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Definition: Percentage of Sales method
Percentage of Sales method is a forecasting approach which is based on the assumption that the balance sheet and income statement accounts would vary with sales. It is totally based on Sales. Based on previous sales, new budgets for ad commercials are decided.
In this the balance sheet and the income are expressed in terms of sales percentage.
Also, percentage of sales is used in the field of advertising to set the amount of spend which can be used. The calculations are based on the previous expenses / sales and based on that, the new budget is formulated.
If a company is expecting sales of 50 lakhs then it will allocate its advertising budget as a percentage of its sales say 10 per cent i.e. 5 lakhs.
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