entertainment

Miscellaneous

Administrative sales expenses

Sales manager's compensation

Sales managers traveling expenses

Other selling payroll

Trainers salaries

Sales trainees salaries

Other selling expenses

Sales meetings and conventions

Sales promotion

Display or showroom expenses

Catalogs and price lists

Recruiting expenses

Salespeoples moving expenses

Communication expenses

Mailing expenses

Telephone expenses

(Source: Hite and Johnston)


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The Budgeting Process

Determine top managements sales

and profit objectives

Forecast sales and break down by

Territory, product, salesperson

Determine functions that must

Be performed

Determine sales expenses

(fixed vs. variable)

Break-even analysis

Sell budget to top management

Control sales operations to

meet budget

Analyze price and expense changes

(profit analysis)


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Be performed





meet budget


(profit analysis)

Break-even analysis


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Top managers often times have the authority in approving or not approving

a budget

Determine what top management goals and objectives are



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Be performed





meet budget


(profit analysis)

Break-even analysis


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Sales force composite

Jury of executive opinion

Survey of buyer intentions

Trend projections

Moving averages

Exponential smoothing

Regression

Econometric models


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How would you forecast for:

Territory

Product

Salespeople


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Be performed





meet budget


(profit analysis)

Break-even analysis


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Be performed

Determine who are the firms prospective customers and what do they want

How do we contact customers

How much will each method need to be budgeted for?

Phone, mail, personal selling, etc.

How do we develop the salespeople

What costs are involved?

Recruiting

Hiring Training

Supervising

Compensating



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Be performed





meet budget


(profit analysis)

Break-even analysis


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Fixed- costs that remain thesame over a wide range ofsales

Salaries

Permanent showrooms

Certain taxes

Depreciation

leases

Variable- costs thatincrease or decrease with thenumber of units sold

Commissions

Bonuses

Mailing costs

Shipping costs

Certain taxes



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Be performed





meet budget


(profit analysis)

Break-even analysis


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Break-even analysis

Break-even analysis shows the number of units that must be sold in order to

cover all expenses, both fixed and variable

BEP= break-even point in units

FC= Fixed costs P= sales price pre unit

VC= variable costs per unit

(BEP) = FC/(P-VC)


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Break-even analysis

How many units must be sold to break-even?

FC = $30,000,000

P= $4

VC= $3


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Break-even analysis

(BEP) = FC/(P-VC)

FC = $30,000,000

P= $4

VC= $3

BEP = 30,000,000/(4-3)

BEP = 30,000,000/ 1

BEP = 30,000,000 units


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Break-even analysis

How many units must be sold to break-even?

FC = $30,000,000

P= $3.25

VC= $3


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Break-even analysis

(BEP) = FC/(P-VC)

FC = $30,000,000

P= $3.25

VC= $3

BEP = 30,000,000/(3.25-3)

BEP = 30,000,000/ .25

BEP = 120,000,000 units


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Be performed



Break-even analysis


(profit analysis)



meet budget


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(profit analysis)

Profit analysis

How many units must be sold to make $1,000,000?

FC = $30,000,000

P= $4

VC= $3


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(profit analysis)

(Profit) = FC/(P-VC)

FC = $30,000,000

P= $4

VC= $3

Profit= $1,000,000

Number of Units = (30,000,000+ Profit level)/(4-3)

BEP = (30,000,000+ 1,000,000)/ (4-3)

BEP = (31,000,000)/ (1)

Number of Units = 31,000,000


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(profit analysis)

How will certain actions effect the BEA and the profit analysis

Fixed expenses have decreased

Variable costs increase

Cut in certain expenses

The firm wants to make a higher return


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Be performed






meet budget

Break-even analysis


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The sales manager must be able to defend the budget to top management

Understand how changes will effect the firm and be able to explain the

necessary steps needed to correct the change


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Be performed






meet budget

Break-even analysis


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meet budget Use the budget as a benchmark to help monitor expenses

If the budget is not being met, what actions need to be taken?


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Summary

Why is there a need for budgeting

Responsibility

Define budgeting

Methods for making the budget

Making the budget

The budget process

Understand why budgeting is important


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Case 7.1

How can the firm reach its break-even point?

A) decreasing fixed costs

B) decreasing variable costs

C) increasing price

How can the firm reach a profit of $100,000?

A) decreasing fixed costs

B) decreasing variable costs

C) increasing price


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Financial Planning for Sales

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