If you don't understand what costs will escalate with increased sales, you'll lose control of company spending.
But what exactly is a Sales Expense budget?
Sales expenses are those expenses directly related to selling a product. As a result, your Sales Expense budget lists the type of sales expenses you expect during the budgeted period.
You need a Sales Expense budget no doubt about. It's the only way to know how many sales you need to make to cover your fixed and variable monthly sales expenses. These expenses are inevitable because you need them to actually make the sales in the first place! If you don't understand what costs will escalate with increased sales, you'll lose control of spend.
Here's an example to make things clearer:
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This example highlights the importance of a Sales Expense Budget
Jane owns a skincare company in Cape Town called 'Plain Jane Skincare'. It manufactures a facial cream called 'Look like Jane'.
She owns a small warehouse where she and her five employees manufacture the facial cream. Jane plans to expand her distribution to supply all cosmetic dealers in South Africa with her 'Look like Jane' product. She hires Angie as a sales manager and she works on a commission basis.
Jane's operating expenses are telephone costs, warehouse rent, sales commission, travelling costs and accounting fees.
Jane has a General and Administrative Expense budget, but she finds it a bit tricky to track her sales expenses. So she has no idea if her sales are profitable. Now Jane's sales expenses include her Johannesburg showroom rental,telephone calls and Angie's commission. This because they're all directly attributable to making the sale.
To know if she's making a profit or not, Jane needs to set up a Sales Expense budget to see if her outgoing cash is less than her incoming.
As a final note, bear in mind that in certain cases you can consider an ordinary expense a sales expense as. We're talking about costs to run your business like general and administrative expenses including electricity, plumbing services, security costs and accounting fees. Just remember that you should only include these in your Sales Expense budget if you you can attribute these expenses to selling the product. (E.g. print costs for promotional materials like brochures, pamphlets and stickers.)