Budgeting Basics and Beyond

10.2. Selling Expenses

Selling expenses are those that are required to make a sale (sales commissions, salesperson salaries, advertising, and sales promotion) and to distribute the merchandise to the customer (order processing, handling, storage, and delivery charges). The manager should appraise the efficiency and effectiveness of getting and filling orders.

Sales may be appraised by customer, product, service, salesperson, sales method, territory, and distribution outlet. Selling effort is subject to diminishing returns because, after a certain point, additional sales volume from selling efforts do not justify the additional cost and time. Further, the sales manager should set sales personnel requirements by number and grade.

The manager is responsible for the selling expense budget. The variable-fixed breakdown is highly recommended. Many selling expenses may be budgeted based on a percentage of sales, including salesperson commissions and salaries, sales promotion, distribution (including freight out), travel, entertainment, warranties, and training. However, some selling expenses, such as rent and advertising, may be constant or initially set by the sales manager. A fixed appropriation of selling expenses may be irreducible because a minimum amount is needed to function.

Selling expenses may be budgeted, reported, and analyzed by department, division, product, service, class of customer, territory, time period (e.g., monthly), transaction, distribution outlet, sales method, ...