The Uses of a Sales Budget


A sales budget is a forward-looking financial plan of sales volume and revenue for a certain period of time (usually a month or a quarter). Its basic components are the anticipated number of units to be sold, selling price per unit, and total sales. The sales budget serves as a basis for other business budgets, as well as for identifying needed process improvements and determining price increases.

Basis for Production Budget

  • The estimated sales volume helps a company plan allocation of direct labor and materials. Managers can plan employees’ regular working time, overtime and vacation leaves. Procurement managers can plan for the right amount of raw materials, which is enough to avoid production delays, but not so much that the company is left with wasted or expired material.

Basis for Overhead and Administrative Budget

  • Overhead and administrative expenses usually have variable components, like fuel for airlines, or electricity for office-based companies. Those expenses depend on numerous factors and influences, but a sound sales budget gives direction on how much an organization can control these variable expenses, and how much it can allocate for these expenditures.

Benchmark for Actual Results

  • An effective sales budget is used to compare actual sales volume to revenue for a specific period. The result informs the organization which estimates missed the mark, and helps it to improve its accuracy in writing future sales budgets.

Basis for Unit Price Increase and Business Campaigns

  • The sales budget can also offer insight as to how to manage price increases, and when to conduct marketing campaigns and promotions. An increase in demand for a product can be an opportunity for a price increase, after management’s review and analysis of the sales budget.

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