ALL PLANNING BEGINS WITH A SALES FORECAST
KEY POINT: If you don’t’ stabilize a sales forecast, you can’t control your company. If you control a forecast, you control the world.
Month Six: Hold an Early Sales Meeting
Toward the end of July, we reserve several rooms at a beautiful resort in the Ozarks and bring all the sales and marketing people together for a two-day meeting. (Remember, this is supposed to be fun.) Each of the salespeople makes a presentation about his or her expectations for the next eighteen months. … People discuss how they are coming along with their individual goals, what they are planning to do in the rest of the current year, and how they see the following year shaping up.
Managers listen to the sales presentations, and we play a game of what-if. We do everything we can to poke holes in the salespeople’s strategies. … So it’s in everybody’s interest that we identify any problems, false assumptions, unrealistic expectations, or hidden risks. Like these:
What is it going to cost to deliver on these sales commitments?
Do we have the capacity? The skills? The equipment? The money?
Can we get the parts we need?
How fast does this customer pay its bills?
How vulnerable are we to competition in that market?
What if interest rates rise?
What if this deal doesn’t pan out?
How likely is it that the customer will increase the order?
How likely is it that the customer will cancel?
Can we handle that?
What’s our fall-back position?
Ask the toughest ones you can think of, and ask early enough in the process so that there is time to come up with new answers or devise new contingency plans.
Your company may not have a sales force per se. … If that happens to be you, get together a group of friends and colleagues and have them grill you about your expectations for the coming year. One way or another, you want to wind up with the best sales forecast possible, and that means doing whatever you can to tear it apart before you embrace it.
Month Five: Put together the Sales Plan; Work on the Standard Costs
After you’ve discussed the preliminary sales forecast, you need some time to come up with a better, stronger, smarter version. We generally allow ourselves two or three months. … During that period, the sales and marketing people digest everything they’ve heard at the July meeting and figure out how they should modify the sales plan. They do research, revise strategies, riase or lower estimates, go over schedules with customers, rethink contingencies, whatever. … Toward the end of September, they pull all the information together in a new, improved sales plan.
By then, we’ve also pinned down a lot of our costs – almost all of them, in fact, except the ones that depend on the final sales plan. … Goals, on the other hand, have only been discussed informally at this point, although we do know what issues people are concerned about, and what things they’d like to see happen. … We can use the responses to guide us in developing a game plan that people will feel enthusiastic about.
Month Four: Present and Debate the Sales Plan
In October, the process moves into higher gear, as the sales department comes out with its revised forecast. … Everybody gets a five-page document detailing what we think our sales will be in the next fifteen months – the last quarter of the current year and the entire following year. … A vague forecast is useless. People can’t respond to it, and you can’t base plans on it. Spell out precisely what you expect to sell, how much, and when. It’s better to be wrong than to be vague.
Once the sales plan has been presented, we encourage every to go at it, to rip it apart, to expose any weaknesses or inconsistencies. The debate happens in two stages. First, the middle managers take the plan back to the frontline supervisors, who go over it carefully, paying close attention to the implications for their specific areas. … At the same time, we are converting the dollar figures into pieces – for example, the actual number of fuel-injection pump nozzles we’ll have to produce month by month to meet the plan. The supervisors can then take those numbers to the people on the shop floor and get them involved in the debate.
This step – converting dollars into things – is important. You can only get people to contribute by putting the forecast into a form they readily understand and react to, a form that corresponds to what they do every day. … At the end of October, the middle managers get back together with the salespeople to report what they’ve heard from the front lines and to come to consensus on the forecast.
Month Three: Agree on the Costs of Executing the Sales Plan; Start to Target Wants and Worries
November is when we settled on the standards for the coming year. The accounting department distributes an in-depth, month-by-month analysis of what it will cost to produce and deliver the goods in the sales forecast. … Most standards do not have to be changed very much (if at all) form year to year.
Whatever the reason for change, it has usually been analyzed and discussed by the time November rolls around. In any event, the person in charge of standards goes over each one with the individuals affected. The supervisors and middle managers literally have to sign off on the changes before the budget can be approved. I personally review every change greater than 10 percent. We want to make sure that the standards are fair – that they are attainable and that they keep us competitive in the market.
There’s another reason to get approval of the standards. In giving it, people are making specific commitments to one another for the next twelve months. They are agreeing to carry their weight by meeting the standards. Those commitments are the basis for the Game. Without them, there is no Game, just a different form of manipulation and coercion. Commitments are vital. You have to achieve consensus on the plan.
This is also a good point to launch the general discussion of goals, since you will soon be deciding how to spend the cash generated under the plan. Ask people about their worries and their wants.
Are there things that need fixing?
Should equipment be replaced?
Do they want new offices or factory spaces?
What do they see as the greatest threats to their jobs?
It doesn’t matter where the dangers may lie – in the economy, the marketplace, or the company itself. You want people to look over the entire landscape and talk about their most pressing concerns and urgent desires. After all, you will have a limited amount of cash with which to address those concerns and fulfill those desires, so it’s important to find out which ones are most important to people.
We do that by having a company-wide discussion that begins in November and continues intermittently for several weeks. We raise the issue in staff meetings, and the people there take it back to the rest of the organization. If there seems to be a pretty broad consensus, we can begin to draw up lists. If more discussion is needed, we hold additional meetings either at the company or off-site.