If you run a one-person consulting practice or a 1,000+ employee enterprise, you should be looking into the murky glass of 2012 sales projections right about now. Banks want the projections, finance needs the budget, owners are waiting for the numbers.
It can be a painful process as the various departments — always through much back and forth — hammer out what is in all reality a fairly imprecise guess at best.
To help, I’ve put together a very basic template for your use. Please customize this tool for your own needs.
Warning: There will be math involved!
If you download the worksheet from this link, you can build a workable forecast that will do more than just put numbers on a page. It will provide a financial representation of your strategies for sales growth for the coming year.
Step 1: Get all of the data from this year together.
You are going to need the following information:
The revenues by quarter for each of your top 10 accounts for your business for this year. This includes making an educated estimate as to what the final quarter’s numbers will look like.
The revenues by quarter for all of your other non-top 10 accounts combined for this year. This also includes making an educated estimate as to what the final quarter’s numbers will look like.
A total for the “near to close” sales in your pipeline. These accounts are at “close” stage in your sales process and are accounts you believe will start with your company within 90 days (usually before February 1 of next year).
Step 2: Evaluate your top 10 accounts and make quarterly predictions for next year.
You need to consider the growth/shrink expectations for each of your top 10 accounts. This group of accounts should be the one about which you know the greatest amount. Using that knowledge, you have to make reasonable assumptions. Certainly contracts, backlog reports, and historical ordering patterns will contribute to your projections. Beyond the cold math, there is your own understanding of each account. Are there changes in the market, leadership, or performance that you can anticipate and incorporate in your projections? Make certain that this is not a Pollyanna exercise, because the business will be making decisions on the information you forecast.
Step 3: Evaluate the balance of your accounts (non-top 10) and make quarterly predictions for next year.
You are repeating Step 2, however, instead of weighing the performance of each account, you will consider the remainder of your customer base as a total number.
Step 4: Put in your estimated churn percentage.
Most companies have a historical understanding of their “churn percentage” — the ratio of business that you lose/shrink/complete without repeat. You need to apply this anticipated ratio to your combined “subtotal current accounts forecast.” There may be historical seasonal variations; use that knowledge rather than flat-lining the numbers. The important point is that you do not ignore or pretend that you won’t have churn; everyone has churn. Predict it, budget for it, and then work hard to reduce it. Remember: Facts are our friends, even if they are not friendly.
Step 5: Plan for new sales in a three-tier manner.
In business-to-business sales projections, I encourage companies to establish at least three distinct tiers of accounts: small, medium, and large. In the provided worksheet I have set those accounts at $5,000/year, $50,000/year and $250,000/year, respectively. Replace those numbers in the worksheet with your own tier thresholds. Now is the time to think about your targets for sales for next year. The efforts and resources necessary, sales cycles, on-boarding processes are usually different to a measurable degree between your tiers. This will help you to determine the realized revenue of the new accounts.
Remember, this is a tool that has been created as a template to give you a base from which to start. There are adjustments you will have to make for this to be a tailored fit for your business or organization.
Step 6: Socialize the plan.
You need to have buy-in as well as a thorough understanding of all of the stakeholders as to how you have developed the plan. Part of that socialization includes defining:
How often will this plan be reviewed and calibrated?
Who is on the team that will review, calibrate and then adjust planning?
What are the underpinning assumptions for each of the categories of revenue and risk calculation?
Unfortunately, many organizations have a bad history of creating plans like the one that I am describing, and then using that plan as an in-blood-commitment to beat the tar out of people for performance. Not good culture, not effective management. By including the socialization step with the ongoing review and calibration, the tool is used to evaluate performance AND adjust strategy.
For further reading, check out my post on “The Annual Liar’s Poker Tournament (or, How to Forecast Sales in 2011).”
Tom Searcy is a nationally recognized author, speaker, and the foremost expert in large account sales. By the age of 40, Searcy had led four corporations, transforming annual revenues of less than $15 million to as much as $200 million in each case.