Sales Planning, Forecasting, Budgeting and Control
What this domain tests
The distinction between a forecast, a quota and a budget, the main forecasting methods, and the tools a manager uses to control selling performance.
Planning tools
- Sales forecast: an estimate of expected sales for a future period, in units or rupees.
- Sales quota: a target assigned to a person or territory; it is a motivational standard, deliberately set above or below the forecast.
- Sales budget: a financial plan of expected sales revenue and planned selling expenditure.
- Territory: a group of customers assigned to one salesperson.
Forecasting methods
Qualitative: jury of executive opinion, Delphi method (anonymous, repeated questionnaires), sales-force composite (aggregating representatives' own estimates), buyer's expectation survey. Quantitative: moving average, exponential smoothing, trend projection, regression analysis.
Control devices
Quota-versus-actual comparison, variance analysis, expense-to-sales ratio, call-per-day report, ABC analysis of customers (A = top contributors needing most attention), sales audit.
Worked example
A territory carries an annual quota of 500 units and an expense budget of ₹50,000. Actual sales are 450 units and actual expenses ₹55,000.
- Achievement = 450 ÷ 500 = 90%, shortfall = 50 units.
- Expense ratio = 55,000 ÷ 50,000 = 110% of budget, an overspend of ₹5,000.
- Sales per rupee of expense is falling, so the variance needs explanation: lower volume with higher cost usually points to wasted calls or a weak territory plan. Reasoning: never compare a forecast (an estimate) with a quota (a target); control compares actual against a standard and then explains the gap.
Traps that cost marks
- Saying the forecast and the quota are the same thing.
- Mixing up the Delphi method (experts, anonymous, iterative) with the jury method (executives meeting openly).
- Treating a budget as only an expenditure ceiling and ignoring the sales revenue side.
- Computing variance as a percentage without stating the base.