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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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)
Sell budget to top management
Control sales operations to
meet budget
Analyze price and expense changes
(profit analysis)
Break-even analysis
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Determine top managements sales
and profit objectives
Top managers often times have the authority in approving or not approving
a budget
Determine what top management goals and objectives are
(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)
Sell budget to top management
Control sales operations to
meet budget
Analyze price and expense changes
(profit analysis)
Break-even analysis
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Forecast sales and break down by
Territory, product, salesperson
Sales force composite
Jury of executive opinion
Survey of buyer intentions
Trend projections
Moving averages
Exponential smoothing
Regression
Econometric models
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Forecast sales and break down by
Territory, product, salesperson
How would you forecast for:
Territory
Product
Salespeople
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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)
Sell budget to top management
Control sales operations to
meet budget
Analyze price and expense changes
(profit analysis)
Break-even analysis
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Determine functions that must
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
(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)
Sell budget to top management
Control sales operations to
meet budget
Analyze price and expense changes
(profit analysis)
Break-even analysis
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Determine sales expenses
(fixed vs. variable)
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
(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)
Sell budget to top management
Control sales operations to
meet budget
Analyze price and expense changes
(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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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
Analyze price and expense changes
(profit analysis)
Sell budget to top management
Control sales operations to
meet budget
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Analyze price and expense changes
(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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Analyze price and expense changes
(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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Analyze price and expense changes
(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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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)
Analyze price and expense changes
Sell budget to top management
Control sales operations to
meet budget
Break-even analysis
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Sell budget to top management
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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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)
Analyze price and expense changes
Sell budget to top management
Control sales operations to
meet budget
Break-even analysis
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Control sales operations to
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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