Chapter 7.
Financial Planning for Sales

• Building Relationships Principled Negotiations
  Salespeople need to get off the win/lose negotiation track Good customers want more than the lowest price Planning for a negotiation is an important and logical part of the process Follow through with periodic customer meetings		"principled" negotiation means
  		the bargaining process must protect the legitimate interests of both sides
  Four Attitudes that a salesperson can bring  to negotiations
  I'm not OK --- You're not OK (lose-win) Let buyer and seller beware I want to take advantage of you before you take advantage of me		I'm OK --- You're not OK (win-lose) My product is great I am great You are lucky that I am here
  I'm not OK --- You're OK (lose-lose) You have all the power I can't afford to lose this sale my company can't afford to lose this sale I hope that you'll treat me fairly my competitor's offering is just as good as mine and may actually be a better deal		I'm OK --- You're OK (win-win) I have a great offering that I truly believe is the best for you You are a valuable customer My firm will make a great partner for yours We will both get a deal that is satisfactory
  Transaction Analysis Association

---

• Introduction

  Profits are a result of profit planning not just sales volume The cost of high volume may be out of line A sales budget represents the financial planning guide The basis for the budget is forecasted sales

---

• Why budget?

  Budgets show us Sales opportunities Sales objectives Sales quotas Reasonable expenses are set aside to achieve the above Budgets stimulate cooperative efforts Budgets encourage Overall product line coverage Balance between Sales effort Sales expenses Planned Results Budgets offer a means for evaluation planning and effort Budgets create emphasis on profitable product lines profitable marketing areas profitable existing customers profitable prospects

---

• Whose responsibility?

  should coincide with profit responsibility

---

• Functions of The Budget
  Sales Budget
  Planning of Performance		Coordination of Performance			Evaluation of Performance

---

• Budget period
  Usually by month for a 12 month period Closer periods are more detailed Rolling budget AKA dynamic budget Revised each month or quarterly The most useful The most difficult and expensive
  Yearly Budget
  Oct	Jan	Apr	Jul	Oct	Jan	Apr	Jul	Oct	Jan	Apr	Jul
  Prepare	Operate
  				Prepare	Operate
  								Prepare	Operate
  Rolling Budget
  Oct	Jan	Apr	Jul	Oct	Jan	Apr	Jul	Oct	Jan	Apr	Jul
  Prepare	Operate
  	Revise	Operate
  		Revise	Operate
  			Revise	Operate

  ---

• Makeup of budget
  Salespeople’s Expenses	Salaries, commissions, bonuses Travel expenses Lodging Food Transportation Etc
  Administrative Sales Expenses	Manager's Salaries, commissions, bonuses Sales Manager's Travel expenses Lodging Food Transportation Etc Office expenses
  Other Selling Payroll	Trainer's Salary Sales Trainee's salaries
  Other selling Expenses	Meetings and conventions Sales promotions Display or showroom expenses Catalogs and price lists Recruiting expenses Moving expenses Demo product and samples expenses
  Communication expenses	Mailing Telephone Internet

---

• The Budgeting process
  Sales and profit objectives
  Usually determined by top management Sales and marketing have to bring in the cash
  Forecast sales
  Should be compared to objectives Any sales level can be attained at a price
  Determine sales and marketing functions
  Marketing's tasks relative to other departments Consider all elements of the marketing mix Sales is part of the promotion mix Advertising Selling Publicity Promotions	Frequently Overlooked Items
  	Rising management and sales compensation Costs of developing new managers Flexible head count. If a sharp salesperson becomes available then you should be able to hire. Meetings and incentives
  Fixed versus variable costs
  Fixed costs	Salaries office maintenance showroom insurance some taxes		fixed travel fixed entertainment depreciation auto leasing
  Remain the same over a wide range of sales
  Variable costs	Commissions Bonuses Mailing shipping		travel entertainment some advertising some promotion
  Increase or decrease as a function of units sold
  Break-even analysis
  Use the data to establish a breakeven point
  Analyze in terms of profit objectives
  Situation Fixed Expenses Price Unit Variable Cost Unit Breakeven Point A 1,250,000 500 300 6250 B Fixed Cost impact on BEP One less salesperson 1,200,000 500 300 6000 Add two salespeople 1,350,000 500 300 6750 C Variable cost impact on BEP Cut travel expenses 1,250,000 500 275 5556 Pay more expenses 1,250,000 500 350 8333 D Price impact on BEP Raise price 1,250,000 550 300 5000 Lower price 1,250,000 475 300 7143
  Sell Budget to Top Management
  Use budget for control - See worksheet

---

• On having a limited Budget
  Advantages	Disadvantages
  Overall company needs are easier to meet Every dollar saved goes to profit Dollars are spent more wisely Constantly reevaluating current expenses and new expenditures Forces managers to pay attention to the value of each dollar	Unexpected opportunities are missed due to lack of funds May leave some department needs unmet Tend to stretch resources thin Likely to have people burnout If compensation is tied to sales then in bad times Demotivates sales people Could impact customers Buyers may look at price and not benefits

---

• Summary
  Budgets serve at least two main purposes:	Forces management to think through the costs and revenues entailed in attaining sales and profit objectives Serve as a benchmark to monitor actual expenses
  Break-even analysis is a very helpful tool in the control process

---