Plummer Parsons Chartered Accountants Effective Sales Planning November 2011
1. Active PrActice UPDATEs NOveMBer 2011
plummerparsons
ap-sf-nov2011
Effective sales planning
The ability to predict realistic sales levels is essential for a business.
Not only does it enable you to identify and deal with any possible
cashflow issues, it also makes it easier to plan for growth, to exploit Business UPDATE
openings in the market, and to manage operations and production.
A sales forecast provides a business with just But don’t limit your analysis to the income • Calculating the effect of any planned
such a capability. It sets out the level of sales generated by those sales. Take a look at changes to the business (if you are
that a business can reasonably – a key word, the volume too. This will give you vital going to be putting up prices, for
here – expect to achieve. information about possible production example, you will need to examine
levels in the future, and about the costs that the impact this will have on both sales
“The more detailed a forecast, the such operational matters as delivery, stock values and sales volumes)
more accurate and practical it will be.” holding, and employment resources will • Looking at the effect of staffing changes
involve.
Preparing the ground (will you be investing in more sales staff
• Assessing the impact of any changes
To create an accurate and working sales Accounting for changes to the products or services your
forecast, a business needs first to assemble in circumstance business offers (some new products
some basic information covering past sales. may take time to achieve their potential
This information should include: It is unlikely that the months of the year ahead sales levels; some products may be
will exactly replicate the year that has gone. approaching the full limit of their sales
• The numbers of customers gained and
A business, therefore, must make certain, reach; while sales of other, older
lost in the last year
well-informed estimates, and assess any products may already be on the point
• The (seasonal) periods (if any) when
possible changes to circumstances that will of falling).
sales rise or dip
affect the volume and value of sales. Such
• The value of sales made to each estimates, based on both past sales and What about seasonal trends? Factor in
customer on any realistic ambitions for growth your surges and falls in demand. This will be
• Specific product or service sales that are business has, will create the framework for critical when it comes to the delicate
growing, flat-lining or declining the sales forecast. balance between income, paying supplier
bills and stock holding (if a sales forecast
• The impact of national economic
There are a number of areas where you isn’t accurate you could find yourself with
circumstances
must take a balanced view of probable too much stock on your hands but without
• Cyclical purchasing trends developments. These include: the customers to buy it).
• One-off events (bad weather, for • Judging market trends (is the overall
example) It is important to assign a definite value
market likely to grow or contract; is your
to each of these assumptions if the sales
• The impact of particular measures that share of the market set to expand or
forecast is to be meaningful.
have been taken to push sales, such as decline?)
a marketing campaign.
18 Hyde Gardens www.plummer-parsons.co.uk
Eastbourne East Sussex BN21 4PT
01323 431 200 eastbourne@plummer-parsons.co.uk
2. Effective sales planning
Creating a sales Specifying the types of product each
customer may purchase will give a
indication of how well (or not) the business
is performing. It will also allow you to
forecast business the opportunity to predict make adjustments to operations and to
possible supply issues and anticipate formulate plans – a boost to marketing
Step one in drawing up a sales forecast
both potential shortages and gluts, and to spend, a switch to alternative sources of
is to estimate market demand. Market
achieve a better balance between stock custom, a change in pricing policy – for
demand for a product or a service is
build-up and sales. correcting any downturn or for exploiting
the total volume that would be bought
any upturn.
by customers, in a defined market or It is important to bear in mind that a sales
geographic area, and in a defined time forecast is not a sales target – a figure It is vital also to consult with your sales
period. aimed at defining, or encouraging, the staff as you draw up the forecast.
sales effort over a given period – or a Allocating them targets they know to be
Step two is to work out the share of
sales budget – a figure used to cover impractical will be counterproductive.
market demand that a business actually
current purchasing, production and cash- And for an objective viewpoint, why not
commands, be it on a national, regional
flow decisions. get the advice of your accountants once
or local scale. For example, if a local
the forecast is complete – this can offer a
bicycle firm believes that the overall The secret is to focus on the sales you very useful counter to any rosy-tinted (or
bicycling market in the town in which it actually believe you will make rather self-effacingly modest) assumptions on your
operates is £400,000 and its income is than on an ambition for sales. Otherwise part.
£80,000 per year, then it has £400,000 the forecast becomes a marketing plan,
divided by £80,000 or 20 per cent of establishing goals instead of concentrating
the market. on the specifics of sales based on
particular circumstances. Remember that
Step three is to establish an expected level
the purpose of the forecast is to help you
of business sales based on a marketing
gauge sales on a month-by-month basis
plan. Will, for instance, that bicycling
business be developing its website; will it
and to help you control cashflow. summary
be focusing on one product line (off-road
bikes) at the expense of another (thin-
Realism Sales forecasting is crucial to a business.
It is both an aid to growth and an early
wheeled track cycles); will it be targeting It is absolutely essential to make sure warning sign that problems need to
increasing consumer awareness of ‘green’ that every figure is based on realistic be addressed. The watchwords are
travel; will it be attempting to spread its assessments and not on projected or realism and a willingness to adapt to the
sales across a broader area of the year; hoped-for increases in sales. While information the forecast may be giving
will it be dropping its prices in order optimism has its place, over-estimation of you about the performance of your
to lessen the impact of dead stock; will sales will end up burdening your business business.
it be changing its stock management with expectations that could harm, not
so that the shop is either extending or enhance, its performance.
contracting its range; will it be questioning
its dependence on the sales of children’s For this reason, all the figures should take
bikes? into account what the business is capable
of achieving in terms of productivity
The sales forecast and capacity. If you are not planning
on taking on more staff, don’t assume
The more detailed a forecast, the more that productivity will rise by a significant
accurate and practical it will be. amount. If you are not going to invest in
a new plant, don’t assume - whatever the
It can help, for example, to separate
level of demand in the market - that output
products out by market, area or customer.
is going to outstrip your firm’s ability to
It is also very useful to calculate the
manufacture.
percentage chance of any given sale
actually occurring, as this will have an Once the sales forecast is determined,
impact on its predicted value. Bear in try to avoid the temptation to tinker with
If you would like our help in constructing
mind that the likelihood of making a sale the figures too much (although some
the sort of sales forecast that will give your
to an existing customer is higher than adjustments may need to be made if
business the best opportunities for success,
converting a new customer, so the chance predictions appear to be off the mark).
please don’t hesitate to contact us.
of the sale happening in the former case is Comparing actual sales figures with
correspondingly higher too. the forecast will give you an accurate