What coach would plan to lose half their games before the season starts? None that I know. Yet don’t we do the same thing when we create a monthly budget on our average month’s sales? After all, an average is in the middle, with half more and half less. Here is a way to estimate a realistic and sustainable sales level for financial budgeting.
1. Start where you are. If you sold $1.2 million last year, there is no negative sales trend, and you know of no reason you should reduce your monthly sales estimate, then list the monthly sales from highest to lowest (most easily done in a spreadsheet: Excel Users: Data -> Sort -> select your monthly sales total cells).
2. Reduce sales if there is a significant downward trend or you have any other reason to decrease the monthly totals. Either deduct an overall percentage or do it month by month. Either way, reduce them and then list the monthly sales from highest to lowest.
3. Don’t assume there will be a sales increase (not much of an issue these days). Wait until you actually increase sales and they show up in your 12 month actual numbers. That way you won’t be spending money before you actually get it.
4. Eliminate the three highest sales months. We lose money faster in months when sales are down than we earn when sales are up the same amount. So, our higher sales months subsidize our lower ones.
5. Average the nine lowest sales months and use that average for your monthly financial budget. What will that do? It forces you to create a sustainable financial budget that you should hit 9 out of 12 months and be within striking distance the other 3 months.
6. Create a financial budget using this sustainable number. You now know how much is coming in, so now plan for what you are going to spend. And continue to plan until you’re spending less than what you take in.
7. Now, set a Sales Goal that is 20% higher than this sustainable financial budget. If your financial budget is $100k per month, your sales goal should be $120k. A good job is hitting your financial budget and that means you get to keep your job for another month. Don’t get ecstatic. A great job is hitting your Sales Goal. Hit that and you can go party.
