---
title: "How Should FMCG Companies Plan Their Annual Budget for 2023?"
description: "This is the time of year when FMCG companies plan their annual budgets for the coming year. Recently, I've received many calls about annual planning, and I'd like to share a few key reminders. Based on my experience with corporate budget planning, I've identified several critical points to consider."
author: "高级研究员 海游"
publisher: "New Distribution"
email: "zhaobo258@gmail.com"
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published: "2022-10-06"
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# How Should FMCG Companies Plan Their Annual Budget for 2023?

> This is the time of year when FMCG companies plan their annual budgets for the coming year. Recently, I've received many calls about annual planning, and I'd like to share a few key reminders. Based on my experience with corporate budget planning, I've identified several critical points to consider.

Every year at this time, FMCG companies are in the period of planning their annual budget for the coming year. Recently, I've received many calls about annual planning, hoping to get some key reminders on budgeting. I've summarized the budget planning process from previous corporate experiences and have sorted out a few points that must be paid attention to, which I'd like to share with everyone.

**01**
## **Sales Budget and Review**
The sales volume and profit targets for the coming year have always been the top priority for enterprises. On a larger scale, they involve the operation and development of the company; on a smaller scale, they affect the vital interests of every employee. Therefore, both management and staff pay close attention to them. Here are a few key points I'd like to raise.

Dimension 1: Population, per capita consumption, and per capita output: For FMCG products, population represents the regional sales and profit capacity, per capita consumption indicates the current operating status of the region, and per capita output is a measure of the efficiency of regional manufacturers and distributors.

These three indicators are common metrics for enterprises, but they are not sufficient. We need to add one more: the competitive dimension, meaning we must fully consider how existing sales were achieved and how to achieve healthy growth in the future. For example, if sales were gained by taking share from competitors, what price was paid? We must avoid situations where sales growth is far lower than expense growth; using expenses to buy sales does not match the current market economic conditions.

Dimension 2: Budget planning by brand and category: It is common in the FMCG industry to focus on product lines as the core of the budget. What needs attention here is: different markets should apply the "short board principle" in strong markets and the "long board principle" in weak markets, seeking a growth path that better matches the market. Senior management should point out a "clear path," and middle management should execute it well.

Dimension 3: Focus on the basic management effectiveness of frontline execution personnel: Markets are made by people, and budgets should match management effectiveness. For example, indicators such as per capita productivity, visit success rate, customer activity rate, average SKU count per order, and monthly output per outlet. The purpose of this is to manage those grassroots marketing units that are "governed by doing nothing," and to conduct a review of human resource management effectiveness, providing human resource support for productivity (both corporate teams and distributor teams).

**02**
## **Sales Targets Centered on Product Lines**
Every FMCG company produces different categories, which can also be called sub-brands. For example, a typical bottled water company will have water brands and non-water brands (juice brands, soda brands, etc.). The company's annual sales target comes from the combination of sales targets for each product. Based on the product line, and considering the industry track of each sub-brand, confirming the target is the common version for FMCG companies. There are also a few key points here.

Dimension 1: Market share targets by brand. Common key indicators include the actual sales of Brand A this year, the sales target for Brand A next year, and incremental space analysis (through which channels and means the increment will be achieved). At this point, we also need to add: sales forecast for the first competitor and a comparative analysis between this product and the competitor. Today's competitive landscape is in a stock or shrinking market environment, so sales forecasts without considering competitors are unscientific.

Dimension 2: Analysis of basic indicators by brand. Treat each sub-brand as an independent accounting unit to analyze the distribution rate of the sub-brand.

For distribution rate, pay attention to three points: Traditional distribution rate has two forms: numeric index (numeric distribution) and weighted index (weighted distribution). The numeric index of distribution rate refers to the percentage of stores that sold the product or brand during the calculation period, reflecting the coverage extent of distribution. The weighted index of distribution rate refers to the percentage of sales of that product category in all sample stores that were made by stores carrying the product during the calculation period, indicating the importance of different stores. The specific calculations are as follows:

1. Numeric distribution index for a brand = number of stores selling the brand in the period / total sample stores.
2. Weighted distribution index for a brand = sales of that category in stores carrying the brand during the period / sales of that category in all sample stores.
3. I suggest adding one more: shelf distribution rate, which is the percentage of total shelf space for that product category in all sample stores that is occupied by the product or brand during the calculation period. This measures the visibility of the brand in stores.

Dimension 3: Guarantee of growth sources

1. SWOT analysis is a common analytical tool. Growth comes from product strategy, channel strategy, expense strategy, etc. Among these, grasping opportunity points is the direction for growth focus.
2. Monthly budget rules by brand: Here, try to shift sales forward. For example, Jinmailang Beverage's marketing company's monthly budget planning from January to August basically completes 80% of the annual budget, ensuring the achievement of the annual budget. Of course, companies with over 10 billion in sales may not be suitable, but the advantages of budget shifting are worth exploring. Additionally, monthly planning should clarify the sales characteristics and promotion strategies for each stage, which must be implemented with time, targets, personnel, etc.
3. Budget constraints at each sales level: Using the word "constraint" is to prevent two extremes in each sales unit: one is lazy avoidance of weaknesses, using the increment of sub-brand A to cover the inaction of sub-brand B; the other is opportunistic "Tian Ji horse racing," where a unit plans to give up a certain month's target, so it adjusts that month's sales task to the maximum to ensure high performance in other months.

