Tag Archives | Sales

Black Friday

In America, Black Friday is an event that is not only the most shopped on day during a typical year, but it also generates huge sales.

“Only in America do people trample others for sales exactly one day after being thankful for what they already have.”

~Author Unknown

Black Friday Definition

The Black Friday definition is a retail store sale that occurs the Friday after Thanksgiving – an American holiday in November. Many consider this event to be the kick-off to the Christmas shopping season. Many retailers, such as Walmart, Kohls, Kmart, Macy’s, Express, and other major retailers, open their stores in the early hours of the morning to receive the first rush of customers. Door busters, sales, huge discounts, and giveaways are all part of this event.

The History Of Black Friday

Black Friday originated in 1952 as the start of the Christmas shopping season. Because many states in the United States considered the day after Thanksgiving to be a holiday as well, retail shops realized that there were enormous amounts of potential shoppers available during this four-day weekend. But since 2005, this event has launched into record numbers for sales, shoppers, etc. For example, sales dropped for the first time since the 2008 recession in 2014. Yet, sales boasted $50.9 billion over that weekend.

Although not all states in the United States permit workers to work on national holidays or even the day after Thanksgiving, companies have broken many boundaries to take advantage of this rush of customers. Over time, retail stores and e-commerce platforms have expanded on Black Friday to include Cyber Monday. It’s become a tradition to many.

Cyber Monday

Because Black Friday became such a hit, online companies created another shopping event – Cyber Monday. It occurs the Monday after Thanksgiving and encourages shoppers to purchase more gifts and things on Monday. Originally, it was launched in 2005.

The Cost of Black Friday

While it may be tempting to join in on Black Friday specials and sales, you have to consider the cost. Remember, a sale isn’t necessarily a good sale. It has to be a profitable sale.

Some of the costs associated with Black Friday include.

How to Win on Black Friday

In order to win on Black Friday, you have to price your products for profit. Especially since you project to sell large quantities of product, you need to make sure you don’t start with a pricing problem. If you cut prices off a product that is already not profitable, then you will loose more potential profit. Before you start planning for Black Friday, make sure your pricing is in check. Click here to download our Pricing for Profit Inspection Guide.

Price for Profit During These Sales

Each sale you make has to return a profit. Therefore, you need to allocate as many costs to each good to make it easier. How much inventory do you need to push in order to turn a profit? But also, what prices are customers willing to spend? The trick with Black Friday is that since everyone is competing for the best deal, you must know what others are pricing the same product at.

Reduce DSO by Turning Over Inventory

The risk for big sales like Black Friday is that there will be some that cancel their credit card transaction for $1,800 worth of product. Because you are putting a lot of cash up front to increase inventory, you need to collect cash as quickly as possible. For example, you can offer discounts for cash only. For other pricing tips, download the free Pricing for Profit Inspection Guide to learn how to price profitably.

Black Friday

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Black Friday

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It’s All About Profitable Sales, The Rest Are Just Details

Many times, when we come into a company, we find that there are three buckets: sales, operations, and finance/accounting. Those buckets create silos – no one goes in and no one goes out. But over the years, we have found that the most successful companies do not have these silos at all. While their title may be in one of these three areas, their duties should always include wanting profitable sales. In business, it’s all about profitable sales, this drives everything else.

It's all about profitable salesIt’s All About Profitable Sales

Business is a game… Not life. What does that mean? There are rules and boundaries. Every company has very similar cards to play. Although you can get creative in how to win the game, there are general obstacles that you will face, including:

You have all these people or variables in the game, but driving profitable sales will help win the game. Increased sales with the proper margin increase profitability. As part of management in an enterprise we should all be concerned about sales and margins. Professionals in the finance and accounting department should be equally concerned about sales and margins.

Don’t Get Caught in the “Pitfall”

The Pitfall is that any sales are good sales. Time and time again we have seen enterprises make sales with no margin, or even at a loss. The reasoning for this is that sometimes sales people or management find themselves in a cash crunch and believe that any sale is a good sale. A sale with no margin or a loss actually pressures the bottom part of the cash flow statement. Yes it is true, any sale if collected will drive a cash collection. But if this comes at a no margin or loss of margin this pressures the rest of the cash flow statement and takes away from net cash.

If you have sales and your margins are positive, the rest are just details.

