Projecting Sales, One Customer at a Time

I was reading an article today by Jay Conrad Levinson, the Author of “Guerrilla Marketing” and over a dozen other “guerrilla” business books, when it struck me that he was approaching sales the same way I had been advising entrepreneurs to approach sales projections in their financial pro forma.

In his article, Mr. Levinson said, "There is no need to hit a home run the first time your at bat. A single will do, then another single, then another, one following each other, none grandiose, but all bringing you closer to your goal."

So many people want to approach sales projections in a business plan pro forma by finding out the size of the market and projecting they will capture what to them seems like a reasonable share of that market. The problem is, business doesn’t work that way. It is extremely unlikely that one will get 5% of the market. In order to succeed long term in most markets you must be market leader meaning that 5% percent is not enough. To do this you must have a superior product and model comapred to that of the competition and then you're likely to get anywhere from 20%-50% of the market but not 5 percent. It’s possible to stay small and under the radar of the major competitors but then you are likely to have only a fraction of that 5% market share. All of this is academic anyway because picking a percent of the market as your sales projection is a formula for not meeting, let alone exceeding projections.

Another approach inexperienced entrepreneurs use is to decide they will slay the giant. It goes something like this; “If we could just get our cough syrup into all the Walgreen’s in the country we would be $100 million revenue company.” But you won’t, at least not for several years!

When well run, established companies forecast sales they use a pipeline approach. In other words, they look at what is in their pipeline, what the chances are of closing each lead or prospect in that pipeline and how long it will take to close each deal. Farther out they look at niches they would like to penetrate, who the players are in that niche and how and when they will approach each of them. In other words, they build their forecast one single at a time. They don’t decide that next year they will supply Honda with all their transmissions or get the contract for 100% of Home Depot’s lumber needs.

Pro forma sales projections should be approached the same way that the established company approaches next year’s sales – one customer at a time. First look at your products position in the market. Is it high end, low end or somewhere in between? Secondly, who needs your product the most? Which of these companies are most likely to give you an audience? Should you start with local customers and work your way into regional, then national sales, or is it necessary to go national immediately? Who will you approach first, how long do you think it will take to close (add a couple of months to that) and what is the likelihood that you will close the deal. Who’s the second customer you wish to approach, “then another, one following each other, none grandiose, but all bringing you closer to your goal."