1.2.2. The Sales Budget
We need to forecast the volume of sales to understand the possible revenue that the business will generate. Sales are estimated in physical units of production and dollar values, as we saw earlier in the breakeven point section.
To enable us to forecast sales for the budget period we can use a number of methods and some are listed below:
Customer Surveys
Customer surveys include surveys of past customers as well as future customers and groups identified as being possible customers. These groups can provide information that will assist in predicting future trends in sales, such as whether sales demand will increase, decrease or remain stable.
Market Research
Market research can be carried out by organisations that specialise in this field and are skilled in market research techniques.
Market research will enable those preparing the budget to make decisions on possible changes in the market and to identify new markets to move their products and services into.
Statistical Analysis
Statistical analysis will enable those preparing the budget to predict possible future demand. Statistical analysis can be as simplistic as calculating averages based on past sales to identify trends that can be extrapolated into the future. It can also include more complex regression analysis that takes into account changes in past sales and converts these into expectations on the basis of sales forecasting.
Example:
To illustrate this point let us consider the example involving $20 million in annual sales. Let us assume that projections suggest that sales of 400,000 units at an average price of $100 can be confidently included in the budget.
Product Type |
Units Produced |
Revenue |
X |
160,000 |
6,000,000 |
Y |
80,000 |
2,000,000 |
Z |
60,000 |
8,000,000 |
ZX |
20,000 |
4,000,000 |
Total |
320,000 |
20,000,000 |
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