A sales budget improves financial planning, revenue forecasting, goal creation and resource allocation.
It’s not easy to predict future sales and create an accurate budget. There’s a lot of financial documentation to wade through, including income statements and balance sheets.
In this article, you’ll discover how to use this information to create a compelling sales budget. You’ll also see how a sales budget benefits your business, learn the steps for building a sales budget and get a sales budget example.
What is a sales budget?
A sales budget is a plan that estimates how much your business expects to sell and earn over a specific period. It allows you to manage resources and profits based on these expected sales.
Say you operate an online clothing company. Once you create a sales budget and forecast sales revenue, you can:
Plan inventory accurately. Knowing how much you expect to sell over a given period ensures you have enough inventory to meet customer demand
Set clear goals. Creating a sales budget allows you to set clear sales goals for the sales team, telling them exactly what they can achieve over time
Control costs. Track and manage expenses by comparing actual costs against your budget, ensuring profitability
What’s included in a sales budget?
A sales budget includes this information:
Sales volume forecast. The number of units or services you expect to sell during the budget period
Pricing strategy. The sale price of each product or service to help calculate your total revenue
Total revenue projection. The revenue you expect to make as calculated from the sales volume and the price per product or service
Cost of goods sold (COGS). The cost of producing or delivering the goods and services sold, like labor costs and raw materials
Operating expenses. The cost of running the business, which includes marketing spend, employee salaries and administrative costs
Profit margin. The profit after subtracting all outgoing costs from total revenue
We explore how to create a sales budget in more detail later.
How does a sales budget benefit your business?
Creating a sales budget can be time-consuming and complex, but it’s worth it. Here’s why:
Better business performance prediction
A sales budget predicts business performance by estimating future sales, revenue and costs. This information allows you to anticipate income and create a realistic sales budget.
Say you expect to sell 500 units at $100 each. The sales budget projects a total revenue of $50,000. Operating costs are $10,000, leaving you with a profit of $40,000.
If you meet or exceed these sales and profit figures, it indicates strong business performance. If sales fall short of the budget, it highlights areas needing improvement. Address these issues by altering pricing strategies or production efficiency.
More effective resource allocation
Understanding expected sales will help you divide resources as efficiently as possible. Say you forecast 2,000 units sold in the next quarter. You allocate your budget to buy the right amount of inventory to meet demand. As a result, you reduce the risk of purchasing excess stock, which ties up cash flow and limits spending in other areas.
In the process, you align marketing costs with sales forecasts. For example, you might spend more on promotion during periods of high demand while reducing spending during slower sales periods. This strategic resource allocation helps you stay within budget, increase profitability and meet targets without unnecessary costs.
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Improved cash flow management
Sales budgets help business owners manage cash flow by projecting when funds come in and out of the business. As a result, you can cover expenses, avoid shortfalls and prepare for future investments.
Imagine you forecast $10,000 in sales over the next quarter. You expect to receive 60% of payments upfront and 40% within 60 days.
Based on this projection, you anticipate $6,000 in immediate cash inflows and an additional $4,000 later in the quarter. Knowing this, you plan to cover expenses like payroll, raw material costs and other overheads with the initial cash to avoid shortfalls.
Better business decisions
A sales budget offers data-driven insights that guide strategic decisions. For example, you can evaluate business performance, identify underperforming areas and adjust sales strategies or marketing efforts.
Say your sales budget predicts $50,000 in revenue for the quarter. Your actual sales are only $40,000, showing a shortfall of $10,000.
Identifying this variance helps you pinpoint underperforming areas, such as a particular product line or sales region, and investigate why they aren’t meeting expectations. Issues could include low customer demand, ineffective marketing campaigns or inadequate sales tactics.
With these insights, make strategic decisions to improve business performance. For instance, you can reallocate marketing budgets to more successful products or revise pricing strategies. This approach allows you to realign your efforts, enhancing sales performance and profitability.
