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Sales Forecasting: Adopting a Goal-Oriented Approach

Since customer sales – whether for products or services – serve as the lifeblood of any company’s hopes for growth and success from year to year, building the annual sales plan is the most critical ingredient in management’s business outlook for the coming fiscal year.

Yet all too often, those tasked with this responsibility rely too heavily on the past – using sales already booked and hoping that by adding a little here, subtracting a little there, and sprinkling in a dash of luck – it will yield a numerical projection that accurately predicts sales and revenue results going forward.

Many of our business clients routinely turn to us for help with budgeting / forecasting and related planning for the coming year. One of the first things we tell them is that their approach shouldn’t simply be “about the dollars” and where they are today. Rather, it should be about their goals and where they want to be tomorrow.

Looking in the rear-view mirror at past performance alone can be restrictive for sales planning purposes; invariably, the process merely sets up parameters for what you can and cannot spend in various categories of activity. A sales forecast, on the other hand, is a process that forces sales managers to make more informed, forward-looking choices about future revenue and how company resources will be used to achieve those goals.
Now this is not to say that examining past sales results is an entirely useless exercise. It certainly helps to look back at historical data—over, say, a three-year period— to identify what worked and what didn’t. It is imperative to gather intelligence from your historic sales register (formally, Customer Relationship Management) system. Equally important is to seek not only input but buy-in from your sales team to understand client relationships and what drives success.

Ask probing questions. How many sales calls did it take to produce a request for a quote? How many quotes did it take to result in a sale? What are the target-average-dollars per sale? How many calls did you make in a week or in a month? How can you use your time more efficiently to improve the ratio of calls to a converted sale? What resources (expenses) does your sales team need to retain existing accounts and open new ones necessary to meet their individual sales targets and thus, those of the company?

Answers to these yield number metrics, but not necessarily “dollars.” The results are target metrics which can be measured on a year-to-date, month-to-date, weekly and even daily basis, with simplicity, toward the annual or other periodic goals.
In the end, developing a sales forecast is not based solely on last year’s numbers. At its best, the process produces a numeric depiction of management plans and goals that will drive decisions for the coming year.

I previously recommended a planning process called S.M.A.R.T an acronym for a concept first introduced in 1981 by college professor and entrepreneur George T. Doran, and later popularized by business author Peter Drucker. The process lays down five criteria for successful goal-setting: be Specific; make it Measurable; make it Attainable; make it Relevant; and keep it Time-bound.

The SMART goal-setting method has helped organizations of all sizes set and achieve their objectives. In relation to developing a sales forecast for your enterprise, the basic idea is to be thoughtful about your goals. Make them matter. Ensure their clarity. And monitor their progress towards completion.

Of course, establishing sales goals is one thing; achieving them is quite another. And that usually depends on the efficient use of everyone’s time and resources – including your own. A SMART sales forecast, with proper, easy- to-understand and measurable targets, can sometimes trigger a fundamental re-evaluation of the entire company’s organizational chart, eventually moving it from a hierarchical style where reporting lines run vertically to a functional style where employees are grouped horizontally according to their responsibilities.

By better focusing everyone’s time, energy and tasks, a more functional approach to managing company personnel and resources will boost productivity and produce operational efficiencies across the entire enterprise.

Next time you are asked to prepare your sales forecast, try using the SMART process to create a roadmap for how you plan to achieve sales goals that are specific, measurable, achievable, relevant and time-tested.

Year-End Planning Resources

For more information on your benchmarking and forecasting, please contact a member of Withum’s Business Tax Services Group by filling out the form below.

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