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A Numbers Game? Your Sales and Forecasts

This information is designed to give you insight into how to properly set sales figures and forecasts. This is a crucial area if you’re going to develop your business to its maximum potential.

Accurately forecasting sales involves identifying your ideal customers and the products or services you want to sell to those various customer groups. Next it involves identifying exactly how you plan to reach and sell your products and services to those people. And that involves setting goals based on an almost ‘magic number’ that could make all the difference for your business. 

This magic number could, in fact, make sales and forecasting nothing more than a numbers game! A breeze. 

Without it though, you, like many other business owners or managers, could struggle with this issue. Each of these issues will be addressed here. Armed with this information, you’ll be able to take better control of your sales figures and forecasts. Perhaps more importantly, you’ll be better able and far more likely to achieve those sales forecasts.

A critical tool that gives you control (and an example for you)

When business owners or managers are asked, ‘How many of you feel it’s impossible or very difficult to predict your sales figures?’ A surprisingly high number of people agree that it’s quite difficult.

As such, many business owners don’t set sales forecasts because they feel they just couldn’t accurately predict them. Really, though, if you don’t set sales figures and forecasts, where does this leave you? 

• It means you’re failing to set proper goals for your business. 

• It means that, without a doubt, you WILL be missing sales opportunities. 

• It means your team members don’t have something to work toward achieving other than simply doing their jobs. 

• It means you can’t plan around achieving those certain figures. That is, you can’t establish optimum resources like the right equipment and people in advance, and so will often struggle to meet any increase in sales.

• It means you’re saying, ‘We’ll just wait and see what happens.’

• It means you are at the MERCY of the MARKET.

• Without it you’re no longer in control. You’ll be guided by what happens to you instead of controlling it.

Overall, this is an incredibly dangerous position for any business.

On other hand, setting out and achieving sales forecasts means you are in control. You control the results that your business achieves. You control all your marketing and sales activities to achieve those goals. You take the lead instead of letting the market take you!

So how do you forecast and set realistic sales figures? Several aspects are involved. Let’s explore each, including the ‘magic number’ mentioned earlier. As this happens, we’ll create an example ‘Sales Forecast Table.’

Step 1:  Identify your ideal customers.

Understanding your customer profile is a critical tool for refining your marketing and improving your sales results. So who are your ideal customers? Who are those people who have needs or wants that consistently match the products or services you offer? Which type of customer pays on time and regularly? Which buys a minimum amount regularly? From a quality of life point of view, which type of customer do you like to deal with? Which type of customer appreciates quality and value more so than arguing about price? 

Further, what other characteristics can you identify, such as age, financial status, lifestyle, motivation, and so on? Where are they positioned in the ‘cycle of life’? What other businesses do they deal with regularly? 

You could have just one type of ideal customer, or perhaps you could break it down a little further and identify several ideal types of customers. Customer groups.

For example, each of these different groups of customers could purchase different products or services from you. One group might purchase Product or Service Type A, whereas another would never purchase Product or Service Type A, rather Type B or C, and so on. This brings us to the next step.

Step 2:  Identify your products and services.

This is the easy part! Simply list your products or services or major product or service groupings. (Be aware of the margins attached to each.)

Step 3:  Identify which products or services you want to sell to which customer groups.

Next, note which of those products or services, or product or service groupings, MATCH your ideal customer types.

Step 4  Establish your turnover and profitability goals.

Based on last year’s figures, your new Businesses Getting Results marketing and management techniques, and your personal goals, think about the profit you’d realistically like to achieve in the next 12 months.

Bear in mind, regardless of the results in the past, you must aim to increase your profits every year. If you aren’t increasing your profits or your turnover, your business will actually be going backwards. Due to inflation and economic conditions, the dollars you have in the bank will actually have less buying power each year. 

To ensure that you continually get ahead, then, it’s critical that you continually increase your turnover and profits. A good rule of thumb is to aim for a minimum growth each year of 20%.

Step 5:  Identify the quantity of each product or service you WANT to sell to each customer group.

Given your turnover and profitability goals, note the amount—the number of units of each of those products or services or groupings—you’d LIKE to sell to your ideal customer groups.

Realistically, how much of each and to whom would you need to sell to meet your turnover and profitability goals?

When you add up the total projected revenue, or sales value, of each product or service grouping to each customer type, it should roughly equal your turnover and profitability goals.

It’s important again to note the profitability of each product and service or grouping. Unless your business is entirely structured to do so, there may not be any point to selling thousands of something that offers very little margin, or, conversely, only a few of something that offers a very high margin.