Note: Variance is the difference between what you expect to sell (sales forecast) and what you sell. Understanding this difference is crucial for performance evaluation. It allows you to identify underperformance and make fast decisions to boost sales revenue.
More realistic and achievable targets
Sales budgets are invaluable for setting realistic targets. They manage expectations by considering historical performance and external market conditions.
Say a sales team wants to increase customer subscriptions by 70% next year. Past growth trends and market conditions show a 70% increase is unachievable in 12 months.
The sales budget levels expectations by reflecting an annual increase of 35%, reaching 70% over two years instead of one. This realistic target allows for better resource allocation and
prevents overextending sales rep capacity. As a result, you minimize stress and boost employee motivation.
7 steps for building a successful sales budget
Take these steps to create an accurate sales budget for your business.
1. Determine the budgeting period
Start by clarifying the time frame for your sales budget. Typical periods are monthly, quarterly or annual. The ideal duration varies depending on your business’s sales and needs.
Say your business experiences frequent changes or quick turnover, like in the retail and food service industries. A monthly sales budget would make you more responsive to changes than an annual sales budget.
For businesses with longer sales cycles, like manufacturing or B2B services, an annual budget with quarterly reviews might be better for long-term planning.
2. Prepare the relevant financial documents
You’ll use several documents to help you prepare a sales budget, including:
Income statement. An income statement summarizes your revenue, costs and expenses over a certain period. Also known as a profit and loss statement (or a P&L), this form helps assess profitability by subtracting expenditures from your total revenue.
Balance sheet. A balance sheet provides a snapshot of your financial position, listing assets, liabilities and equity at a specific date. It paints an accurate picture of your financial health.
Cash flow statement. A cash flow statement tracks cash inflows and outflows. It summarizes cash flows from operations (like sales and expenses), investing (like purchases or sales of assets) and financing (like loans or dividends). It helps you understand whether your business has enough money to stay afloat and grow.
Ensure all these documents are current to create an accurate sales budget.
How to prepare financial documents in Pipedrive
To prepare these documents in Pipedrive, integrate them with accounting tools like QuickBooks and Dryrun. Each of these accounting systems generates financial statements automatically.
Here’s an example of the cash flow data in Dryrun:
To access these integrations, sign up for a Pipedrive account and follow the steps on the integration pages linked above.
3. Analyze past sales data
Review historical sales data from the same period to create a realistic and informed budget.
Say you’re creating a sales budget for July, aiming for a 10% increase in sales. The two previous Julys each show a 2% increase in sales. This data indicates it’s unreasonable to predict a 10% increase for this July.
However, other external factors, such as economic growth, consumer preferences and regulatory changes, make you think a 10% increase is reasonable.
Review this sales data as part of the process:
Year-over-year (YoY) sales growth (or decline)
Sales by product or service
Sales by customer segment
Sales by channel
Pricing trends
Conversion rates
Cost of goods sold
Note: The data worth analyzing for your business’ sales budget may vary. Consider all the useful information to predict future sales in your specific company.
How to analyze sales data in Pipedrive
Use Pipedrive’s insights and reports to access metrics from past sales. Analyze data like deal values, conversion rates, revenue trends and sales activities to identify sales patterns.
Display this information in a dashboard for easy analysis.
4. Compare your sales data with industry trends
Current market trends and industry performance can influence your sales budget. For example, if consumer preferences shift to eco-friendly products, a clothing company might expect a higher demand for sustainable items.
In response, the company adjusts its sales budget. It allocates more resources to eco-friendly lines, forecasts increased sales and sets higher sales targets for those items. The adjustments align the sales budget with market conditions.
Here are a couple of the ways to compare industry-wide sales trends with your data:
Identify metrics across your industry. Review data like average sales growth rates, pricing trends, customer acquisition costs (CAC) and conversion rates across your industry. To find this information, look at industry reports and market studies from reliable sources. For instance, look at sources like Statista or the US Bureau of Labor Statistics.
