Sales Projections

The projected sales projections revenue can be calculated in a few different ways. Of course, you can use competitive data, or historical data for existing products. However, one way I estimate a new product in a new category (like with the launch of VRML) is to determine the expected width of distribution for each product and then estimate the minimum number of turns per month.

Retail Turn Run Rates

I use a minimum number to ensure I don’t forecast too high and spend a higher percentage of revenue on marketing programs than intended (I can always sign up for more). Also, this figure becomes a realistic goal, since I MUST maintain minimum turns to stay on the shelf–or I lose my retail outlets (and probably my job). To figure the estimated sales you would use the following formula:

# locations x # turns per specific location (some accounts will produce more than others) per month x # of months in each account (allows for a graduated sell-in).  Each account is totaled to produce a grand total projected sales amount.

Following is a brief example of how this would work (assuming a \$99 SRP and a \$55/unit sell-in price):

Register and you can download the “Channel Budget” spreadsheet. It is already set up to forecast sales using the proceeding method.  It shows a gradual sell-in with the minimum required turn rates at several locations.

Revenue Times Expected Growth Rate

Another way to forecast sales revenue for a continuing product is to take the existing revenue and multiply it by the expected rate of growth.  One caution, the reason for the growth should be documented.  The possible growth determinates could be:

1. An increase in the # of new locations penetrated (an increase in the width of distribution (i.e., new accounts, International expansion, etc.)
2. The increase in the overall category growth (i.e., growing at 10%).
3. The percentage of growth pulled from a competitor (i.e., a competitor doesn’t launch a Windows 95 product, they are losing market share, they lost a big review, were purchased, etc.).

Of course, if a product is near the end of its life cycle there may be an expected decrease in revenue–which should also be documented.

Industry Market Share

Yet another way still to project revenue, especially for new products, is to use reports like PC Data (now NPD Techworld) to determine the overall revenue for all the products in the category, determine your expected market share, and multiply that share by the overall revenue x the category growth %.

Management Dictates Arbitrary Quota

Of course, many sales projections have no logical reasoning at all and are merely reflections of management’s expectations (i.e., Management says we will double, so we double the projection–even if there isn’t any empirical data or plan to suggest that it is possible).  This method is often called the WAG method of projecting sales–Wild A_ _ Guess.

There have been instances where I have used a combination of all three methods and then guessed someone in the middle.  My preference is to project just a little lower than the figures say. This approach is very pragmatic, it has also been very accurate.  If I want to impress management or the board then I design an aggressive plan to achieve impressive growth–then, even if it gets tempered a bit, it is still impressive, and since I put more effort behind it knowing it is possible.

Baseline Goal Setting

Whenever we are setting up your sales projections we are creating a goal.  For us to succeed we must make learn to set and achieve our goals.  We’ll all agree that success is in achieving our goals, not just setting them.  Having a strong sales background has always helped me immensely –especially in the area of achieving goals.

It was in the early 1980s while attending an in-house Stephen R. Covey seminar (before he was popular–but just as powerful) that I actually learned how to be effective with goals, using a concept called, “Baseline Goal Setting.”

The theory of Baseline Goal Setting is simple when you set your goals you should prepare two sets.  One is the goal that you would like to achieve.   The other is a goal that is 120% of what you know you can always achieve.  The reason becomes clear with a few examples.

Suppose you are in inside sales and have set a goal to sell \$25,000 worth of software this week.  However, you know that you have never sold more than \$10,000 in a single day for over two years.  Now, let’s say it is Friday and you have only sold \$8,000 all week.  What do you do?  Knowing that there is no way you can achieve your objective, you sell halfheartedly and at around 3:00 you mentally go home–knowing you’ll never reach your goal of \$25,000.  You say to yourself, “This week is blown, I’ll cut out early and get a fresh start next week.”

We’ve all been there.

Now, imagine if you had a target goal of \$25,000 and a baseline goal (a bottom-line goal that you know you can achieve 80% of the time) of \$15,000.  Come Friday morning you know you can’t meet your projected goal, but you should be able to make your baseline.  So you work like a dog and come 5:00 pm you’ve sold \$8,000, for a total of \$16,000 for the week.

How do you feel?  You didn’t make your ultimate projection but… you didn’t drop below your baseline.  The result–you pulled in \$16,000 for the week instead of \$8,000 and you still felt like a winner.  You didn’t let yourself down and you will feel OK about setting another goal next week.

Baseline Goal Setting helps you flatten out the lows within the highs and the lows of the sales cycle; the result–your overall average is considerably higher.  Later, as we can blow past our baseline and hit our regular goals we raise the baseline level.  Pretty soon we always do better than \$10,000 a day.

It is not surprising that most people do not set goals because they don’t achieve them and after repeated failures, they just can’t stand the pain and stop setting them.  This occurs partly because too many of us have bought into the lofty phrase, “It is better to aim for the stars and hit the moon rather than aim for a molehill… and hit it.”  Unfortunately, this is like asking my five-year-old to dunk a basketball–he can wish and try all he wants but it will take growth before it is ever possible.

When we set our goals or sales projections we may wish to “publish” the baseline goal. We can then work like the dickens to achieve a lofty goal yet still meet the company objectives every time by hitting above our baseline, and sometimes lower than our personal objective.   If we do blow past the highest goal it is usually because the low weeks weren’t as low as they might have been, because we achieved our baseline.

This concept of baseline goal setting should help us to achieve our maximum potential every time.

Baseline goal setting is part of the Chanimal Sales Manual and Chanimal Management Manuals available in the