Planning is one of the key drivers of success in business. We all know that a proactive management approach is critical for achieving successful outcomes. A key element of your business plan is the financial plan, or forecast. This is used for budgeting purposes.

For a budget to be a valuable performance management tool it must be based on the drivers of financial performance. It must be constructed from the ground up. For example, your revenue forecast must include:

  • The volume of sales in each products/services category
  • Where will they be sold (markets)
  • What channels will they be sold through (retail, wholesale, distributors, …)
  • What will be the sales to major customers

These are all important for several reasons.

Gross profit margin

Firstly, the impact on gross profit needs to be understood. There will be a range of product/service margins. There may be discounting or volume pricing agreements in place. There may be different delivery costs across various markets.

Sales strategies

Sales forecasts must be based on real achievable strategies. Do you understand your sales funnel. Do you understand the requirements for lead generation, for conversion rates, for promotional support, for customer service levels, for customer product review hurdles and so on.

Sales & marketing expenditure

Once sales strategies are agreed, they need to be resourced. Sales and marketing personnel requirements need to be assessed. Promotional strategies have to be funded. And these all need to be as effective as possible. Customer service costs and customer acquisition costs do impact on profitability.

Capacity planning

Clearly sales forecasts need to not only be achievable, they need to be deliverable. The forecast must take into account the resources (including cash) that will be required to deliver the forecast volumes (preferably on time and in full for each area of the plan).

Assumptions should be based on evidence

Our experience has shown that the drivers of sales performance are often not well understood. This is generally because they have not been tested sufficiently to gain that deep understanding that supports strong sales growth.

Our focus is to plan, test, review, understand, plan, test … Yes, this is very much the continuous improvement process. It applies to improving your understanding of the drivers within your business.

The more you understand what the barriers are and what the success factors are, the more productive your decisions will be. And the more you review performance against your well constructed sales plan, the earlier you will identify substandard performance or changed conditions, and the earlier action will be taken to improve performance.

3S Synergy Group is a member of the Association of Virtual CFOs.