Why Sales Projections are Always Wrong

April 22, 2013

Sales projections are always wrong for six reasons. There are questions you can ask that will make them better and more reliable. Below are the reasons, questions, and how to use the answers you get.

Sales projections are wrong because…

1. Sales projections are not supposed to be right.

They’re a snapshot of what to expect each month based on relevant criteria and are defensible. Projections accepted without question are useless.

Questions to ask:

  • Why will this sale go through?
  • Why will they buy now?
  • What marketing or sales efforts contributed to this? We recommend a Platinum Profile Customer™ 7-step sales process.
  • What do we need to do to close the deal? Does it set a precedent? Is this going to be a policy?

2. Sales people hate to do sales projections.

They may be able to withstand a lot of “No’s” but they don’t want even to guess and be wrong. When you ask them to choose what sales will close, they always hedge their bets. No one ever seems to go back and see if they were right or if the percentage of their guesses were acceptable. That would tell a Sales Manager or Director a lot. Of course, you can build in a “fudge factor”. That means basically taking their prediction and cutting it in half or more.

Questions to Ask:

  • Were the sales people right?
  • Were they half right? Is half enough? Maybe not.

3. Sales projections are usually isolated from overhead costs.

When you do that, you can’t really determine if the predicted income is enough, too low, or dangerous.

Questions to Ask:

  • Should salespeople be allowed to know about the business’ fixed and variable costs? At least generally they should. A $50,000 deal sounds really good until you know that it barely pays the manufacturer’s rent for a month.
  • Are they spending their time wisely? You need to get salespeople to stop going after any deal and focus on the Platinum Profile™ ones, even if they take longer to close. At least they’ll be worth the effort.

4. Sales projections are done once and forgotten.

They’re usually not compared to similar sales situations from previous years or similar customers. They can’t be set in stone and they can’t be just based on “feelings” and “intuition”.

Questions to Ask:

  • How is this prospect like other customers?
  • How is this situation like previous ones?
  • Can we use the same strategy? What’s different or needs to be adjusted?
  • Did “ghost competitors™” get in the way?
  • Can we plan on getting referrals to additional prospects from the customers we sell (either inside the group or outside in terms of colleagues, friends, and family)? These can strengthen the value of each sale and up the sales projections for upcoming months because warm leads are always stronger than cold ones.

5. Sales projections don’t deal with “Cost of Goods” or “Cost of Services”.

They don’t usually even mention costs to find, attract, deliver, support and retain customers.

Questions to Ask:

  • Are your costs reflective of all your costs?
  • Can you reduce those costs with help from strategic allies who share the costs or by getting a special deal by “stocking up”?
  • Are you subtracting these costs to know what really stays in your pocket and not what you make gross?
  • Are salespeople considering those costs when they are out there making deals? They should!

6. Sales projections don’t break down sales into SBUs, strategic business units, in enough detail.

Salespeople need to know what to suggestive sale or they will leave money on the table. Without discussing ways to make the solution stronger, the customer is cheated. They won’t feel that they’re getting a total solution that’s been thought through with enough attention to their needs.

Questions to Ask:

  • What can management and sales learn from looking at what SBUs have the most value? A lot. Seasonality. Stock up rates. All kinds of things that can help upsell or resell customers. They can also tell your salespeople what to drop or at least not push.
  • Are salespeople using good suggestive sales techniques or are they not even doing it at all? Research shows people like ideas to make their purchases better (even if they don’t always use them or say anything.)

What else can you do?

Business Success Center CFO Daniel Diener developed a unique sales and financial projections spreadsheet. It brings all the information about costs and revenue together on one sheet. If you don’t have something that brings these key parts together, you need to get one or make one.

We’ve used ours with businesses of all sizes and all industries. It works and it’s easy to get a 40,000 foot owners view of what’s going on. If you’d like to know more, please contact Daniel.

Then you need to look at it and change it each month to reflect last month’s realities. How far off were you? What do you need to change to make this snapshot more realistic in the future and more useful? This effort makes sense especially if you have salespeople who hate numbers and being pinned down.

Topics: Featured, Sales & Marketing, Content Type

Jan Triplett

Business Success Center

Jan Triplett, Ph.D. is the CEO of the Business Success Center (BSC), a City of Austin certified green business, that provides sales and financial growth strategies, planning, and implementation. She is also a professor in Business and Professional Skills for the online MBA program at Mary Baldwin University. Triplett is a national and international speaker, author of A Networker’s Guide to Success and co-author of Thinking Big, Staying Small and Easy to be Green. She published The Networker ” magazine for over ten years and moderated KUT radio’s nationally syndicated program, “The Next 200 Years”. She was co-creator of the award-winning “City Management Academy” and the “Owners MBA” and co-founded the Entrepreneurs’ Association Hatchery incubator and accelerator. She is a small business activist. She served as a White House Conference on Small Business and Congressional Summit delegate, served on the Mayor’s Task Force on International Infrastructure, initiated the Northcross IBIZ District and recommended portions of Austin’s Big Box Ordinance. She was a founder of the Women’s Chamber of Commerce of Texas and the Greater Austin International Coalition. The SBA honored her as Texas’ Small Business Advocate. She has also earned her CBTAC and Director credentials. Her company received a Small Business Administration (SBA) five-star national award and the Austin Business Journal named it a top 20 management consulting firm.
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