Percent-of-sales budgeting
Percent-of-sales budgeting is a budgeting technique that involves setting a budget based on a certain percentage of sales. This approach is commonly used by businesses to forecast and plan their expenses and revenue for the upcoming period.
For example, if a company sets a marketing budget that is 10% of its projected sales for the next year, and it expects to generate $1 million in sales, then the marketing budget would be $100,000 ($1,000,000 x 0.10 = $100,000).
One of the advantages of percent-of-sales budgeting is that it is easy to implement and understand. However, critics argue that this approach may not take into account external factors that could impact sales and expenses, such as changes in the market or economy.
Despite its limitations, percent-of-sales budgeting can be a useful tool for businesses to set realistic budgets and track their financial performance over time.
Examples of percent-of-sales budgeting:
- Setting a budget for employee salaries as a percentage of total revenue
- Allocating a certain percentage of sales for research and development expenses
- Determining the advertising budget based on a percentage of projected sales
For more information on budgeting techniques, you can visit Wikipedia.