If you struggle with the concept that any sale is a good thing, you are not alone. Under cash flow pressure most managers and owners get caught in the trap that any sale is a good sale because that leads to a collection. A sale without a profitable margin does more harm than good. It eats into your net cash available.

With a sale that contains a positive margin, now you have something to manage. Below the gross margin line you can now manage the details. Are my fixed costs to high? Are my sales and administrative costs under control? Do I have options to bring in cash from debt sources?

If the focus of your company is on profitable sales, then it’s crucial that you forecast or project your sales accurately. Click here to access our Goldilocks Sales Method whitepaper to build your sales pipeline and project accurately.

It's all about profitable salesDouble Your Sales

In April, some of our team went to a large marketing conference in Arizona, called ICON. During one of the breakout sessions, they mentioned that there are four ways to double sales. Since it’s all about profitable sales and the rest are just details, we want to use this week to discuss how to double your sales (and grow your company).

For the purpose of this section, we need to go back to Marketing 101. First, you have your traffic. These are the hits on your website or the company’s in your target market. Then you have your leads. These are the individuals or companies that you have qualified and are already in discussion with. Next, you have your conversions – the clients you convert from leads to sales. Finally, you have your sales price. While this is extremely hard to do when you are established, we’ll go into more detail of how to accomplish that last option to double your sales.

Double Traffic

Traffic is the largest section of your sales pipeline. The more amount of potential clients you have in your funnel, the more likely you are to convert them into sales. For example, if you double your traffic from 1000 to 2000 with a 40% conversion rate to lead and a 10% conversion rate to sales, then you’ve doubled your sales. Let’s work that out though.

Current Sales Pipeline:

1000 in Traffic

40% Conversion Rate

400 Leads

10% Conversion Rate

40 Sales @ $100 per widget equals $4000

Doubled Sales Pipeline:

2000 in Traffic

40% Conversion Rate

800 Leads

10% Conversion Rate

80 Sales @ $100 per widget equals $8000

As technology advances and competition increases, a low-hanging fruit is to optimize your website for search engines, put more Call to Actions on the site, and then improve your sales pipeline. Other options include:

  • Networking events
  • Referral partners
  • Increasing social media presence
  • Guest blogging
  • Pay Per Click
When you double your sales with traffic, it can be difficult to put together your sales projections. Click here to download our Goldilocks Sales Method whitepaper to learn how project accurately.

Double Leads

Get fanatical about doubling your leads! The more leads, the more sales. As we move down the pipeline, it’s going to be more difficult to accomplish (and project). When you double your leads, it qualifies them as a prospective buyer. For example, a candle supply distributor offers a $0-1 wick. That’s a low cost buy-in that qualifies that lead for wanting candle supplies to make candles. Eventually, those leads will be wicks wholesale, along with other candle supplies (wax, aromas, containers, etc.).

Using the same example as above, let’s work out how doubling your leads can double your sales.

Current Sales Pipeline:

1000 in Traffic

40% Conversion Rate

400 Leads

10% Conversion Rate

40 Sales @ $100 per widget equals $4000

Doubled Sales Pipeline:

1000 in Traffic

80% Conversion Rate

800 Leads

10% Conversion Rate

80 Sales @ $100 per widget equals $8000

Double Conversions

Conversion rates should be a financial leader’s best friend! Once you set a conversion rate goal with your sales teams, it’s a great way to hold them accountable and track the likelihood of converting a lead into a sale. You can double your conversions in a variety of ways, including:

  • Offering something for free in exchange for an email address, a phone call, etc.
  • Asking a lead to purchase something for a small amount (i.e. $7)
  • Offering a lot of value for an affordable price (i.e. $50)
  • Giving a lot more value for a higher price (i.e. $200)

When you have multiple steps in your sales funnel, it makes it easier to project your sales pipeline. For example, 50% of leads will buy into the first offer (free). 50% of those buy-ins will get the $7 widget. 30% of those will pay $50. And %20 of those will pay $200. But to actually double your conversions, you need to focus on the top first. Then push boundaries to create a vulnerable connection. We’re learning that customers all over are wanting something authentic.