Use a table like the one below to map each of these steps and to build your sales goals.

Now for the ‘Magic Number’

This magic number really does allow you to turn sales and forecasts into a ‘numbers game.’

The magic number? Your ‘conversion rate.’ That is…

The number of inquiries you receive versus the number of sales you make.

You can then turn this figure into an easy-to-work-with percentage.

For example, let’s say you receive 50 inquiries in a week and you make 10 sales in a week. Your conversion rate, then, is 10 sales divided by 50 inquiries multiplied by 100. That means your conversion rate is precisely 20%.

Every single business can easily—and must—track its conversion rates.

For example…

• A retail store could have a door counter. The door counter tallies the number of people who walk into the store. This, divided by the number of transactions recorded on the register, would be the conversion rate for the day. This could then be averaged.

• A manufacturer or service business could track the number of proposals or quotes versus the number of orders taken. 

• A simple tally sheet kept by the phone could be used to track the number of inquiries received, and the number of people who were then sold over the phone or booked in for a visit to the business.

For sales and forecasts to be useful, you MUST know your conversion rate.

Also, your conversion rate is a key leverage point in your business; that is, you could simply improve that and, without having added any costs whatsoever, your business will grow. It will be leveraged to a higher number of sales by that improvement in converting the number of inquiries you receive.

And yet, despite how easy it is, there are very few businesses that bother to track this ‘magic number.’ 

Interestingly, when most business owners or managers are asked what they think their conversion rate is, WITHOUT FAIL the majority will guesstimate ‘about 75%, maybe 70%.’ When tracked, WITHOUT FAIL the majority once again are upset to learn that the figure is more like 20, 26, or 30%. 

But this offers a huge opportunity. Can you can double 80%? Of course not. On the other hand, you CAN double 25%. Usually with no additional costs, to boot.

This is especially true if this conversion rate also shows that perhaps all staff are NOT working at full capacity. If this is the case, not only can the conversion rate be improved and sales increased, you’ll also get better value from your employees. Knowing your conversion rate is pivotal to creating and using realistic and measurable sales forecasts.

Let’s review the table once again. You see, if I know, for example, that my conversion rate on selling Product or Service Type 2 to Customer Type B is 25%, then I can calculate the number of potential Customer Type B’s I need to make those 10 sales. 

So go ahead and do that quick calculation for yourself now. Knowing my conversion rate is 25%, how many Type B potential customers do I have to see to sell the desired 10 units?

That’s right—40.

So now, I instantly know that my marketing must aim to generate exactly 40 inquiries from potential customers of Customer Type B to achieve my sales.

The ‘sales forecast table’ could then be extended to give you even more insight. It could map out each product or service type, the current conversion rate for that product or service, AND, importantly, the number of inquiries required to meet those sales goals.

Think about your business for a moment, Can you just imagine the control this knowledge and your sales forecasts gives you?

All of a sudden, you’re in control of what’s going to happen. Regardless of anything that comes to you by chance or word of mouth or other means, YOU know full well that YOU have to generate 40 leads to make your 10 sales.

With just one other tool, you can accurately plan your marketing. In fact, you’ll be able to pinpoint exactly what you need to do to market every single product or service or grouping to every single customer type. It could save you thousands and WILL increase sales dramatically.

Measuring and monitoring is mandatory

And this is where measuring and monitoring the results of your marketing becomes absolutely mandatory to the success of your sales forecasts. In fact, it gives you the crystal ball most of us as business owners or manager wish for everyday!

You see, by knowing the average results of your marketing, you can take this process one step further. For instance, imagine you’ve been measuring and monitoring the average results of your marketing and you know that you generate 10 inquiries from every ad you run. You know, too, that you need to see or meet with 40 potential Customer Type B’s. You know that even BEFORE you do so, you have to run the ad 4 times that year!

Or if you know you receive a 2% response to a direct mail campaign, you know BEFORE you do it that you must send out 2,000 letters to generate 40 responses.

This could literally save you thousands of dollars. Dollars you now no longer need to spend in the hope that the marketing piece will work.

And finally, plan your marketing.

The control of a combination of your sales forecast, knowing your conversion rates, and measuring and monitoring your marketing results makes getting those results a simple numbers game! 

From here, it becomes easy to plan all your marketing and spend your marketing dollars in areas that will give you the exact results you need to achieve your sales forecasts.

Your Action Plan: Play the numbers game in your business and enjoy greater focus and higher sales