Of course, the goal is to sell as much as possible to earn as much as possible, but it’s important to understand the role of planning in sales.
Table of Contents
Planning the lower point
On one hand, there is always a sales volume that needs to be achieved at certain costs for your company to find it worthwhile to engage in this business. This is especially important if you are at the startup stage or transitioning to a new phase. In this situation, you need to understand in advance when and within what timeframe you will be able to ensure the sale of the required volume of goods or services. If, during the planning stage of your startup or restructuring, you do not address the questions of how, when, and at what price you can ensure sales, you should not proceed. It is particularly important that the plans you create are realistic enough to leave you with no doubts about them. This is critical for your business—to ensure those sales.
It often happens that during a single reporting period, you may not be able to break even, and you need to plan for the longer term, calculating the so-called breakeven point. This answers the question of when you will actually start to make a profit from your operations. This falls under investment planning, and in this case, calculations should be made with an understanding of what today’s value of money is and what future value means.
In an established organization, a sales plan is important for the production side of your company to be able to plan for raw material purchases, wholesale product deliveries if you are engaged in pure trading, and even the number of people in the back office to handle your transactions.
Performers
Any sales plan must be tied to the number of performers, which should include a certain number of managers and managers of managers. These people need to be allocated space and compensated with salaries. Moreover, expenses will clearly arise before revenues. You may need to rent new premises to implement this plan, which will lead to a reallocation of the company’s budget and could make growth plans unacceptable, turning the simple goal of “selling more” into a questionable proposition.
A place in the sun
Knowing that the number of competitors will not change, one can expect sales growth to match the growth of the market. However, there is always a desire for more, so goals should be realistic on one hand and ambitious on the other. If you plan for your growth to clearly exceed the market growth, you need to answer the question of how exactly you intend to achieve this. When starting a new business, you must consider how you will fit into the established ranks of sellers in the existing market, what will make you more attractive to your customers, and from this, you can forecast your sales volumes. If you are an established player in this market, to claim a larger share of the pie, you will need to focus on improving sales skills, the organizational structure of your network, and attracting new major clients, for which you should have the necessary prerequisites.
New product
From a product perspective, you need to solve a very complex problem. On one hand, your salespeople will always have a need for new products. They are quite protective of the competitors’ offerings and always want to sell a wider range than what you actually have. They are not easily convinced by data showing that a certain product available from competitors has only sold ten times in the company’s history. Their response will be, “But my clients have asked for it.” It’s also important to understand that most salespeople are generally not sales professionals, and they struggle to shift customer needs in a way that makes them want what you have, rather than something that might exist somewhere else.
On the other hand, when you ask your salespeople, “Okay, guys, I’ll give you this product, but tell me how much you think you can sell?” the response will either be silence or some completely unrealistic plans that suggest a dramatic increase in sales volumes. However, you need to assess the costs of creating and implementing this product. You might need to organize supplies of something new, or you might need to consider an exclusive agreement with a supplier to add a different product to your range. Only after evaluating such costs can you determine whether the new product is worth pursuing. This is the reason behind the limited product assortment. Marginal thinking, which we will discuss below, dictates rational behavior. Each new product tends to increase sales less and less, as your main selling resource is your salespeople.
With the introduction of each new product, the number of customers leaving without making a purchase decreases. However, the increase in the number of customers is even smaller, simply because there are only two salespeople in your shop, and they cannot serve more customers than they already do. They will just have to say “no” to more customers. This phenomenon poses a significant obstacle when you negotiate the sale of your products through stores, as you may encounter resistance from those very stores. In any case, an increase in product range means an increase in overhead costs, and an additional product may lead to a sales increase that is smaller than the increase in costs associated with selling that product—from shelf space and rent to the accountant’s salary. A prudent store owner, having recently conducted an ABC analysis of their products and terminated contracts with suppliers of ineffective goods, will view you and your product with suspicion. You will need to find arguments to convince the store owner why it is beneficial for them to work with you. More precisely, you need to ensure that the store owner articulates those arguments themselves.
Budget
I previously mentioned that the sales volume could be such that, in reality, you may need to increase the fixed costs associated with sales. When planning sales, it’s important to consider what it will cost you to achieve a certain sales volume.
Sales expenses are divided into variable and fixed costs. When preparing a sales budget, it’s important to understand how and in what proportion to allocate fixed costs that are not directly related to sales to selling resources. You can allocate fixed costs by product, by salespeople, by branches, by points of sale, or by customers—it’s up to you to decide. It’s essential to distinguish between your company’s overall fixed costs and those fixed costs specifically related to sales. For example, the rent for a sales point is clearly related to sales, and all expenses for that sales point should be allocated based on the sales volume it generates, rather than proportionally across all sales points.
If we allocate expenses correctly, we will be able to understand the actual budget limits for each sales resource, whether it’s a product, a person, or a client.
There are also expenses that are clearly related to sales, but cannot be attributed to a specific sales resource. These include:
- marketing expenses, product promotion, advertising;
- expenses for motivational campaigns, even if winners are announced later, we still intend to incur these costs in order to boost sales across all sales channels;
- sales support expenses – salaries of analysts, customer service department, trainers.
Such expenses are usually outlined in a separate budget, such as a marketing budget or a central office budget, since, in terms of cost allocation, they are considered selling resources just like other fixed expenses.
The sales budget and sales volume are two closely related parameters. In theory, any sales volume can be achieved; the question is the costs required to reach it. Set a commission at 110% or 110% of the first payment when advancing the commission, and you will witness a miracle of sales growth. Any sales plan should include a budget component, and a key part of that budget has always been and will always be the reward system within the sales network.