Let’s see how doubling the conversions will double sales:

Current Sales Pipeline:

1000 in Traffic

40% Conversion Rate

400 Leads

10% Conversion Rate

40 Sales @ $100 per widget equals $4000

Doubled Sales Pipeline:

1000 in Traffic

40% Conversion Rate

400 Leads

20% Conversion Rate

80 Sales @ $100 per widget equals $8000

Double Sales Price

Doubling your sales price is extremely difficult to do, especially if you are already established in an industry. But it’s a way to double your sales! For example, Netflix just increased it’s price 10% for some of its memberships. Even though, that only equates $1-2, many were outraged while others were okay. Mckinsey & Company says that, “Pricing right is the fastest and most effective way for managers to increase profits.” There are many variables, including timing and value, that need to be assessed before you double your sales price.

Goldilocks Sales Method – Building Your Sales Pipeline

Regardless of whether you want to double your traffic, leads, or conversions, it’s essential that you now how to forecast your sales. After all, it’s all about profitable sales. This not only protects the cash, inventory, operations, and sales teams, but it protects the executive team from uncertainty.  Click here to rebuild your sales pipeline and project accurately with our Goldilocks Sales Method whitepaper.

It's all about profitable sales

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It's all about profitable sales

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How to Produce Realistic Sales Projections

2016 has flown by and we are already in the fourth quarter! As we wrap up the year in just over a month, strategic planning for 2017 is happening in businesses across the world. As the person responsible for the bottom line, your job as a financial leader is quite simply to improve profits and cash flow. While that may sound easy, there are many nuances that are outside of your specific function (CEO, COO, CFO, Controller, VP, etc.) that you need to learn to lead your organization financially.

Working on 2017’s sales projections? Are you responsible for the bottom line? Download the free Goldilocks Sales Method whitepaper to learn how to build your sales pipeline and project sales accurately.

While there is still ample time left in the year, it’s never too early to start preparing for next year. If you’ve already started your projections for 2017, pull out your sales projections because there may be things you are missing. However, if you haven’t even thought about next year’s financial situation, here are some tips on how to produce realistic sales projections.

How to Produce Realistic Sales Projections

Producing realistic sales projections is difficult primarily because there are no guarantees. But you can avoid producing overly optimistic projections.

Why Most Sales Projections Fail

Most sales projections fail because of the financial leader’s inability to factor in potential risk and uncertainty. Just like in the children’s story Goldilocks, companies can easily miss the mark by producing projections that are either too pessimistic or too optimistic.

Start Doing Projections Now

Like I said, it’s never too early to prepare for what’s next. Are your sales projections realistic or optimistic? This would be the time to adjust any discrepancies in your financial projections. Don’t forget, 2017 is only a month and a half away!

Ask Questions

As you start working on your sales projections, it is imperative that you ask the following questions to your sales team, executive team, and financial team.

  • Where did the company meet the targets previously set for the company and where did the company fall short?
  • What did your team learn over the course of 2016?
  • What unfinished business will the company take into the new year?
  • What does success in 2017 look like?
  • What steps does the company need to take to increase the probability of success?

Starting Small: Unit Calculations

You can track future sales by calculating the expenses and comparing the number to unit sales. First, consider the expenses your business usually has: rent, loan payments, vehicle payments, utilities. Also include inventory and the equipment needed to produce the items. Tracking every expense for a future budget is crucial. Second, factor in the income sources. This can mean anything from time to units sold. Finally, compare the expenses to the sales. Do they change during the season? Use the year’s patterns to project next year’s performance.

Also take a look at your unit economics.  For every widget you sell, what is COGS and margin?  Is your margin sufficient to cover your fixed costs?  If not, then you should determine whether a pricing adjustment is in order, or if you just need to sell more of the item in order to cover fixed costs.

If you’re still not sure how to accurately project your sales, click here to access your free Goldilocks Sales Method tool. This tool allows you to avoid underestimating or over-projecting sales.

Watching Market Trends

You also need to factor in market trends. Preparing an external analysis will help you strategically plan your year and project accurately. Evaluate sales for companies in your industry, in your city, and your customer’s industry.

In Houston, the oil & gas industry has impacted the local (and even the national economy) over the past 18 months. Our 12-on-12 analysis has analyzed past 30 years of rig count and oil price data; using a guide like this allows our company to estimate how our and our clients’ business is going to fluctuate.

Be a Financial Leader

One of the common misconceptions about being a leader is that it’s all about delegating tasks.  While trusting your team and empowering them to make a difference is a crucial part of leadership, some tasks require your experience and expertise.

One of the most important ways you make a difference as a financial leader is by building bridges between departments in your company.  Since everything in a company is tied in some way to finance, it’s your responsibility to ensure that operations and sales have the information they need to be their best.

