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strategic goals are to be realized.  . These short term. PERFORMANCE STANDARD are the month by month objectives which must be met if annual and eventually. They are derived from strategic goals frequently by using the first year of a three to five year projection modified in light of anticipated economic and other environmental factors. annual objectives are almost always incorporated into an operating budget as well as translated into operating standards which can be linked to a network of enforcement activities.

There may be no choice but to trim expenses. it is sometimes useful to derive a short term sales prediction from expense and profit expectations. On the other hand. If it does. lower profit expectations. A trend based goal may appear completely unrealistic as the result of such a comparison. Comparison of a sales forecast. the comparison may reveal what could be done with a greater commitment of resources to advertising and selling. . management is at least alerted to be ready for rough weather. derived from a trend projection with one that will be necessary to meet expected expenses and desired profits.  Since it may be possible to anticipate internal conditions one year ahead with some degree of confidence. and strain to get every ounce of productivity out of the sales force.

Expense Based Goal  Estimate of Future Expenses  Correlation Determined Goals  .

The projection of expenses as a means of establishing short run sales objectives rests on the assumption of a unique functional relationship between costs and sales.  . this functional relationship makes it possible to determine the volume of sales necessary to defray them and realize the desired margin of profit. category by category.  Expense estimate:. should reveal that use of this method is limited to firms in which the variable cost component of total operating cost is negligible.  Once the total costs have been estimated.An analysis of expenses. It is perhaps needless to mention that this approach is limited to firms in which the variable cost component of total operating cost is negligible.

and Application of the expense ratio (estimated gross margin minus profit goal) to estimated total expenses. . Selection of a profit goal. Anticipated gross margin for this period. The mechanics of the expense oriented sales projection generally involve four steps: 1) 2) 3) 4) An estimate of expense for the future period in question.

should reveal which are likely to increase. An analysis of expenses. . or to remain unchanged during the coming budget period. category by category. and the purchase of new equipment .as well as the savings expected from the use of new equipment and the institution of more efficient procedures. the redecoration of offices and display rooms. to decrease. This analysis must include a recognition of the effect on future costs of such nonrecurrent factors as a special promotional campaign.

3%. Application of the expense ratio:.2% of net sales will be available for selling administrative and other expenses. If total sales are estimated at 24. the volume of sales required to meet them and profit expectations can be determined as follows:Sales objective next year = x Then.6 million.122x= 24.5% and the profit goal is 8.6 million Therefore x= 201.6 million . then 12.If gross margin for the coming year is 20.

correlation techniques offer the greatest promise of improved short run sales forecasting. Every variable known to have a material influence on the success of marketing efforts can be included in the computation and given a weight commensurate with its influence. With the advent and increasing use of automatic data processing equipment. .

plans can be relatively short term and easily adjusted when conditions change. In a small. for in small firms managed by one or two persons. There are two types of budgets ◦ The Sales Budget ◦ The expense Budget .   It sometimes assumed that control is impossible without budgets. This is an exaggeration. closely knit organization. It is often possible to obtain a high degree of control without formal budgeting.

the various parts of it correspond to the different categories in the company budget.   Since the sales budget represents a component of the overall company budget. it may be advisable to separate expenses into those which pertain to inside selling and those which pertains to outside selling. If the sales manager spends a third of his time “in the field” selling. and fixed categories. Two important measures of performance in addition to monthly sales objectives and expense limits are: ◦ Contribution to overload ◦ Selling expense as a percent of total sales. semi variable. a third of his salary and traveling expense should be charged to outside selling rather than to administration it may also be desirable to separate expense into variable. Depending on the manner in which the marketing effort is organized. .

. and insurance. and total semivariable expenses are logical control points. they represent limits on operating expense beyond which individuals responsible for marketing efforts should not go without approval from higher authority. If these standards reflect consideration of past experience and all anticipated conditions affecting sales. Expense budgets may be developed for warehousing sales and service operations. promotion. costs and profit. training. particularly if they are expressed as percents of net sales. delivery. or for individual categories of expense such as wages and salaries. Total fixed. supplies.   Performance standards for costs are especially important because they place sales performance in better perspective. total variable.