Sales Budget: Definition

The starting point for preparing all other budgets is the sales budget. In sales, predictions are based on an analysis of past sales and an estimate of future economic prospects.

Sales from past years are usually broken down by product line, regions, and sales-people. Management tries to accurately forecast future market conditions.

After the forecast is complete, the management tries to develop strategies and policies to obtain its desired market share.

Also, planned sales may be overstated or understated, and so it is necessary to revise the sales budget frequently. Ideally, the sales budget should be refreshed every month due to changing economic conditions.

The sales budget should also be updated regularly for the company itself since sales tend to serve as a limiting factor for the preparation of all other budgets. This budget is probably the most important of all to the master budget.

Sales Budget: Explanation

In any company, the most difficult estimate to make is the sales revenue. To do this, combine:

  • A statistical forecast analyzing general business conditions, market conditions, product growth curves, and other related factors
  • An internal forecast based on the opinions of executives and salesmen (it is worth recognizing that the internal forecast may be impacted by bias and subjectivity)

There are advantages and weaknesses in both methods.

Neither can be guaranteed to give an even reasonably close estimate; the future is inevitably uncertain.

The sales budget is not a forecast. Forecasts are important but they are passive; a budget reflects the positive actions that must be taken in order to influence future events.

For example, this may be the sales forecast: With the present amount of effort in sales, we expect sales to run at about the same level as currently.

This is vague and indeterminate. By contrast, the sales budget might show a substantial planned increase in sales, reflecting management’s intention to add salespeople, increase advertising and sales promotion, or redesign the product.

The budget is usually prepared in quantities, products, work hours, and other amounts, after which it is translated into money values.

Common Headings Are:

Production Estimates need to be prepared for the sales of each product in the range
Territories Sales of each product, by quantities and values, to be achieved in each area
Type of Customer Important if different types of customers receive special discounts or special rates
Salespeople Sales by each seller or agent in a territory
Month To enable control checks of actuals/budgets

Given that sales budgets contain information that would greatly interest competitors, sales estimates may or may not be given as part of the budget guidelines.

Distribution may be restricted and summarized, offering up enough information to permit necessary planning.


The sales budget for the XYZ Company for the year 2019 is presented in the example below.

XYZ Company Sales Budget for June 2019

Total First Quarter Second Quarter Third Quarter Fourth Quarter
Product 1 200,000 50,000 80,000 40,000 30,000
Product 2 300,000 80,000 100,000 60,000 60,000

Frequently Asked Questions

What is sales budgeting?

Sales budgeting is the process of estimating sales volume for a set period of time. It serves as an important input to most other budgets and it can be used to monitor sales performance.

What are the components of a sales budget?

The components of a sales budget typically include: sales forecast, budgeted price, sales volume, and budgeted sales revenue.

What is the sales budget formula?

The sales budget formula is: Sales = Price X Volume. The sales volume proportion changes due to special promotions or discounts.

What are the steps involved in sales budgeting?

The steps include: forecast demand, calculate prices, calculate sales volume, estimate total revenues & costs, determine margin percentage & break-even point, and verify actual results against budget projections.

How is a sales budget developed?

A sales budget is developed using both top-down and bottom-up approaches. The top-down approach projects total industry demand for a product or service. In the bottom-up approach, demand for each segment of the market is projected then aggregated to reflect overall industry demand.

True is a Certified Educator in Personal Finance (CEPF®), a member of the Society for Advancing Business Editing and Writing, contributes to his financial education site, Finance Strategists, and has spoken to various financial communities such as the CFA Institute, as well as university students like his Alma mater, Biola University, where he received a bachelor of science in business and data analytics.

To learn more about True, visit his personal website, view his author profile on Amazon, his interview on CBS, or check out his speaker profile on the CFA Institute website.