Don’t just ask your sales team for their sales forecast and plug it into your projections without another thought.  Instead, work with them to produce a realistic and attainable forecast that will guide the company over the next year.  The tighter your sales projections are, the better your financial projections will be.  As they say, it’s all about sales, the rest is just details.

How To Work With Sales

The idea of working with your sales team can sometimes be daunting. Financial people tend to be cautious and are more likely to understate projections. Salespeople can be very optimistic and will tend to overstate projections. If you ask your sales team to provide 2017’s sales projections, they may say that the company expects to grow 40% in revenue.

Sounds great, right?

Only if the facts bear it out.  Take a look at year over year sales reports. Over the past ten years, the company has only grown 20% year over year. Unless the company is releasing a new product line, etc., then you can make a calculated assumption that a 20% growth rate is more reasonable.

Educating your sales team on past sales trends and listening to them about what they’re hearing in the marketplace will allow you to produce more realistic sales projections than either of you might crank out on your own.

Manage Sales With a CRM

So you’ve worked with your sales team to come up with some killer sales projections.  You’re done, right?

If you’ve ever worked with salespeople, you know the answer to this question.  Giving a salesperson a goal but not holding them accountable for results is a recipe for failure.

What Gets Measured Gets Managed

In order to help them keep track of their goals and measure progress along the way, it’s a very good idea to invest in a Customer Relationship Management system (CRM).

One of the most attractive aspects of using a CRM to track customers and sales is the ability to compile information from many different communication channels (social media, website, telephone, radio, television, direct sales).  Even if your business is currently only communicating with customers in a few ways, it’s a good idea to have a centralized database with all your customer data so that your sales team can document customer preferences, communications, and goals.

Most CRMs will also function as a tracking system for progress towards sales goals.  Just the act of entering and tracking sales in a CRM can help keep your sales team focused on all customers and not just the ones that are causing the phone to ring right now.

Conclusion

Producing realistic sales projections should be a priority for your company, particularly at this time of year. If you need help creating an accurate sales pipeline, download the Goldilocks Sales Method. Let us how you think 2017 is going to look by leaving a comment below.

Produce Realistic Sales Projections

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Produce Realistic Sales Projections

 

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10 Reasons Why You Should Bother With Networking

When I was a young accountant, I always wondered to myself… “Why should I bother with networking?” It seemed like a waste of time and money.  As I grew from an accountant into a business owner/CFO, I learned that networking is a vital function of doing business.

But for some, networking can be a daunting task.  Introverts, especially, can convince themselves that going to luncheons, breakfasts, or cocktail hours are unnecessary and pointless tasks that CEOs require of their financial leaders.  Most of all, they fear “death by networking.”

Networking Events: The “Necessary Evil”

Whether you’re looking for a job or finding new business, it will most likely come from your network –  not a resume pool or a cold call. If you’re looking for growth in any area, having well-honed networking skills is critical.

Instead of feeling like you have to bother with networking, be excited that you are in a field where people skills matter.

Remember… It’s not always what you know, but who you know that matters.

Seek Growth

By attending these networking events, you can expect growth in some form. This can include growth in profile, confidence, connections, business, etc.  Regardless of what your intentions are going into a networking event, you can seek and even expect growth.

bother with networking

HINT: Don’t Go For The Speaker

Whatever networking event you decide to attend, do not go just for the speaker.  It’s possible for a networking event to be successful for you even if you get nothing out of the speaker’s presentation.

One of the chief reasons I am a part of membership associations and organizations is simply to network. They could have the most spectacular speakers or the most boring of events, it doesn’t matter.  What matters most to me are the people that attend and the connections I make.

10 Reasons Why You Should Bother With Networking

#1 Make 6-12 Sales Calls in a 2-Hour Period

Sales calls are daunting for most of us, especially financial types.  Networking events provide the opportunity for you to knock out the equivalent of 6-12 sales calls in one short period.  Let’s face it, meeting someone face-to-face is totally different (and better) than picking up the phone and calling someone.

When you attend a luncheon or a breakfast, try to walk in with the expectation of getting work done. So many inexperienced business people fail to recognize that a networking event is simply a playing field where you can make your sales calls. Within that 2-hour period, you are able to meet with at least 6-12 people.

As an income producer in your company, utilize this opportunity to convert cold sales to warm or hot. Long gone is the tactic of just collecting business cards and not doing anything with them.

