In the percentage of sales method, budgeting is primarily based on what?

In the percentage of sales method, budgeting is primarily based on a set percentage of total sales. This approach involves taking a specific percentage of the company's actual or projected sales revenue and allocating that amount to various budget categories, such as marketing expenses. The rationale behind this method is that as sales increase or decrease, the budget for marketing or other expenses adjusts correspondingly, ensuring that expenditures align with revenue levels.

This method is straightforward and allows companies to create budgets that scale with their sales performance, which can be especially useful for businesses looking to maintain consistent spending relative to their income. It enables decision-making that is directly tied to sales projections, allowing for a more stable financial planning strategy over time.