Winning Strategies: Forecasting Attainable Sales Goals

I am just amazed by how many print owners set their goals based on what they would like their sales to be in the next year rather than using some analysis of whether those sales are really attainable. In fact, when asked, most print owners admit they picked the number out of the air or rounded it to 5% or 10% because those numbers sound good.

What I would like to recommend are ways to predict your future sales based on sound principles.

Trends

Follow your sales trends. It's not reasonable to suddenly expect an increase in sales when your past sales were not up. Don't just look at the entire year, but break down the sales by quarter. Even if sales were up last year, perhaps the sales were only up in the first or last half of the year. Look at the local and national economic trends. While most of your businesses are relatively small, unless you do something different, your printing business will be affected by the local trends and perhaps by national or regional economic trends. Don't trap yourself into believing that the current economic situation will not affect your business—it will, and you need to react.

Let's look at an example:
Quarter 2007 2008
Q1 $312,000 $345,000 +9.6%
Q2 $345,000 $368,000 +6.3%
Q3 $361,000 $340,000 -6.2%
Q4 $304,000 $288,000 -5.6%
Total Sales $1,322,000 $1,341,000 +1.4%

While you were planning for a 10% increase in 2008, the sales did increase slightly, but the trends for the past two quarters are down. Based on those trends, it will be a stretch to forecast higher sales in 2009 unless you will be doing something different. If not, your sales will probably continue to drop. Based on these sales trends (down approximately 6%), it would be reasonable to forecast sales for 2009 at $1,260,540.

By Customer

List your top 25 customers by sales last year. Look at each one and estimate their sales for the coming year. Some are probably new customers and you will expect an increase in their sales, while others may have merged, moved, or gone out of business, so you will have an expected decrease in sales. Have your salespeople or CSRs help with forecasting your top 25 customers' sales. Take the balance of your customers (usually your top 25 make up at least 80% of your sales) and forecast their sales collectively.

Finally, add sales for new customers you expect to pick up in 2009. How do you forecast new sales? Calculate new customer sales in 2008 (and even go back to 2007) to see what those new sales totals were. The total forecast should be the total of the top 25 customers, the rest of your current customers' repeat business, plus the new sales.

For example, using the same company's sales:
  2008 Forecast
Top 25 sales $1,070,000 $950,000 (based on individual analysis)
Balance of sales $269,000 $240,000
  (based on 5% decrease)
New customer $134,000 $135,000
sales (assumes similar number
  of new customers)
Based on this method your 2009 forecast will be $1,325,000.

By Sales Type

Break down your sales by job type for the year (you may want to go back two years for comparison). Use these categories as a guide: one- and two-color printing, four-color printing, black-and-white high speed copying, color copying, large-format, graphics/prepress, bindery, mailing, etc. Look for the changes by percent.

If you are following general industry trends, you should see increases in your color copying and printing and little or no increase in black-and-white copying and printing. Your business may not follow the industry trends, especially if you brought in new technology or are doing work in-house that you previously outsourced or turned away. Forecast sales for each sales type based on your history. Add the numbers to forecast total sales based on sales type.

For example:
Category 2007 2008 % Change Forecast
Printing $212,000 $145,000 -31.60% $125,000
(1- & 2-color)
Printing $245,000 $298,000 21.63% $330,000
(4-color)
B/W Copying $247,000 $196,000 -20.65% $160,000
Color Copying $268,000 $308,000 14.93% $350,000
Graphics/Prepress $86,000 $82,000 -4.65% $75,000
Bindery $76,000 $88,000 15.79% $95,000
Mailing $42,000 $65,000 54.76% $85,000
Large-Format $45,000 $65,000 44.44% $85,000
Brokering $101,000 $94,000 -6.93% $90,000
Total $1,322,000 $1,341,000 +1.4% $1,395,000
Based on this method, you may forecast $1,395,000 in sales.

Number of Employees

The rough rule of thumb is that you should have at least $100,000 per full time employee or the equivalent—the most profitable print shops generate $125,000 per employee or more. If this forecast is much higher than using the other methods, you should look to reduce your number of employees.

Our example company had an average of 12 employees in 2008, so its sales per employee was $111,750. They did lose an employee in November and he has not been replaced, so they are starting with 11 employees. Based on the employee count staying at 11 and, perhaps, a small increase in sales per employee, based on price increases and/or efficiencies (3%), you can forecast sales at $1,266,000.

By Space

If you are expanding your space, you must increase your sales forecast correspondingly. It's not always a straight extrapolation if you dramatically take on more space. While there are some printing standards on sales per square foot, your equipment configuration and the types of services you offer may make it hard to compare to others. The key is that if the amount of space will change in 2009, then make reasonable sales forecast adjustments.

One good rule of thumb is that your rent should be no more than 7% of your sales and, ideally, less than 5%. In the example company, if rent (include property taxes, common area costs, etc.) is $5,500 per month, or $66,000 a year, and they want to keep their total expense at 5%, then they should budget sales at $1,320,000.

I recommend using all of these methods and then select the ones that you feel are most relevant for your company. In the example printing company, our sales forecasts range from $1,260,000 to $1,395,000. I would recommend using $1,325,000 as the goal, as that is in the mid-range. On the other hand, if they were adding more marketing and sales dollars to their budget, I may go with $1,395,000. Just remember that without any substantial changes you will follow the trends.

Sales forecasting is basically educated guessing, but it is vitally important in setting your company goals and budgets. Involve your key employees in the process. Using sound methods to arrive at goals will make them more real for your employees; otherwise the sales goal is just wishful thinking. I recommend that, once you have your forecast, you break it down by month based on past trends and the number of work days in the month. Monitor performance each month (or, better yet, weekly). Make adjustments in your sales processes and marketing as needed to insure that you meet your sales goal.

Finally, each year, review how you performed against your forecast and make adjustments in the methods you used to forecast for the coming year. It's worth the time and effort.

Mitch Evans is president of Mitch Evans Consulting, which is specifically targeted to meet the consulting needs of the quick and small commercial printing industry. His areas of expertise are in strategic planning, valuation, mergers and acquisition, financial planning, new technology, and "1-2-1" coaching. Evans regularly speaks to printing associations and groups on these and related subjects. Contact him at 561/351-6950 or mitch@mitchevansconsulting.com.

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