#2 Being There Gives You The Advantage

Being at a particular event may spur someone to give you an opportunity they would otherwise give to someone else.

Last week at a networking event, I found myself connecting a client of mine to someone else simply because she was at the luncheon. Previously, I was going to call her superior. Instead, she gained a hot lead and potential client by just being at this event.

Don’t be the person sitting at their desk suffering from FOMO (Fear Of Missing Out) instead of making connections.  You’ll never know what leads you may have missed out on if you don’t go.

#3 Confirm Your Assumptions About The Market

As a business owner or the financial leader of a company, you must stay ahead of your market. Since there is no magic genie that can predict the future for you, you have to make assumptions.

It’s not news that the oil & gas industry is not doing so hot.  As a business owner whose clients are impacted by this downturn, as an investor, as a native Houstonian, this matters to me.  I have to make assumptions about how long it’s going to last, what sort of impact it will have, how it will influence client behavior, etc.

Networking events are a great way to confirm your assumptions about the market.  Go in with your assumptions in mind. Start to listen before you speak.  There are a few questions that I ask at these types of events:

  • How’s business?
  • What are your thoughts on [insert market]?

People have the habit of talking about more than what you asked.  Take that knowledge and confirm or adjust your assumptions.  You know your assumptions are sound when you start to hear the same thing from people in different markets and industries.

#4 Identify Trends That Could Impact Your Company

bother with networkingIn addition to confirming your assumptions, start to identify trends that could potentially impact your company.  At any given event, it’s a safe bet that all those represented are working in a particular industry or market (middle market, oil & gas servicing, etc.) OR have the same purpose (turnaround, corporate growth, etc.).

#5 Polish Up Your People Skills

Some folks naturally have great people skills. They can charm the pants off even the worst of people! But some of us need to polish up our people skills.

Some of the most important people skills that any successful leader needs to have include:

  • Empathy
  • Communication
  • Conflict Resolution
  • Tolerance
  • Patience

The five characteristics are focused on one’s ability to be able to cultivate human relationships – professional or otherwise. By polishing up your people skills and further developing the skills listed above, you will be more successful in your professional and personal relationships.

If you’re an introvert (or a curious extrovert) and find yourself struggling to polish up your people skills, download your free Networking for Introverts guide here. 

#6 Connect with Connectors

bother with networkingConnectors love to network and connect people!  Networking events are their playground.  Not only do these “connectors” like to put two people together, but they see it as a challenge.  The more people they can connect together, the more their success meter goes up.

You don’t necessarily have to be a connector. But in order to successfully cultivate your network and make more sales, you have to connect with connectors. Think about it this way, any cable or cord is essentially useless unless it is connected to something. Put yourself out there and the connectors will naturally make the connections.

#7 Even If You Don’t Realize It, You’re in Sales

We often talk about how financial leaders and CFOs should see their position not as simply an overhead function but as an income producing function. In addition to your role’s function being different, it’s important to realize that you are in sales.

What do I mean by that?  Well, you have to sell ideas and initiatives to your key management team, Board, and your employees. As a financial leader, you are also responsible for selling your company to bankers, vendors/suppliers, and customers.  In order to truly elevate your role, you must add value to your company.  One of the ways you do that is by selling both internally and externally.  Networking helps you hone those skills and build valuable connections.

#8 Make New Friends

Not only are you feathering your professional nest by attending networking events, but you’re connecting with like-minded people and will have a friendly face for next time.  It’s highly unlikely that you are the only uncomfortable person in the room.  Seek out others who share your apprehension and strike up a conversation.  Chances are that when they need someone who does what you do, they’ll be more comfortable calling you rather than the “pushy salesperson”.

There are countless organizations that you can join that have monthly, quarterly, and/or bi-annual events that you can attend. Some of those that I have been a part of over the past 25 years include:

  • Turnaround Management Association (TMA)
  • Texas Society of CPAs (TSCPA)
  • Association for Corporate Growth (ACG)

Find your local chapter of any organization that you find would be beneficial for you. Continue to attend those meetings, and soon enough, you’ll find yourself with a group of friends.

WARNING: it’s easy to fall into a habit of only talking to the same people. Try to talk to 3 new people for every 1 friend you catch up with. This will continue to grow and cultivate your network.

#9 Get Free Advice

People naturally love to feel like their advice is valued, especially when they see themselves as your mentor. That’s the wonderful thing about networking events! You get free advice on literally anything from how to structure your financials to how to react to market fluctuations to where you should be eating lunch.

