Setting Sales Targets: The Biggest Mistakes
Tips on Setting Sales Targets, Sales Target Management
Eyes Wide Open works with owner-operators to help them set and achieve their sales targets. At this time of year a lot of businesses are revisiting their sales goals and target. We thought it would be timely to share the biggest mistakes we see businesses making when it comes to sales planning.
Mistake 1: Accelerated Growth Rates
In this context, your growth rate is the percentage change in your turnover each year. If you have a turnover of $100 000 in 2004 and then $120 000 in 2005, your growth rate is 20% / annum. One of the biggest mistakes business owners make is setting unrealistic growth rates for their business. For instance, consider the following data.
Historically the business has achieved:
o 2003 = $50 000
o 2004 = $70 000
o 2005 = $100 000
Then they start planning sales goals for the future:
o 2006 = $200 000
o 2007 = $550 000
o 2008 = $1 200 000
On the surface these figures may look reasonable, just a few $100 000 here and there. However, the growth rates tell a different story.
o 2004 = 40%
o 2005 = 42%
o 2006 = 100%
o 2007 = 175%
o 2008 = 118%
It's not so much that these growth rates are impossible but you must seriously question how a business is going to go from a growth rate of 42% to 100%+ in just 12 months. Most business owners setting ambitious sales goals don't think through this in enough detail and fail as a result.
But shouldn't sales goals be ambitious?
A lot of management books push business owners to "shoot for the stars" when setting goals for their business. We disagree with this mindset when it leads the business owner to set goals that lack a pragmatic foundation.
Substantial growth is possible but you have to carefully plan how it will happen. What's going to give you the leg up? More Sales staff? A merger with another business? A new contract? Better facilities or more warehouse space?
Be very careful about setting your business on a course for substantial growth. It will most likely put your people, cash flow and other resources under enormous pressure. Failure to achieve the goals can be devastating to the business, your credibility and the confidence of the people within the business.
From our experience, you are likely to be more effective setting more conservative, well considered goals. We call this "setting yourself up for a win". After all if you achieve them quicker than expected you can always set new ones! (Of course, you only set new ones after you've celebrated your win!). Taking this approach leads to business growth being a more enjoyable and rewarding journey for all involved.
What growth rates are reasonable?
The level of growth that is considered "reasonable" will vary depending on the age of the business, industry and how well it is run. New businesses can have amazing growth rates because they're working from a small base (e.g. Eyes Wide Open experienced 400% growth in its second year of business!). Some of the large, heavy industrial corporations in Australia rejoice when they get growth of 15%. Also it depends on what industry you are in. For instance, aged care at the moment is booming so you can expect most businesses to have strong growth rates whereas other industries are in decline and growth is incredibly difficult to achieve.
Mistake 2: Lack of Change
The old axiom "To get a different result you need to do things differently" is highly applicable to the process of increasing sales. Sales growth generally doesn't happen purely through working harder. You've got to work smarter. There needs to be a fundamental shift in the way you are generating sales for there to be a significant increase in sales.
Once you have clear and practical sales goals for the year, you then need to do a gap analysis. That is, look at the difference between what you want and what you've got to determine what changes are required to achieve those sales levels. Perhaps you need a better system for generating leads, or more products and services to sell or perhaps better internal administration. Then take these changes and break them down into specific steps and allocate a completion date and person responsible for each step.
Mistake 3: Lack of Accountability
This is particularly an issue when there are more than 1 or 2 people in the business. It needs to be clear who is accountable for sales performance in the business and what that specifically entails. A lot of activity is required to achieve sales growth. Nobody ever achieved sales growth by just sitting around and thinking about it. Clearly specify what type of activity you want to see; client visits, speaking gigs, mail outs, quotations, and follow-up phone calls etc. Then set levels for each activity, for instance 3 client visits per week. These are commonly referred to in planning as KPI's or Key Performance Indicators. Your aim in implementing KPI's is to give people a structure to work within, to help them manage their own activity and know what they are meant to be working on. This ultimately enables everyone to be more productive.
http://www.eyeswideopen.com.au/
Eyes Wide Open works with owner-operators to help them set and achieve their sales targets. At this time of year a lot of businesses are revisiting their sales goals and target. We thought it would be timely to share the biggest mistakes we see businesses making when it comes to sales planning.
