There is no magic formula for calculating sales, or any other figure in a business plan, and there is almost certainly no right answer. However, there are lots of different rules of thumb that people will apply to try to see if your numbers make any sense. I’ve listed ten of my favourites below – if you have others that you think should be added to the list, please add a comment below!
1 – Are the first sales real?
- The plan should describe exactly how the first sales will be achieved and what resources will be used.
- For business-to-business sales, the plan should usually provide examples of target companies.
2 – How will subsequent sales be made?
- The plan should describe how the target list will be put together, leads generated, and sales made.
- Resource costs in the plan should reflect these mechanisms.
3 – Does the plan account for the sales cycle?
- Especially in business-to-business it may take weeks, months, or even years from first meeting to sale.
- New sales staff will take a at least one complete cycle to make their first sale.
4 – How do the sales figures compare with the market size?
- Sales figures should always be small compared with the market size – no company sells to 100% of the market.
- If there are competitors, sales figures should make sense in the context of the market shares they have.
5 – Does the team grow fast enough to support the sales plan?
- Increasing sales will require increasing time and effort invested in sales.
- A growing customer base may also need pre-sales and technical support.
6 – Is the rate of growth of the team plausible?
- Hiring good people takes time, effort and money.
- Bringing too many new people on board quickly can be disruptive.
- The plan should allow for a learning period for new staff – they will not be productive immediately.
7 – Do other costs reflect the growth rate?
- When a new hire comes on board, they need a desk, computer, phone. Bigger office space may also be needed.
- If the company is addressing international markets, there is usually going to be a big travel and accomodation bill.
- Administrative overhead will increase over time – is there headcount for admin, finance, HR where appropriate?
8 – Does the plan reflect the cash cycle accurately?
- When do costs go out (stock purchased, salaries)?
- When does money come in (invoices are often 30 days or more after goods are delivered)?
- Tax payments are complicated (Corporation Tax, VAT, PAYE). A detailed plan that gets them right will impress. Getting them wrong will look sloppy.
9 – Is the plan highly sensitive to small changes?
- Small changes (e.g. a slight delay to sales or higher than expected costs) should not cause the company to run out of cash.
10 – Do the numbers justify the investment?
- The finances of the company by the end of the period covered by the plan should justify the investment (effort and money) made or sought.
- Companies are often valued as a multiple of revenue, profit or both.