Your sales projection formula is key to more accurate financial projections and to the success of your business.
Sales projection formulas are always wrong. Here are six ways to improve them.
Sales projection formulas are wrong because…
- Sales projections are not supposed to be right.
They’re a snapshot of what to expect each month based on relevant criteria and are defensible. Improve the sakes projection formula you use by making sure you don’t accept the projected sales numbers without question. The answers you get from salespeople in terms of what they think will close have to be reasonable and with some sort of basis not just hope.
- Sales people hate to do sales projections.
They may be able to withstand a lot of “No’s” but like everyone they hate to be wrong. They don’t like to give you their sales projections because they hate to be pinned down, they consider them to be a “guess”, and they know they’ll be wrong. Something will happen to change the numbers. When you ask them to say what sales will close in what amounts, they always hedge their bets.That’s sort of ok. You must make sure your sales formula includes going back and see if they were right or if the percentage of their guesses were acceptable. That will tell you a lot. If they’re really off base, you can’t trust them and you need to do something. Of course, you can build in a “fudge factor” into your sales projection formula. That means basically taking their prediction and cutting it in half or more.
- Sales projections are usually isolated from overhead costs.
Although costs appear in your financial projections, it’s always important to keep the two together. It gives a false sense of profitability when you don’t see what you get to keep after subtracting your costs. This can also lead you and your salespeople to go after every sale instead of letting unprofitable ones go and concentrating on the sales with Platinum Profile™ customers. Share this part of your sales projection formula with your salespeople.
- Sales projections are done once and forgotten.
Most sales projections formulas don’t seem to include historical analysis. They’re usually not compared to similar sales situations from previous years or similar customers. It’s true projections can’t be set in stone but they can’t be just based on “feelings” and “intuition” either.Analyzing them gives Owners and Sales Managers a gauge on how their part of the economy is doing long before economists see it. We’ve been through seven downturns and by looking critically at sales projections from previous years and the same or similar clients, we knew the last downturn was coming two years before it was announced.
- Sales projection formulas don’t always deal with “Cost of Goods” or “Cost of Services”.
They don’t usually even mention costs to find, attract, deliver, support and retain customers. Make sure the costs you identify and track are reflective of all your costs and are part of your formula. Also make sure your salespeople are considering those costs when they are making deals and arriving at pricing.
- Sales projections don’t break down sales into SBUs, strategic business units, in enough detail. Salespeople need to know what to suggestively sale or they will leave money on the table. When they don’t discuss ways to make the solution stronger with suggestions, the customer is cheated. They won’t feel that they’re getting a total solution that’s been thought through with enough attention to their needs. Research shows people like ideas to make their purchases better (even if they don’t always use them or say anything.)What can management and sales learn from looking at what SBUs have the most value? A lot. Seasonality. Stock up rates. All kinds of things that can help upsell or resell customers. They can also tell your salespeople what to drop or at least not push.
Recommended questions to ask about every sale to improve your sales projection formula
- Why will this sale go through?
- Why will they buy now?
- How is this similar or different to sales in the past?
- What marketing or sales efforts contributed to this? We recommend a Platinum Profile Customer™ 7-step sales process.
- What do we need to do to close the deal and make these projections more accurate? Does it set a precedent? Is this going to be a policy?
What else can you do to improve your sales projection formula?
Business Success Center CFO Daniel Diener developed a unique sales and financial projections spreadsheet. It brings all the information about costs and revenue together on one sheet. If you don’t have something that brings these key parts together, you need to get one or make one.
We’ve used ours with businesses of all sizes and all industries. It works and it’s easy to get a 40,000 foot owners view of what’s going on. If you’d like to know more, please contact Daniel.
Then you need to look at it and change it each month to reflect last month’s realities. How far off were you? What do you need to change to make this snapshot more realistic in the future and more useful? This effort makes sense especially if you have salespeople who hate numbers and being pinned down.
Photo by Bill Brooks