Perform competitor analysis. Study competitor performance to identify similarities and differences with your sales performance. Gather sales figures through financial reports and market research tools. Compare their performance with yours to identify differences and similarities. Find out more about how to perform a competitor analysis.
Note: Comparing data with industry trends can also be reassuring. You may panic because sales dropped last year, but it could be an industry-wide dip. Attributing the slowdown to external factors rather than internal issues allows you to make informed decisions and boost sales going forward.
How to compare sales data with industry trends in Pipedrive
There are a couple of ways to compare internal sales data with industry trends in Pipedrive:
Analyze deal performance by segment (like region or product type) and compare it with industry trends. Identify where your business aligns or deviates from the market.
Generate reports based on your sales metrics and compare them with external benchmarks. Here’s how these reports look in Pipedrive:
Find out more about the different report types in Pipedrive.
5. Calculate your sales budget
Use all this information to create your sales budget. Multiply expected sales volume by pricing to estimate total revenue. Subtract your estimated costs to finish your sales budget.
Here’s how that looks as a calculation:
Expected sales volume x pricing = total revenue
Total revenue − estimated costs = sales budget
Let’s use a real example to show how this sales budget formula works.
Your company expects to sell 5,000 units of a new product at $50 per unit. The estimated total revenue for selling this number of products is $250,000.
5,000 x $50 = $250,000
The estimated cost for producing and selling these units is $150,000. Subtract the estimated costs from the total revenue, leaving you with $100,000.
$250,000 − $150,000 = $100,000
6. Share the budget with relevant stakeholders
After finalizing the sales budget, share it with the necessary stakeholders to gather input, feedback and approval. These stakeholders typically include:
Sales managers
Finance teams
Executive leaders
You can share the budget virtually, ask people to review it and leave comments. You could also host an in-person meeting (or a video call for those working remotely) to discuss the budget.
7. Monitor sales performance
A sales budget isn’t set in stone. You must track sales performance to ensure it aligns with your predictions. If there are variances between actual sales and budgeted sales, adjust to get things back on track.
Say you predict $250,000 in sales for Q1 but only achieve $200,000. Analysis shows the shortfall results from lower customer demand and a higher number of competitors. Based on this analysis, reassess sales projections and revise your target to $220,000 for the next quarter.
With these adjustments, your budget aligns with market performance and ensures accuracy in other business areas, such as allocating resources more effectively to achieve your sales target.
How to track sales performance with Pipedrive
Here’s how to use Pipedrive to track sales performance:
Create custom reports on deals, revenue and conversion rates. Open these reports to see real-time performance and ensure sales progress is in line with your forecast
Set sales goals to track your sales targets. If progress falls behind, you can make adjustments and get things back on track
Manage your sales pipeline. Check the status of deals in each stage of the pipeline, identify bottlenecks and ensure a smooth transition from nurturing to conversion
Track team activities. Monitor team calls, meetings and emails to measure how efforts impact sales results
Review deal reports. Analyze won, lost and pending deals at the end of your sales budget period to analyze performance and make improvements for the future
Download our sales pipeline course e-book
Sales budget example
Here’s an example of a sales budget. Feel free to use this example as a sales budget template.
Sales budget for Q1 (January − March)
Expected sales volume | Amount |
Product A (500 units @ $50) | $25,000 |
Product B (300 units @ $30) | $9,000 |
Total sales revenue | $34,000 |
Expenses | Amount |
Marketing | $3,000 |
Sales team commissions | $2,500 |
Operational costs | $1,500 |
Total expenses | $7,000 |
Total sales revenue ($34,000) − total expenses ($7,000) = sales budget ($27,000)
Final thoughts
Creating an effective sales budget is essential for business success and growth. Set clear revenue goals, allocate resources efficiently, track performance against targets and improve decision-making.
Use a sales CRM like Pipedrive to manage your budget and track sales performance. Our real-time insights let you make fast and informed decisions to increase sales and help your business thrive. Sign up for free to try it.
