In the previous article we defined the Sales Funnel concept as a tool for forecasting sales and revenue, cash flow forecasting, and planning the size of your sales force. See Sales Funnel. This article provides some examples for practice.
Example One: Going up the pyramid to see if market is big enough and number of leads needed
Year 1 Year 2
Revenue (Cash) Goal $50,000 $150,000
Average Sale $2,000 $2,000
Sales Needed 25 75
Success Proposal to Sale (50%) 50 150
Success Contact to Proposal (20%) 250 750
Success Lead to Contact (10%) (7500 vs. market size?) 2500 7500
Example 2: Sales/Cash cycle for first 25 sales
| Sales Cycle: 3 mo. To sell, 1 mo. to perform, 1 mo. to pay | Mo 1-6 | 7 | 8 | 9 | 10 | 11 | 12 |
|---|---|---|---|---|---|---|---|
| Sales | 0 | 2 | 4 | 8 | 11 | 13 | 15 |
| Revenue Booked After Job Completed/Invoiced (avg. sale is $2000) | 0 | 4K | 8K | 16K | 22K | 26K | |
| Cash Received 1 month after invoice; 2 months post-sale | 0 | 4K | 8K | 16K | 22K | ||
| Total Cash | 50K |
Note: you need enough start-up cash to support your business expenses until cash begins to come in.
Example 3: Salesperson Time Required in Year 2 of Example 1
| Task | Time for Each | # to Do | Total Hours |
|---|---|---|---|
| Attempt to Contact Lead | 5 minutes | 7500 | 37,500 mins / 60 = 625 |
| Make Contact | 1 hour | 750 (10% of leads) | 750 |
| Write Proposal | 2 hours | 150 (20% of contacts) | 300 |
| Negotiate | 4 hours | 100 (67% of proposals) | 400 |
| Close Sale | 4 hours | 75 (50% of proposals) | 300 |
| Total Time | 2375 | ||
| Your time @ 20hrs/wk | 1000 Shortage = 1375 |
Example 3 shows that your sales forecast is unrealistic unless you add one or two salespeople, or you spend more than 20 hours per week selling. If you don’t, your cash flow will be less than half your forecast, and you will run out of cash before the business can turn a profit. “Don’t be this guy!”
The Sales Funnel is a simple tool for forecasting revenue, cash flow, and the size of your sales force by analyzing each of the sales steps for your business. For a good graphic of the funnel, see http://marketingartfully.com.
Questions? Call or email Tom Gray.
Tom Gray is a management consultant focused on small business and telecom, a Certified Turnaround Professional (CTP), and a SCORE Mentor. He can be reached at 630-512-0406 or tgray@tom-gray.com. For information on the scope of Tom’s activities, see www.tom-gray.com. For more on SCORE services, see www.scorefoxvalley.org.
Tags: cash flow forecast, revenue forecast, sales force requirements, sales forecast, sales funnel, sales steps, size of sales force
