Meaning of Selling expense
The expenses that are initiated to achieve the objective of making sales such as sales commission, advertising and promotion, and distribution of merchandise to the customer are selling expenses.
It has to be noted that distribution costs do fall under selling expenses as they are incurred together. Distribution costs include order processing, handling, storage, and other charges.
The senior management shall take responsibility for making and filling the orders by customers. The sales made are appraised at many levels. At the desired target of service, it is appraised finally by customers who matter the most.
However, before the distribution is made, it must go through product checks, territory and distribution outlets, and even salespersons at many points. The sales department shall try to set expenses requirement by desired sales in the year.
What makes up total selling expense?
The components of total operating selling expenses would provide a picture of what the selling expense budget would comprise. Following are the important selling expenses:
| Selling personnel costs | The salesperson is directly involved in selling the product. Hence, the salaries and wages paid to them are included in selling expenses. This shall also include payroll taxes and benefits for the salespeople. |
| Advertising expenses | Selling the product requires the placement of products. The placement is done by reaching the customers through various media outlets and advertising platforms be it digital or physical. This requires making necessary advertising expenses. Most of the time, advertising selling expenses are kept fixed. |
| Variable selling expenses | These are incurred only when the business makes sales. That means if sales are made, various selling and distribution expenses such as ordering costs, handling costs, and other selling expenses need to be made, and hence, these are variable selling expenses. |
| Other selling expenses | Apart from the above major 3 selling expenses, the various selling expenses which are generally fixed in nature include insurance, rent expenses, supplies, travel, entertainment, etc. |
What is the Selling Expense Budget?
The selling expense budget is the framework or plans to estimate the upcoming periods of selling expenses. The selling expenses include expenses related to store displays, marketing campaigns, and distribution costs to customers.
The selling expenses are prepared by the senior management in the sales and marketing department to meet the sales goals of the company. If the company expects to increase sales by 20%, the sales and marketing department must estimate the required selling expenses to meet the desired sales goals.
Most of the selling expenses are based on factors such as based on the percentage of sales as salesperson commissions, warranties based on historical returns, advertising expenses based on the discretion of the senior manager. The senior manager tries to justify each expense in the selling expense budget.
The budget is reported and analyzed by the higher officials before making the recommendations and ultimately granting the approval of the budget.
Constructing selling expenses budget
The senior manager should decide on the sales objective of the company first to make an appropriate selling expenses budget. The budget can be further differentiated into quarters detailing out the quarter specific expenses that need to be made.
The senior manager shall estimate the variable costs per unit sold and based on past historical data try to lay out the budget. The fixed selling expenses are however based on contractual negotiations which cannot be controlled by the selling and marketing department.
Example
Sinra Inc produces plastic bottles for beverages company. To develop the selling and administrative (S&A) expenses portion of Sinra Inc’s budget, the computation shall start with previous historical data and then with variable expenses that cost about $ 0.20 per unit sold.
The fixed expenses as selling personnel cost about $2,800 per quarter. The company further estimates that advertising costs for various quarters are $ 200, $400, $ 1,600, and $1,000 in order.
This is based on the previous year’s expenditure. The traveling and entertainment costs come out $ 100, $ 100, $ 200, and $ 400 for all the quarters.
| Sinra Inc | |||||
| Selling Expenses Budget | |||||
| Q1 | Q2 | Q3 | Q4 | Total | |
| Units to Be Sold | 5,000 | 6,000 | 7,500 | 10,000 | 28,500 |
| Variable Selling expenses per unit | 0.2 | 0.2 | 0.2 | 0.2 | 0.2 |
| Total Variable Expenses | $1,000 | $1,200 | $1,500 | $2,000 | $5,700 |
| Fixed Selling Expenses: | |||||
| Selling personnel costs | $2,800 | $2,800 | $2,800 | $2,800 | $11,200 |
| Advertising | $200 | $400 | $1,600 | $1,000 | $3,200 |
| Travelling & entertainment costs | $100 | $100 | $200 | $400 | $800 |
| Total Fixed Expenses | $3,100 | $3,300 | $4,600 | $4,200 | $15,200 |
| Total Selling expense | $4,100 | $4,500 | $6,100 | $6,200 | $20,900 |
