Sales forecasting methods small businesses can actually use

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Sales forecasting methods small businesses can actually use

You’ve probably turned on CNBC long enough to hear about big businesses hitting or missing the “sales forecasts.” The stock then goes up or down depending on the accuracy of those predictions.

Ask most solopreneurs and small companies, and they’ll be more likely to say that their business is “feast and famine” more so than having a process for creating an accurate sales forecasting model.

But it shouldn’t be like this, and it doesn’t have to be.

This post isn’t going to be all about detailed modeling and computer programs. Instead, the focus will be on things that can help a small business owner take more control of things that may not seem controllable.

All leading to the ability to look six months to a year down the line and see the growth that’s possible and actually get there.

We’ll talk about understanding the sales process you have, effective goal setting, and wrap it up with the “nuts and bolts” including an example to help you get your mind around things.

First, understand your sales process

Before you ever get into forecasting sales, you have to understand how you obtain the basic elements of a sale.

Here’s a very simple look at those basics.

  1. Leads: These are people who go from unaware of your business, to a trackable lead (e.g., they subscribe to your mailing list, you reach out to them directly, or you advertise).
  2. Qualified Prospects: All your leads won’t become customers. There has to be some process to qualify which leads are ready to hear your pitch and potentially become buyers.
  3. Clients/Customers: Out of those prospects, you’ll have a percentage (should be a decent one) that will “close.” This means they will sign a deal, buy your products, etc.

Knowing your numbers

You have to trace down where the money is coming from. May sound like a cop drama. But if you can follow the money—you can solve most cash flow crimes in your business.

You find your numbers by asking yourself questions and getting the facts. Here are the critical ones to answer:

  • How many leads are coming into your business?
  • Where are they coming from?
  • Out of those, how many good sales conversations (i.e., sales qualified appointment/opportunities) do you have each month?
  • How many new clients/customers come in each month?
  • And how many clients/customers leave each month?
  • What is the cost to acquire new clients?
  • What is the average value of a client (and average of recurring revenue, one-time buys, upsells, etc.)?

If you’re trying to answer these questions and just can’t— don’t worry. Here are a few resources to help you develop your pipeline.

Key takeaway: Without having a consistent sales process, you’ll never be able to forecast how much you’ll make in the future accurately. It would be like trying to fill up a bathtub when you don’t know when the water’s going to be turned on or off.

Next, set your target (dates and dollars)

“Begin with the end in mind” seems to be a term coined in the book “Seven Habits of Highly Effective People.”

Regardless of where it came from, it’s a very (ahem) effective starting point for forecasting the future sales of your business. After you find out your current numbers, you’ll have a realistic view of how quickly you can grow your business.

For instance, if you’re making $8,000 a month on average; it’s possible to increase that to $12,000-$16,000/mo within the next 12 months. But $100k/mo in the same time frame would be a stretch.

Make sense? Set a goal that you think can be achieved and then run it through a few tests.

Figuring out the “end” isn’t just about guessing. It will involve some awareness and honest questioning—just like understanding your sales process.

Questions like:

How can I increase my leads?

Increasing your sales 50% is likely going to take at least 50% more leads. This means that you have to take your current lead generation and see if you can increase it.

If you’re using Facebook or LinkedIn ads, can you double the ad spend and keep the click-through rate?

If you don’t think your current method will yield the number of leads needed to reach your goal, you’ll have to add other methods. Can you add cold email outreach to your inbound strategy? Or can you simply ask for referrals and get some more clients (if you sell something like high dollar consulting services)?

What infrastructure will this increase take?

More sales mean more clients. And more clients means more deliverables. More leads mean more conversations. Of course, all of this takes place in the same 24/7/365. You only have the options of increased efficiency and higher overhead to solve the influx of new revenue. The reason this is a crucial question?

If you forecast six months to a year down the road but can’t service the business coming in—you may not be around in six months to a year.

Increasing efficiency is a matter of shortening the pre and post-sale process.

This could be as complex as doing calls to ensure that each new client is aware of how things are going to go. Or as simple as streamlining the paperwork by using templates (invoicing, proposals, agreements, standard procedures, etc.).

Polish up the processes before you turn up the increase of leads.

Increasing overhead is a matter of figuring out whether or not the current staff can handle the business you put down if your forecast goal. If not, this will mean hiring or contracting.

Figure out the staffing/freelancing/contracting power you’ll need before you start sending out twice the number of proposals.

Key takeaway: Understand what more business will require.

“Begin with the end in mind” — Stephen Covey

Finally, fill in the blanks

You have where you are and where you want to go. It’s like an algebra equation. You’ve got to fill in the holes to finish the DNA of your increased revenue. If you understand your situation and goals well enough, this should be the exhilarating part.

It’s best if we explained this with an example. Let’s get into the thick of the numbers.

Company: A small digital marketing agency specializing in Web Design and SEO.
Current Revenue: $20,000-$22,000/mo
Revenue Target: $40,000/mo
Goal Timeframe: 6 months

Other essentials

Number of Clients: Average of 3 new web design clients/mo and 10 recurring SEO clients
Average Income/Client: $4,000 avg web design client. $1000/mo avg SEO recurring client

Details: On average, 50% of new web design clients convert to being an SEO client. The average SEO client lasts six months before canceling service. The funnel is to find new web design clients and funnel those into SEO clients.

Obviously, there are a ton of ways that you can increase sales here. That’s my main strategy in this post.

The Key Key Takeaway of this post: If you understand your numbers and goals, solutions will present themselves.

Let’s go over the most likely forecast.

Increase web design clients:

The clearest picture, right?

You double the websites to six ($24,000/mo) and close 3 new SEO clients at $1000 each and BAM! Even with clients leaving after six months, within a year, you’re close to that $40,000/mo target. This can be done starting the very next month.

Let’s show our work in detail:

 

Month One

$24,000/mo in Web Design revenue
$3,000/mo in new SEO revenue
$8,000/mo in current SEO revenue (assuming the average of 2 canceling services each month).

Total: $35,000

 

Month Two

$24,000/mo in Web Design revenue
$3,000/mo in new SEO revenue
$9,000/mo in current SEO revenue (assuming the average of 2 canceling services each month).

Total: $36,000

 

Month Three

$24,000/mo in Web Design revenue
$3,000/mo in new SEO revenue
$10,000/mo in current SEO revenue (assuming the average of 2 canceling services each month).

Total $37,000

You get the idea, right?

Fast forward to month six, and you’ve got $40,000/mo. All by doubling the amount of web design clients—which will take work. But, as I hope you can see, is possible.

No complex formulas, no excel spreadsheet.

If you know your ideal customer, you’ll know how to sell. Everyone knows that in the modern world of sales. But it’s lesser known, that If you know enough about your current customers and what you want to achieve in your business—you can create growth.

If you know your numbers and your goals.

Tell us, what are your forecasting methods as small business? Or what other tips would you give to someone who is just getting started?

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