As we approach the new year it’s a good time stop to reflect on and chart your business goals. (I’m assuming you are like the other 99% of small business people who have done NO planning in recent memory!) And a big part of any business plan is forecasting sales goals for the coming year.
Shameless plug here: Planning is what my upcoming once-a-year SFS Business Planning Seminar is all about. Duh! Check it out HERE.
I’ve found that a lot of business owners measure their success by how much they plan (and succeed) in growing their sales for the coming year. The higher their sales forecast- the more successful they feel.
In fact, some owners set incredibly high sales goals and then invest all their time and money in hitting them just so they can thump their chests and tell their friends, “Yep, I just had my best sales year ever!” Or they brag to others about how many trucks they run or how many people they have working for them.
It’s a good thing no one bothers to ask them whether they’re making any money since most of these braggarts don’t have a clue! Of course, that’s not all bad since they might not sleep very well at night if they did know. Ignorance really can be “costly bliss”!
As one of my clients once observed, “Running at more sales without controlling your expenses is like a baseball team that has a lot of power hitting but no pitching.” You may love your team’s adrenaline rush of high-scoring games but the constant push for more and more runs (sales) just to stay marginally ahead makes no sense.
My point is obvious. Chasing unprofitable sales in an attempt to hit a sales target can prove fatal to your company. You don’t have to be a baseball fan to understand that running at aggressive sales goals year after year can eventually take its toll and may not be the best strategy for your company.
In an effort to put sales forecasting in perspective I’ m going to offer three different sales forecasting scenarios to prove that higher and higher sales don’t have to be your only choice. In fact, you might find another strategy that’s more suitable to your company. (To avoid drowning our readers with too much information I’m going to share Scenario #1 here and then next week finish up with the last two and my summary of the subject.)
Scenario #1: Aggressive Sales Growth
All right, let’s get this one out of the way first. If you’re caught up in the “bigger has got to be better” mind set then Scenario #1 is for you. In this example, I’m defining aggressive growth as any sales growth greater than 50% per year.
This “business growth on steroids” is usually an unsustainable strategy. However, there are several situations in which growth of this size is a good way to go. For example …
If you’re a start up or young company and you’re looking to build sales volume to offset the expense of equipment purchases or additional staffing then you need explosive growth. Or you want to “get off the truck,” hire technicians to produce the work AND maintain your current salary then aggressive sales growth is necessary. Or if you’re diversifying into a new service that you’re confident will dramatically increase sales then a super charged sales forecast might be reasonable.
BUT remember that saying you want to increase sales by 50% is totally different from actually doing it. For example, if your company generated $150,000 last year in sales and you want to increase by 50% this year, you would need to add $75,000 in sales. Adding $75,000 in sales for this size company is relatively easy, can be financed through cash flow and would require the addition of only one new production person at most.
But if your company produced $1,000,000 in sales last year and you want to increase your gross volume by 50% you will need to add $500,000 in sales. Unless you’re sitting on a bucket of money trying to finance this much growth through cash flow will put a serious strain on your company’s finances. Plus don’t forget …
Growing a million dollar company by 50% would also require adding several vehicles and cleaning units as well as several new employees. And you will need to dramatically over haul your company’s “Business Infrastructure” by adding many new systems and procedures. Plus you may want to place some new photos of your family on your desk since you’re not going to be home much!
So if you’re planning on aggressive sales growth for this year, be sure to consider all of the costs that go along with it—both financial and human. More next week with some better (in my opinion) growth strategies.
Chuck Violand (more about Chuck)
SFS Instructor
CEO Violand Management Associates