**03**
## **Channel Network Development and Channel Price System Planning**
This planning first requires enterprises to break through existing cognition. I often give examples to executives: A certain brand has been committed to addressing false orders and effective expense implementation, so it has increased order verification efforts and the granularity of expense rules year by year. The more it does, the more tired it gets, and the more cumbersome the organization becomes.

Jinmailang never checks for false orders because its channel model is "small boss contracting," so they certainly won't deceive themselves. Nongfu Spring never mobilizes corporate resources to check effective expense implementation because its channel model is "distributor contracting."

The ultimate purpose of corporate expenses is to achieve performance. When expenses are linked to performance, distributors will be more careful with their own money. Moreover, the granularity of where expenses go is so fine that the company itself cannot formulate it.

1. The first step in channel network development is always the channel coverage model. The model is a redefinition of the rights, responsibilities, and benefits of manufacturers and distributors. Without this overall view, subsequent operations can only be defined as "a drop in the bucket."
2. Without outlets, there are no sales. Outlets come from effective coverage by distributors and sub-distributors. Enterprises should plan the number of these channel partners. More distributors is not necessarily better; it's better to have more refined ones. Enterprises can classify existing distributors based on capability and willingness, empowering those who should be empowered, helping those who need help, guiding those who need guidance, and eliminating those who should be eliminated.
3. Channel price system: I believe every company has its own standard price system. In budget planning, attention should be paid to the differences from the company's standard price system this year and explanations for those differences. This is crucial. The more frontline the brand, the more attention it needs. Without reasonable channel profits, there is no ideal channel drive, and channel partners may even "hide sales" or treat products as "bait products," affecting the foundation of performance.

**04**
## **Expense Investment Planning**
Expense investment planning is also a core indicator of the annual budget. Summarizing the previous year's conclusions, there are usually three scenarios:

First, sales targets are met and expenses have a surplus. This is not necessarily a good thing. Be wary of not doing the market activities that should have been done. Understand that today's market activities affect not today's sales but tomorrow's.

Second, sales targets are met and expenses are just right. Be wary of year-end spending sprees. Check whether the money was spent in the right places and whether all spending indicators met standards.

Third, sales targets are not met and expenses are already used up. Analyze process indicators. This is the least desirable scenario for companies. It may be that the expense usage dimensions did not match sales growth well, and it deserves deeper investigation.

**1. Plan the goals and actions for each sub-brand:** Plan the main market actions for each sub-brand next year and make investment plans. For example, a product plans to do how many standard floor displays in modern trade? How many standard end caps? How many special displays? Shelf share index, etc. Expenses should be budgeted based on these, and input-output should be calculated.

**2. Plan investment according to peak and off-peak seasons:** Expense investment is related to sales, but they should not constrain each other. The logic is simple: evaluating the value of expense investment is not only about sales but also brand visibility. Markets have different maturity levels, and the stage of expense usage also differs. It can be understood as the logic of which comes first, the chicken or the egg.

**3. Freedom in resource usage:** How should expense budgets be planned by product line? The granularity should not be too fine; it's enough to go down to the provincial level. The people below are fighting competitors in the market. If soldiers have to apply for every bullet when encountering the enemy, then the company should reflect on its "bureaucracy."

**05**
## **Manpower Planning**
With the increase in labor costs, companies are controlling headcount more and more meticulously. High-sales brands can plan personnel based on regions and the number of outlets (one headcount for 200 effective outlets, which can be brand personnel, distributor personnel, or personnel whose costs are shared by both). General brands can plan based on next year's sales forecast, such as one headcount for 3 million in sales.

The above planning is reasonable, but one principle should be considered: compared to being poor, many people are more willing to work more. You can plan according to the 345 principle: use 3 people to do the work of 5 people and pay them the salary of 4 people (or even 5 people's salary). Through people's primal desires, stimulate their subjective initiative to do a good job.

**Final Thoughts:**
The annual budget is the core of a company's layout for the coming year. It requires a review of this year's operations. This is also the busiest time for companies, but I believe many people do not take it seriously, treating it as a "trial" rather than deeply understanding corporate budget planning or thoroughly analyzing the current situation. They just go with the flow.

For this situation, my suggestion is: establish a budget defense group composed of the boss, general manager, and senior executives, similar to a university thesis defense. Go through each budget one by one, ask questions at any time. If something is not clear, keep them at headquarters to continue planning, and don't go to the market with unresolved issues.

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