#10 If You Don’t Go, Your Toughest Competitor May Be Sitting In Your Seat

Similar to reason #2 on why you should bother with networking, if you don’t go to a networking event, your toughest competitor may be sitting in your seat.

It’s an unusual occurrence for me not to see a competitor at a breakfast or luncheon. This is probably one of the most important reasons why you should bother with networking. Your competitor, simply through them being present, can gain a competitive advantage over you.

Take your seat in the next luncheon. Sip your drink. Get talking. And start building your networking and your business. Remember… there is value in networking!

Need guidance in networking? Download your free Networking for Introverts guide and start building your network today. 

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Optimistic Projections

By publishing overly-optimistic projections, your company could be at risk for internal financial problems, misleading investors, miscalculating inventory and staff, and more. As we reach the halfway point in the year,  it’s time to revisit whether your company has realistic or optimistic projections.  Are your sales projections still on target?  Now is a good time to review your projections and adjust them if need be for the third and fourth quarter.

Optimistic Projections

Recently, a client met with one of our consultants. When the consultant began preparing their sales projections using our Sales Genie Tool, the client started complaining:

Our CEO, Ryan is too optimistic. He comes from a sales background, so he consistently over-projects sales whenever I, the CFO, ask for them. I don’t want to deal with sales!  I’m not the salesperson.  But our bank is frustrated that we’re not meeting our sales.  I can’t trust Ryan to make smart sales projections goals anymore. 

Sound familiar?

Having overly-optimistic projections is like waving a loaded gun… bad things will happen.  Stakeholders in your company rely on these projections and it’s important not to mislead them.

Why are CEOs and salespeople so optimistic?

Sales-minded people often set “stretch” goals…  an appropriate way to move a company forward, but it can shoot you in the foot.  Basing projections upon stretch goals can create problems when getting financing and allocating resources.  Your banker will wonder why you fell so short of your target and your inventory manager will be scratching their head wondering why there’s excess inventory.  In short, what starts in sales can lead to issues in operations and finance down the road.

The “Bullwhip Effect”

Bullwhip_effectThe Bullwhip Effect is a term coined by Stanford University to refer to supply chain changes. The same theory can be applied to sales projections.

A financial leader who doesn’t want to (or doesn’t know how to) project sales typically trusts that the sales team is projecting correctly forgetting that they are prone to cockeyed optimism when it comes to their performance.  The financial leader then submits projections based upon those forecasts to the bank and company management thinking that they’re completely accurate.

But in this example, sales overshoots the forecast by 15%. Operations has hired a few more people to manage the incoming sales and acquired more inventory. Sales sees the numbers coming in, still believing that those numbers are accurate; they give discounts freely and don’t collect in a timely manner. Accounting recognizes that the sales have happened and accounts receivable builds to an unmanageable amount.

All of a sudden, the financial leader is in a bind. Sales aren’t meeting the goal of a 15% increase; it’s more like 2% growth. Operations has tied up all the cash expecting increased sales.  Accounting is attempting to collect all of the sales as quickly as possible. The company is out of cash.

Things have spiraled out of control due to one small, well-meaning error.

How can CFOs or other financial leaders counter over-optimism?

Unfortunately, most sales projections fail due to a one-faceted (sales only) approach to forecasting.  When projecting revenue, it is imperative that you as the financial leader set guidelines and boundaries for your sales team to prevent optimistic projections from becoming gospel.

Here’s how you do it…

#1 Set Expectations

Schedule a meeting time for the financial leaders in your company to meet with your sales team. Set expectations as you move forward in creating sales projections.

These expectations could look like:

  • Review projections quarterly and adjust them if need be at that time
  • Have sales submit weekly reports to accounting to track trends
  • Schedule weekly or monthly meeting to discuss projections

#2 Create Projections Together

The biggest cause of optimistic projections is the accounting department asking sales to provide a number without any validation or input. Without any questions, those numbers are blindly put into the forecast.

There are two different types of sales numbers you should ask for from your sales team: the actual projection and the goal projection.

The goal projection, or a stretch goal, is often what causes these optimistic forecasts. Their purpose is to set a number high enough to motivate sales team to reach it. Oftentimes, it is set higher than is possible to reach. But this sometimes results in sales improving over the previous month or year.

