“Out with the old and in with the new.” It is a tired, overused cliché that has lost some meaning. The expression is well intended – leave the old ideas behind and begin anew.
Taking a deeper look into its meaning and not racing past it can assist business owners as they reflect on their businesses, what occurred in 2022, and the plans for 2023. Taking the time to reflect and concentrate on the previous year’s revenue and profitability performance can reveal gaps in the process and opportunities for change in a different direction.
Early in a new year is an excellent time to set new goals, adjust or change behaviors, and prep the stage for an unknown but preferred outcome. The year should begin with a sales forecast – a statement or prediction about the year ahead. It involves anticipating the outcomes for the business and influencing plans, decisions and objectives for the year. It supports the adage, “Nothing happens until you sell something.”
“The framework for a sales forecasting system consists of determining sales potential and measuring the company’s marketing effectiveness.”
Sales forecasting involves more than throwing darts at a wall and arriving at a sales figure. The objective of any sales forecasting process is to avoid any “blue sky” territory that selects a number that is not achievable and, worse yet, making decisions on yearly expense-related items based on a “blue sky” forecast.
The framework for a sales forecasting system consists of determining sales potential and measuring the company’s marketing effectiveness.
Determining sales potential requires tracking three key indicators: (1) leads, (2) sales orders, and (3) income (the value of substantially completed projects under accrual accounting). These three indicators and how a dealer uses them in tandem can be used to begin to generate an effective forecasting system for any operation.
Tracking key indicators begins with capturing data and reviewing the captured results. Mining the data provides a strong foundation for creating a more realistic forecast.
Lead System
The first step in tracking data is having a helpful lead system. Regrettably, many dealers lack such a system and have never bothered to track this information. Since all significant sales and marketing information emanates from gathering this data, a lead system is critical for a kitchen and bath business.
The primary purpose of a lead system is to provide vital information measured at regular intervals. Besides the apparent basic contact information, the system also provides the following:
- Information for sales designers to measure their effectiveness
- A measurement of the firm’s marketing and advertising effectiveness.
- A record of the project the prospect is considering, i.e., New Construction, Kitchen, Bath Remodel, or Other Rooms.
- A record of ongoing communication with a prospect.
While this data may be initially collected manually, it would be advantageous to transfer the information to a digital CRM (Customer Relationship Management) platform. An automated system contains essential lead elements, including a lead register. Such a platform streamlines the process and assists a dealer in growing and managing clients more efficiently.
For a business with more than one sales designer, the operation should assign a lead number to each opportunity linking the lead to a specific salesperson. Capturing the data and reviewing it regularly allows a manager to monitor for lead quality, update status and adjust for peaks and valleys in the sales cycle. The net benefit of this system is to squeeze more sales out of every lead.
Capturing this data leads to the development of lead forecasting. The process involves digging into the lead’s records for as many years as possible. The objective is to determine the number of leads generated in each month of the year. For example, historical data may reveal that 9% of all annual leads are generated in January, and different percentages occur in other months.
The next step is to calculate the ratio of leads to booked sales. Booked sales are signed contracts that may or may not have hit financial statements and should be recorded and tracked monthly. The leads/booked sales ratio exercise leads to the discovery of the average sale generated per lead.
Using the table above as an example, the average sale per lead over three years is $7,212.17 ($4,861,000/674). If the sales goal for the upcoming year was $2M, based on this analysis, the organization would need over 277 leads ($2,000,000/$7,212.17) to achieve that goal.
The final step is to create a Lead Forecast Chart by applying the historical monthly percentages to the lead goals for the coming year, i.e., 277. The intent is first to post the lead goal for each month, communicate the expectations to your team and then record the actual monthly results when they occur.
The same methodology is followed to create monthly percentages for booked sales and income recorded on monthly or quarterly financials. Once completed, these three forecast indicators assist the business in managing the process by percentages to help to ensure a successful outcome.
Once you have established the number of leads needed to meet a sales target and the sales potential for the year, it’s essential to consider any internal constraints and external risks that would hamper the organization from achieving the sales goal, and make the necessary adjustments accordingly.
Internal factors can include:
- The company’s financial condition
- Productivity constraints
- Lack of a marketing plan or strategy to meet the sales objective.
- External factors can include changes in the market, economic uncertainty, increased competition or other shifts in the industry.
Any developed sales forecasting system must be monitored and managed to succeed. A document on a shelf collecting dust is not a recipe for long-term success. All sales activities must be appropriately recorded and observed to improve the accuracy of the information over time.
A sound sales forecasting system that is measured and managed provides a strong foundation for success – positioning the organization for sustainable success. ▪
Dan Luck owns Bella Domicile in Madison, WI. He has been a SEN member since 2002. He has led the SEN Leadership Team since 2018, conducting scores of the group’s educational programs. Visit http://sendesign
group/education for more information. Dan welcomes questions and comments at [email protected].