Last Updated Nov 2, 2011 10:00 AM EDT
This process is often painful as the back and forth between the various departments hammers out what is in all reality a fairly imprecise guess at best.
Individual sales professionals should do this exact process for their own portfolio of accounts, in formulating their individual plans.
I put together a very basic template for your use. Please customize to tailor this tool to your use. It is illustrative of the basic ideas.
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.
Establish what are the "Near to Close" sales in your pipeline. These accounts are at "Close" stage in your sales process and are accounts you believe they 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 Ten) and Make Quarterly Predictions for Next Year
You are repeating Step 2, however, instead of weighing the performance of each account as you did in Step 2, you will consider the remainder of your customer base as a total number.
Step 4: Put in your estimated "Churn %"
Most companies have a historical understanding of their "Churn %"- (the ratio of business that you lose/shrink/completes without repeat). You need to apply this anticipated ratio to your combined "Sub-Total 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 3-Tier Manner
In business-to-business sales projections, I encourage companies to establish at least 3 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 what your tier thresholds are. 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 blog on "The Annual Liar's Poker Tournament (or, How to Forecast Sales in 2011.)"
Want to learn more? Tom will to speak to this topic and answer your questions on Friday, October 28th at 11 a.m. EST in his regular open Q&A. Register HERE for his monthly Time With Tom.
Tom Searcy is a nationally recognized author, speaker, and the foremost expert in large account sales.
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