Mistake 1: Accelerated Growth Rates
In this context, your growth rate is the percentage change in your turnover each year. If you have a turnover of $100 000 in 2004 and then $120 000 in 2005, your growth rate is 20% / annum. One of the biggest mistakes business owners make is setting unrealistic growth rates for their business. For instance, consider the following data.
Historically the business has achieved:
o 2003 = $50 000
o 2004 = $70 000
o 2005 = $100 000
Then they start planning sales goals for the future:
o 2006 = $200 000
o 2007 = $550 000
o 2008 = $1 200 000
On the surface these figures may look reasonable, just a few $100 000 here and there. However, the growth rates tell a different story.
o 2004 = 40%
o 2005 = 42%
o 2006 = 100%
o 2007 = 175%
o 2008 = 118%
It's not so much that these growth rates are impossible but you must seriously question how a business is going to go from a growth rate of 42% to 100%+ in just 12 months. Most business owners setting ambitious sales goals don't think through this in enough detail and fail as a result.
But shouldn't sales goals be ambitious?
A lot of management books push business owners to "shoot for the stars" when setting goals for their business. We disagree with this mindset when it leads the business owner to set goals that lack a pragmatic foundation.
Substantial growth is possible but you have to carefully plan how it will happen. What's going to give you the leg up? More Sales staff? A merger with another business? A new contract? Better facilities or more warehouse space?
Be very careful about setting your business on a course for substantial growth. It will most likely put your people, cash flow and other resources under enormous pressure. Failure to achieve the goals can be devastating to the business, your credibility and the confidence of the people within the business.
From our experience, you are likely to be more effective setting more conservative, well considered goals. We call this "setting yourself up for a win". After all if you achieve them quicker than expected you can always set new ones! (Of course, you only set new ones after you've celebrated your win!). Taking this approach leads to business growth being a more enjoyable and rewarding journey for all involved.
What growth rates are reasonable?
The level of growth that is considered "reasonable" will vary depending on the age of the business, industry and how well it is run. New businesses can have amazing growth rates because they're working from a small base (e.g. Eyes Wide Open experienced 400% growth in its second year of business!). Some of the large, heavy industrial corporations in Australia rejoice when they get growth of 15%. Also it depends on what industry you are in. For instance, aged care at the moment is booming so you can expect most businesses to have strong growth rates whereas other industries are in decline and growth is incredibly difficult to achieve.
Mistake 2: Lack of Change
The old axiom "To get a different result you need to do things differently" is highly applicable to the process of increasing sales. Sales growth generally doesn't happen purely through working harder. You've got to work smarter. There needs to be a fundamental shift in the way you are generating sales for there to be a significant increase in sales.
Once you have clear and practical sales goals for the year, you then need to do a gap analysis. That is, look at the difference between what you want and what you've got to determine what changes are required to achieve those sales levels. Perhaps you need a better system for generating leads, or more products and services to sell or perhaps better internal administration. Then take these changes and break them down into specific steps and allocate a completion date and person responsible for each step.
Mistake 3: Lack of Accountability
This is particularly an issue when there are more than 1 or 2 people in the business. It needs to be clear who is accountable for sales performance in the business and what that specifically entails. A lot of activity is required to achieve sales growth. Nobody ever achieved sales growth by just sitting around and thinking about it. Clearly specify what type of activity you want to see; client visits, speaking gigs, mail outs, quotations, and follow-up phone calls etc. Then set levels for each activity, for instance 3 client visits per week. These are commonly referred to in planning as KPI's or Key Performance Indicators. Your aim in implementing KPI's is to give people a structure to work within, to help them manage their own activity and know what they are meant to be working on. This ultimately enables everyone to be more productive.
http://www.eyeswideopen.com.au/
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