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Sales and Marketing, Part 3: How to Create a Sales Budget and Plan

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Sales and Marketing, Part 3: How to Create a Sales Budget and Plan

This is the 3rd in a 4-part series about how to create marketing and sales plans.
Part 1 teaches you how to create a marketing plan.
Part 2 covers telling your marketing story.
Part 4 is all about creating a sales funnel.


Now that we know how people become interested in purchasing from your business, we’re going to take a look at common sales tactics that are used to get those people to put their money where their Facebook likes are. A good sales plan has 2 parts: a budget and a funnel. We’re going to build a sales budget in this article, and in our next article, we’ll define our sales funnel.

But First, a Quick Sales Primer
When a business engages in sales, it conducts activities that start with a potential buyer indicating interest in making a purchase and end with (hopefully) a purchase transaction. For most small businesses, sales begin when a client or customer calls, walks into the store, emails, or enters information on a website.

Dick, of Dick’s Discount Cars fame, begins his sale when I walk onto his lot and say, “I think I want to buy a car,” and ends when I’ve signed the contract to buy my beautiful, newly used, somewhat-equipped 2013 Ford Fusion with rad racing stripes.

Why You Need a Sales Budget
Dick didn’t just walk into work, guess the price of the car, and figure he might be able to sell it. Before he ever stepped onto the sales lot (and right into my personal space bubble), he stepped into his office and took stock of his entire business. His list likely included every vehicle in his inventory, the asking price for each, the lowest acceptable sales price, how many customers he expected to visit, and how many of them would buy, to name a few.

In other words, he created a sales budget.

Your sales budget is — for better or worse — like truth serum for your business. How so? Because we humans tend to remember our successes and forget or excuse our misses, but when we review our past predictions – they never lie. That’s what we thought, no matter how comical it looks to us today.

If Dick always thought that 50% of interested buyers walked away with a car, for example, but found out the number was more like 10%, well, that’s a pretty big screw-up. If I were a business mentor in this situation, my first request would be to see his budget. And when he couldn’t produce a budget because he never made one, my second request would be for him to write this on a sticky note:

You can’t improve on shortcomings that you don’t realize you have.

How to Create a Sales Budget
In addition to serving as a warning system and reality check, your sales budget can also function as a day-to-day forecasting tool for determining future resource investment. (If you plan to sell 2x as much product next quarter, you’re going to need a bigger boat warehouse.) In addition, a budget allows you to analyze your success and determine if you need to make changes.

To work up a sales budget, you’ll need your completed marketing plan (and if you don’t have a completed marketing plan, return to start). Once that’s ready, it’s time to do some math.

Step 1: For each of the products listed in your marketing plan, estimate the lower and upper boundaries of how many interested buyers, or “leads,” you expect to get each month.

Let’s keep going with the auto sales example:

Monthly Forecast
Product Leads
Used and certified pre-owned vehicles 10-20
Extended warranties 5-10
Oil changes 9-12

 

Step 2: For each product, estimate the percentage of leads that you expect to become customers. When a potential buyer becomes an actual buyer, it’s called “converting the lead.” The number of leads you convert to customers is your conversation rate — and conversion is pretty much the entire industry’s favorite happy hour topic right now.

Here’s how it will look:

Monthly Forecast
Product Leads Conversion
Vehicles 10-20 40%
Extended warranties 5-10 10%
Oil changes 9-12 15%

 

These numbers are all it takes to craft a completely reasonable sales budget, and it doesn’t require a Ph.D. in economics. To run the calculation, find the average price of the product or service (if it’s normally a range, just pick a middle price). Multiply it by both the lower and upper number of leads you expect, and then each one of those by the conversion percentage.

If our first line item, a used vehicle, costs $10,000 on average, the equation looks like this:

10-20 leads, 40% conversion

  • 10 x 10,000 x .40 (low end) = $40,000
  • 20 x 10,000 x .40 (high end) = $80,000
  • Budget: $40,000-$80,000

So our chart looks like this:

Monthly Forecast
Product Leads Conversion Budget
Used vehicles ($10k) 10-20 40% $40,000-$80,000
Extended warranties ($300) 5-10 10% $500-$1,000
Oil changes ($50) 9-12 15% $67-$90

 

That’s it — you have a sales budget! You expect between 4 and 8 customers to purchase a car next month and to generate $40K-$80K in revenue from those sales.

Easy peasy.

Step 3: Tracking
Now that you have a budget, you can find out how well your judgments stand up to reality. The easiest way to do this is to track your forecast against what actually happens. Create a line item for each product or service and update monthly, like this:

Monthly Actuals
Used Vehicles January February March April
Leads 10 30 1 20
Conversion 5 10 1 15
Sales $50,000 $50,000 $50,000 $50,000

 

Here’s a scenario for context:

The bottom line shows that every month had exactly the same amount of sales: $50,000. This is the number that uncovers the health of the business. Take January, for example. It looks right on track — 10 leads, 50% conversion, $50,000, just what was expected.

In February, though, some new marketing led to some new leads, but fewer of them converted to customers. And, they only spent half as much as average! Based on this information, you might decide that while the new marketing channel does bring in some new customers, it doesn’t have enough return on investment (ROI) to be worth it.

In March, you decided to see if advertising mattered, so you turned it down to 0 … and we learned it does matter! We only got 1 lead — yikes. You still sold $50,000 in cars, but that was because of one huge sale (that sweet Porsche you got at auction) — not the norm, and non-sustainable. Just lucky.

And finally in April, you turned marketing back on, a new sales guy started, and the conversion rate jumped to 75%! That’s better than expected … but the sales numbers didn’t make a jump, and 15 conversions in April should equal more cash than 5 conversions in January. This might be a cue to check in on the new guy to make sure he’s selling things at the right price.

The Bottom Line
The value of your sales plan is not the numbers themselves but the reality and visibility they give you into how things are actually going and how successful you really are. Operating without this insight can allow a business owner to get too focused on the total sales number and leave them with no warning (and no clue as to why) if things go south.

The opposite applies too — without insight into mostly sales figures vs. forecasts, it’s hard to know which tactics are the most successful.

Where budgeting is all facts and figures, actual selling is more like art. And if you’re going to be successful, you need a good sales funnel. The next article will show you how to make one.

Related content:
Sales and Marketing, Part 1: How to Create a Marketing Plan
Sales and Marketing, Part 2: Marketing Your Business in 6 Easy Steps
Sales and Marketing, Part 4: How to Create a Sales Funnel for Free
Sales and Marketing, Sidebar: Marketing Case Studies from the BigCos

Your sales budget is — for better or worse — like truth serum for your business.

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