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Corporate budgeting process top customers vs. SKU (Webinar Attendee Question)

Coming from the consumer electronics business, do we budget at each of the top 10 customers and the full sku, etc.?  Secondly, for scenario planning, should we do this by updating the full budget or reduce it to segments - for example, segment A has sales and GM of this profile, etc.?

This question was asked by an attendee during the Proformative webinar "Planning and Forecasting Best Practices" held on March 7, 2013. Join the discussion and add your insights below.

Answers

Dallas Moody
Title: Director
Company: Carlson Management Consulting
(Director, Carlson Management Consulting) |

I would say that it makes the most sense to handle your budgeting following the 80/20 rule. If you are going to capture the majority of your revenues by modeling at the top 10 customers and full SKUs, it definitely makes sense to budget at that level and then plan for the remainder of the revenue using other considerations such as GM profiles on particularly segments.

As for scenario analysis, I would say it ultimately depends on the level of granularity required in the scenario and what would similarly drive the 80/20 rule for that particular scenario (i.e. segment/gross margin profile is appropriate or detail by customer). If you can build flags/valves into your revenue budgeting to apply certain assumptions across the whole model based on values of certain flags in the model, it could allow you to model some broad-based assumptions without requiring manipulation of significant amounts of underlying detail.

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