For example, ABC Company’s sales were $20,000 in 2015. When forecasting sales, ABC set their goal projection to be $30,000 or a 33% increase in sales. Historically, there has only been a 5% increase over the previous year. The actual goal should have been a 5% increase as that has been the trend over the past 7 years.

In a meeting, explain the difference between the two types of goals. You need to actual sales goal for your projections, not the stretch goal.

If you’re still not sure how to accurately project your sales, click here to access your free Goldilocks Sales Method tool. This tool allows you to avoid underestimating or over-projecting sales.

#3 Communication

As we’ve said multiple times, there are three essential pillars within a business: accounting, operations, and sales.  Communication between these departments is critical to the success of your company.

Set expectations between accounting and sales that communication should be a priority. If your sales team indicates that they underestimated sales, then it is their responsibility to report that adjustment in sales.  Ask sales to track sales. They should have a weekly average of sales that they need to hit. If there is a trend that they are not meeting the projections, then it’s time to adjust.

Make communication an absolute priority. There is no shame in not meeting projections;  the trick is to adjust expectations going forward.

Conclusion

By proving that you as the financial leader or CFO can add value to a company through setting realistic and accurate sales projections, you’ll be better equipped to set yourself up for success.

For more ways to add value to a company, download the Goldilocks Sales Method to start projecting accurately and building credibility through your sales forecast.

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Business Valuation Purposes

See Also:
EBITDA Valuation
Valuation Methods
Multiple of Earnings

Business Valuation Definition

Business valuation is the process of determining the economic value of a business or company. It assesses a variety of factors to determine the fair market value in a sale, but there is no one way to verify the worth of a company. Business valuation can depend on the values of the assessor, tangible and intangible assets, and varying economic conditions. Business valuation provides an expected price of sale; however, the real price of sale can very.

Traditional approaches to business valuation employ financial statements, cash flow models, and comparisons to competitive companies within a similar field or industry.

Business Valuation Methods

Income Approach: determines business value based on income. This type of valuation focuses on net cash flow, discretionary cash flow, and capitalization of earnings.

Asset Approach: determines business value based on assets. This type of valuation focuses on both asset accumulation (assets minus liabilities) and capitalized excess earnings.

Market Approach: determines business value in relation to similar companies. This type of valuation focuses on the comparative transaction method and appraises competitive sales of comparable businesses to estimate economic performance looking at revenue or profits primarily.

(Are you in the process of selling your company? The first thing to do is to identify “destroyers” that can impact your company’s value. Click here to download your free “Top 10 Destroyers of Value“.)

Business Valuation Purposes

Although the primary purpose of business valuation is preparing a company for sale, there are many purposes. The following are a few examples:

Shareholder Disputes: sometimes a breakup of the company is in the shareholder’s best interests. This could also include transfers of shares from shareholders who are withdrawing.

Estate and Gift: a valuation would need to be done prior to estate planning or a gifting of interests or after the death of an owner. This is also required by the IRS for Charitable donations.

Divorce: when a divorce occurs, a division of assets and business interests is needed.

Mergers, Acquisitions, and Sales: valuation is necessary to negotiate a merger, acquisition, or sale, so the interested parties can obtain the best fair market price.

Buy-Sell Agreements: this typically involves a transfer of equity between partners or shareholders.

Financing: have a business appraisal before obtaining a loan, so the banks can validate their investment.

Purchase price allocation: this involves reporting the company’s assets and liabilities to identify tangible and intangible assets.

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If It’s Always On Sale, Is It Ever On Sale?

When you walk into a shopping mall, what do you see? I see sale signs everywhere! How could a company ever make money if its products or services are always on sale? 50% off, buy 1 get 1 free, 70%… It never ends.always on sale

Have you wondered if it’s always on sale, is it ever on sale?

Marketing in Action

Organizations such as Checkbook.org compare the regular price, lowest sales prices, etc. to the public. This non-profit organization has studied companies (especially in retail) to shed light to how those businesses are always advertising sales.

Truth is, we’re all suckers for a good sale. The way marketing works is that they tap into expressing a higher value for a product for a cheaper price. AND it works! If you see a shirt that’s on sale for $15, having been marked down from $45, you’d probably think that’s a great deal. You’re a winner. But what if I told you that that shirt, priced at $45, was produced at $5? At that cost, you’re looking at a 200% profit margin for one T-shirt on sale. And you’re going to buy it because you didn’t have to spend $45. They made you feel that you’re getting a valuable deal. And the next day, this particular store takes 10% more off, giving you an 80% sale.

