Building 2012 Sales Projections in Uncertain Times


   It’s almost that time of year — time for the annual “Battle Royale” of sales forecasting and planning for next year. It is usually linked to that other cherished event, annual budgeting.

Reality guidelines for making 2012 sales projections:

  • Shorten your reference frames – If you’re going to do a historical examination of sales cycles, client order volumes, and projections, look back no more than six months or one seasonal cycle. Three cycles have little value in the current models. Likewise, as you look forward for the next year and begin the forecasting process, put precision on your months and quarters no more than six months out. I understand that there are a lot of reasons (banks, investors, capital planning, and so on) for having one and three detailed projections. However, for management and reality, looking out past six months is for the tarot card readers. (Reality check: The billion dollar banks, government economists, and Wall Street analysts have been missing every projection for 30 months and they have 1,000 times your resources, so don’t feel too bad that you can’t predict the future).
  • Increase your margins of error – Most seasoned executives include margins of errors in their projections. They include anticipated churn, contract volume shortfalls, demand delays and other fancy terms that just mean “stuff happens.” In every place that you are counting your potential downside risk, increase that margin of error a healthy amount.
  • Name your risk scenarios– When you build a business plan and seek funding, you include “potential business risks” as a part of the document so that investors have a clearer understanding of their downside. Do the same for your sales projections. These often include the following:
    • People – What if you lose one or more of your key sales people? Are you vulnerable with more than 5% of your revenue? What are you doing to offset the risk?
    • Client concentration – What do potential changes in your five biggest customers mean to your projections this year and what things do you see as possible risks to their business in the next year as it relates to your work with them?
    • Technology/regulation – Are there any identifiable changes coming in the next year, such as systems upgrades, that might impact your revenues? What about enforcement of regulations?
    • Acts of God – The earthquake and tsunami in Japan demonstrated quickly to the automotive industry and high tech companies the vulnerability of their Asian supply chain. Where are your points of risk in your business that could impact unexpectedly your sales volume?
  • Identify your leverage initiatives – To the positive, are there any initiatives for the year that have the potential of breaking your sales volume wide open? The launch of a new product or partnership? Key hires that may have rapid returns or possibly some marketing efforts that can grow market share quickly? These need to be a part of the planning process and discussed.
  • Tighten your review and re-calibration cycles – We used to look at projections twice a year when I was a younger executive, then quarterly; now I see companies looking monthly. Monitoring and modifying are two different processes. I believe that for most businesses, monitoring should be a very frequent process — a 60 day cycle. The point is this: You need to be performing a scaled-down version of the forecasting and planning process using these guidelines as a very regular and aggressive part of your management and leadership culture.

If you follow these guidelines, what can you expect?

1.     Greater awareness of market shifts as they are happening rather than after they have happened.

2.     More nimble management responses to market, competitor and personnel threats so that you can mitigate damages.

3.     Higher sensitivity to market opportunities as they open that you can leverage and exploit.

If you are a small to mid-size company the secret is that the game is changing in our favor. Because of the speed of change, the need for nimble responses and the openings created because of volatility, small to mid-size companies are in a great position. However, to be ready, you have to be aware and that means closer attention to projections and performance.

 

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