Would it be better to cut this line and promote the newer Hall/Wall model? That would eliminate $81,250 in sales, but the Electro-Revolving is expensive to produce, so discontinuation might not have much impact on the bottom line.
The Electro-Revolving model, for example, is faring poorly. Could you increase the anticipated sales for this model by 5% or 10% in 2015? How much more would you have to spend on sales or marketing to achieve this increase? To make the decision, you’ll need as much data as you can get about pricing, competitors, new sales channels, and other relevant issues.Īlternatively, you might plan to eliminate some products. The Standard Upright might be a particularly good choice, since it beat its 2014 projection by 9%. Perhaps it would make sense to increase your sales projections for those products, particularly if your sales reps are optimistic about the prospects for more sales. As the table shows, the Standard Upright and the Moose Antler Standard exceeded sales expectations in 2014. Instead, ask yourself what the budget shows about last year’s operations. (See the figure below, “Moose Head Division, Amalgamated Hat Rack.” Note that the parentheses in the table indicate unfavorable variances.)ĭon’t look only at specific revenue or cost line items, because revenue and costs are closely linked.
If you’re the manager of the Moose Head Division at the fictional company Amalgamated Hat Rack, for instance, you might look at the 2014 budget to get ideas about how to increase revenue, cut costs, or both.
Usually, budgeters take the previous year’s budget as a starting point. Put yourself in the position of a division manager with limited resources and many requests for funding: Under those circumstances, what would persuade you to grant a request for two additional staff members? Explain what you’re basing that assumption on, and show a clear connection to at least one strategic goal (in this case, it’s probably to increase sales by a certain percentage). Let’s suppose you think sales will rise by 10% in the coming year if you add two more people to your unit. Look hard at the assumptions you’re making. At its simplest, a budget creates projections by adding assumptions to current data. Is the budget just for this year, or is it for the next five years? Most budgets apply only to the upcoming year and are reviewed every month or every quarter. Other issues to consider when you’re preparing a budget:
Your job now is to look at big-picture items such as computer systems and to determine how all the smaller-scale budgets fit together. You can assume that the head of the 12-person office has thought about printer cartridges and gasoline for the sales reps’ cars. As you move up in the organization, the scope of your budget will broaden. But you should include detailed estimates for travel costs, telephones and utilities, and office supplies. If you’re creating a budget for a 12-person sales office, you typically won’t have to worry about capital expenditures such as major upgrades to the building. The smaller the unit you’re focusing on, the more detail you need. (Remember that a budget is just a plan with numbers.) How can you generate more revenue? Will you need more sales representatives? Where can you cut costs or reduce inventories? Make sure those goals line up with the organization’s strategic priorities.