Sales planning

Sales planning is the process of projecting selling activity (expense) and forecasting the yield (revenue) of that activity.

Sales planning should be done by segment. A sales process is a set of stages that a customer traverses from possible customer to actual customer. At each stage, the customer may progress successfully to the next stage or may decide not to proceed. An estimate should be created for sales effort expended at each stage (generally in people hours) and probability of successfully moving the customer to the next stage. Such a model should exist for each segment.

At its core, managing the sales process involves breaking the process into its constituent elements. At a high level, we have:

Revenue = # of customers X average revenue per customer

We can decompose this as:

Revenue = # of prospects X probability of success X average revenue per customer

When we factor in the dimension of time, we have:

Revenue = # of prospects at time t (months or quarters earlier) X probability of success X average revenue per customer

This sections expands a little on this process using one reasonable definition of stages.

Conceptually, we are trying to create a sales funnel.

The elements of a sales funnel or model are: definition of stages, probability of advancement to the next stage, effort expended per potential customer at each stage and time required to advance a potential customer to the next stage (generally driven by the customer’s buying cycle).

All people or organizations in a segment are possible customers. In order to become customers they must first be identified. Once identified, the next step in the process may be qualification. A qualified lead can be termed a prospect. With some effort, a prospect may be convinced to buy. Or there may be a further step of a trial. A successful trial may lead directly to a purchase decision, or there may be a further step.

There are many ways to lay out the stages of the sales process. There is not necessarily one right way, but some ways are more logical for a given business than others. These steps are the units for planning and measuring sales activity. To the extent possible they should have discreet boundaries. However the sales process is organized, the important points are that progressing from one stage to the next takes time, costs money and has some probability of not being successful.

As a final note on the selling process, it is worth highlighting the role of market research in creating the sales plan. Primary market research determines:

  • The key attributes which characterize the customers in a segment
  • The value of the solution, the urgency of the customer
  • The probability or propensity to adopt
  • The time required for each stage – it is very important to keep in mind that the time to purchase is determined by the customer’s buying process, not the company’s selling process
  • The average revenue per customer

Secondary research will determine the number of of customers in a segment and also the means of reaching them.