If It’s Always On Sale, Is It Ever On Sale?

Now, this example might be a bit extreme. But if something is always on sale, is it ever on sale? This type of selling has been known to be very profitable and effective. Consumers believe that they are getting a good deal on a product or service if the percentage off is high (20-80%).

Bucking the Trend

One company decided not to be “always on sale“… with disastrous results. After the 2008 recession, JC Penney’s new CEO, Ron Johnson, made some radical changes in how the company was going to move forward. The company was struggling to find its identity in the competitive world of middle market retail.  Johnson decided that rather than their usual practice of offering an item for $100 only to mark it down to $50 a few weeks later, the store would offer no discounts but would price all its items at what it called “Fair and Square Everyday Pricing”.  The everyday low prices strategy offered the product for less than the initial $100 offer, but slightly more than the $50 sale price.

The problem?  JC Penney’s customers had grown accustomed to discounts and sales prices and went elsewhere when none were offered.  The store’s efforts to attract new customers with it’s simpler pricing policy were a failure as well resulting in decreased sales to the tune of $1 billion.

Want to learn how to price for profit while still catering to your customer’s needs? Click here to download our free Pricing for Profit Inspection Guide!

Pricing could be seen as a form of psychology. People are willing to spend up to a certain point on a product. Johnson failed to see the psychology behind pricing and completely disregarded his customers.

Know Your Customer

This is Marketing 101. Know who your target customer is. What’s the easiest route to obtain and hold on to that customer? Look at marketing’s 5 C’s: customers, company, competitors, collaborators, and context.

  • Are you addressing your customers’ needs?
  • What are the limits of what your company can do to fulfill a customer’s needs?
  • What are your competitors doing?
  • Is there a business that through collaboration could reduce your cost of goods and overhead?
  • What’s going on in the world that’s impacting your business?

JC Penney wasn’t addressing its customers’ needs; therefore, the company lost much of its customer base. The company was also implementing new products and services within the store. Because they didn’t have the capital to execute, JC Penney had to seek additional capital to implement the plan. Competitors  were selling at a lower cost with higher quality material. JC Penney’s customers began flooding to those competitors.

Shipping through Amazon, hiring temporary staff, and so many other strategies could have been implemented through collaboration with another company. JC Penney was implementing a completely new business strategy after the 2008 recession when consumers couldn’t really afford to spend a lot on new clothes.

Target Your Customer

This is your playing field. Focus only on this customer base. Your marketing department is most likely enthusiastic to reach every type of customer through one product. It’s better if you sell to 90% of 100 people than 30% of 300. Why? If you’re only focused on that niche market, then those customers are going to be more loyal to a company that is solely focused on their needs.

Whole Foods and Walmart do an excellent job of targeting their customer. Whole Foods caters to the middle to upper class that desire healthy, organic foods. Their target customer is willing to pay a premium price in order to get a quality product. Whole Foods doesn’t try to target Walmart’s target customer. Walmart caters to low to middle income people who aren’t particularly concerned with the quality of a product, but are looking for the best price. If Walmart were to start selling premium products for a Whole Foods price, Walmart’s customer might be hesitant to continue shopping there for fear that all prices might increase.

If you’re like JC Penney targeting middle-class families, your prices should match what your target customer would be willing to pay for a product or service. JC Penney failed to target their customer because they were only looking at their bottom line.

Price for Profit

If your company is constantly having a sale, are you actually making a profit? It is imperative that you examine your results to monitor if these sales are working and how they are impacting your bottom line.

You should be able to price at a point where you would be profitable. Oftentimes, we analyze the revenue, the big flashy sale signs, and how well the sale is doing. But what if you hosted a sale that didn’t allow for you to make a profit?

Looking for how to price for profit?  Click here to download our free Pricing for Profit Inspection Guide!

Regardless of whether your company is hosting a 20% off, a BOGO, or an 80% off sale, you can still price your products to give you the return you need. JC Penney did a number of things wrong in addition to missing their target customer, but in the end it led to the firing of the CEO and a lengthy recovery period that some still say they aren’t quite through. They didn’t price for their target customer or price at a point that would return a profit.

To make sure that you’re setting your prices at a profitable level, check out our Pricing for Profit Inspection Guide here.

Pricing for Profit Inspection Guide

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