Budgeting
Building a revenue budget
Turn an annual revenue target into a monthly budget that follows the business's seasonal pattern.
Learning objectives
- Derive seasonality weights from last year's monthly sales
- Phase an annual revenue budget by month
- Explain why a straight-line budget produces misleading monthly variances
An annual budget is approved as one number, but it is tracked every month. If FY2026 revenue is simply divided by twelve, every quiet month will look like a miss and every busy month like a triumph, and management will spend the year chasing variances that are just the calendar.
Rawdah Home Retail Co. earns far more in some months than others: home-furnishing sales peak around the holidays, the November sales event and year-end, and dip in mid-summer. Rawdah Home Retail Co. is a fictional retailer; all figures are illustrative. Phasing (spreading) the budget by month using the actual trading pattern makes each month's budget a fair benchmark.
wₘ = Revenue last yearₘ ÷ Σ Revenue last year; Budgetₘ = Annual budget × wₘ
- wₘ
- month m's seasonality weight: its share of last year's revenue (the twelve weights sum to 100%)
- Annual budget
- last year's revenue × (1 + budget growth)
- Budgetₘ
- the revenue budget for month m
Included with a Formula Quest membership
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