Revenue budgeting remains the most crucial aspect of managing a company`s financial plan.
Without a comprehensive, accurate, achievable revenue budget, planned expenditure is not as important as first ensuring sales are real and achievable.
Despite the fundamental role sales budgeting plays in a company`s financial success, the process has remained centralised, driven from top management down, with cost centre and sales managers expected to work according to a framework of figures enforced on them by a budget they play little or no part in planning.
Giving sales teams targets to strive for is all very well, but how much buy-in can be achieved if targets are based purely on the previous year`s figures, plus a sweeping, arbitrary additional percentage? Unrealistic targets set this way are the quickest way to demotivate a sales team.
Revenue budgeting requires the same emphasis on cost centre management as financial budgeting - if top management does not involve cost centre managers in the sales budgeting process, how can they realistically hold them accountable?
This paradigm is one of the major causes of the constant migration of salespeople. The sales team is perhaps the organisation`s most valuable but least appreciated asset. A sales budget that is enforced from top down with no or little input from the sales team is more destructive than constructive, often seen in the bad business that gets done toward year-end as salespeople and managers panic to bring in as much revenue as possible to meet centralised targets. The centralised revenue budget model simply creates the proverbial hamster-on-the-wheel paradigm.
The accuracy of the sales budget cannot be understated, and the suitability of the current environment in delivering accurate sustainable planning numbers is inherently flawed.
Kevin Phillips, MD of idu Software.
The solution is to involve the people in the budgeting process who best know their customers, know what the market can bear and can be directly responsible for selling. Secure the buy-in of the sales team and the company`s budget is on a win-win path. The only way to achieve this is to provide a toolset that allows the sales team and management to build their projections in an environment that encourages financial planning flexibility and mutual goal setting.
Typically, sales toolsets for revenue budgeting are designed around the current practice: head office using the current year`s sales figures to set targets for what must be achieved the following year.
Few systems flexible
While most sales and CRM systems do a good job of collecting and managing customer data, they take little cognisance of the all-important relationship that exists between the customer-facing force and the customers, which is ultimately where business gets concluded. This is compounded by sales analysis systems that do an exemplary job of showing what has happened, where and why, but few systems allow the flexibility to quickly react when an accurate sustainable sales budget needs to be recompiled if, for example, a product line is discontinued.
The ideal revenue budgeting toolset will provide sales and cost centre managers with the flexibility to plan for revenue budgeting according to their knowledge of clients and market, while providing the functionality to budget and compare by product, product range, groups of products and product sets. Similarly customer data would need to be flexible, providing for individual customers, customer groups and even sales people who represent products to a range of retailers. All factors defined as important to the bottom line should be able to be analysed by region, retailer, sales person or any other defined breakdown required.
The toolset should be capable of interrogating the budget that has been set up, to "slice and dice" it and to expose the reasons why some regions sell more than others, what products are selling better where, and other dissected data. Prices should be able to be differentiated to determine how much a product costs across regions, customers and specific time periods.
Such a toolset decentralises the sales budget and empowers the sales team. All data resides centrally so both sales team and management have access to and insight into the wealth of information it reveals about what`s happening on the ground, where and why.
Another equally important reason to decentralise the sales budget process is for production and production planning. Production planning comes from business agreeing the sales budget and translating the data into production or supplier order requirements. An inaccurate sales budget results in an inaccurate production plan, which leads to the failure to meet agreed quota from suppliers, loss of negotiated discounts, production of stock that is not being sold, excessive stock holdings and other problems.
The number of cost implications resulting from an inaccurate production planning budget are endless, and all stem from the sales budget. The accuracy of the sales budget cannot be understated, and the suitability of the current environment in delivering accurate sustainable planning numbers is inherently flawed.
Top management planning sales budgets from the ivory tower of head office will be out of touch with local economic factors specific to regions. Cost centre managers, in comparison, are directly involved and have an intimate knowledge of the factors that influence their sales environment.
Feeding information directly from the ground into the budget encourages transparency, ownership, buy-in and sustainability across all levels. Most importantly, it re-invigorates the sales team with realistic targets that are attainable.
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