You presumably have numerous sales leads in varying stages of the sale process. Each of them has unique characteristics and undetermined sales possibilities.
There are many questions that someone — your management or board — assessing your future would pose: When will these sales come into the pipeline? Do we need to prepare for these sales? How does the potential pipeline compare to previous periods?
The use of a predicative indicator to determine sales activity is a vital and helpful way to gauge your sales efforts and answer these questions. Although it is a very complex and potentially exhausting process to develop, it will prove to be a staple system by which you will run your business. Individually, your assessment of each sale will surely be inaccurate, but collectively you are likely to get a good measurement of what the future looks like.
Forecast
A good way to start is to look at all of your projects, handicap their potential and assign numbers and probabilities. Try and forecast what sales will occur in the ensuing 12 months. What is the likelihood of each sale?
Let’s assume that you have the potential to get a $1 million account that won’t start for another six months. You conservatively estimate that you have a 50 percent chance of getting this account. Accordingly, this account would get assigned a value of $250,000. This is computed by taking the projected sales in the next 12 months, which is $500,000 because this sale won’t likely start for another six months, multiplied by your probability factor of 50 percent.
As we commonly understand, unless you’re another Kreskin, your individual prognosticating skills won’t be on target. However, if you do this consistently with every one of your prospects, you will get a good measurement of your future activity and be able to determine where you stand compared to past performance. Along the way, you will refine this tool and sharpen the numbers and probability. This tool is not necessarily a budget; it is way to objectively measure the future activity of your business.
Taking a pulse
Any good businessperson needs to be armed with information to run a business. You need to know if your infrastructure can withstand the rigors of future activity, or if you need to scale back to weather an economic storm. This concept forces you to keep a constant feel for the pulse of the business and be able to take proactive steps to be more successful. Without such a concept, you end up relying on intuition and gut, leaving you susceptible to having to react to uncontrollable forces.
Business is always unpredictable, but a proactive, structured approach to planning and understanding the pipeline can reduce the guesswork and unknowns of running a business.
Steven L. Marks is the founder and CEO of Main Street Gourmet, a manufacturer of frozen bakery products with distribution throughout the U.S. Steven is a two-time winner of the Small Business Administration’s “Small Business Person of the Year” award. He is also the founder of the Akron Marathon.
