When talking to entrepreneurs about their sales forecast, they love to talk about the market and say “if we only get 1% of XYZ we’ll do great.” Of course, the real world doesn’t work that way. Instead, it’s best to build a bottom-up sales forecast that takes into account the current sales performance and extrapolates it out based on growth rates.
Here are a few factors to keep in mind with a bottom-up sales forecast:
- How does the corresponding volume of sales qualified leads need to grow? Do the current marketing campaigns have capacity for more volume (many campaigns get more expensive with more volume like pay per click ads)?
- How many sales reps need to be hired for one to work out (it’s important to note when planning that all new hires don’t work out)?
- How long does it take for a new sales rep to ramp up and be fully trained?
- What’s the attrition rate of existing sales reps?
Often, if a startup wants to triple sales next year (see Triple, Triple, Double, Double, Double), they need to expand the sales and marketing team well in advance of the new year.
My recommendation: build a bottom-up sales forecast.
What else? What are some more thoughts on a bottom-up sales forecast?