It's sales budgeting time!

Matt Lynch is the national sales director of LYNKA Promotional Products. John Lynch is president of LYNKA.

Most sales reps hate budgets. They're unfair, unrealistic and a bureaucratic waste of time. "How the hell do I know how much I'm gonna sell next year?"

In fact, the sales budget is the lifeblood of the company. It tells management how much the company should sell in the next year - month by month - and at what level of profitability. With this in hand, the company can plan expansion or contraction, predict how the company will make it through the next 12 months alive and maybe even make a little money. Do we have enough sales reps to achieve this plan, or do we need to hire more? What's the most effective way to grow sales - through Key Account managers, telesales or traveling sales reps? Can we realistically achieve these sales with the current product line, or do we need a product line extension?

During the budgeting process, you set the ball in motion for the entire year. It allows management, human resources, customer service, production, and most of all, the sales team, to know what to expect.

Well, it's November, and most large companies finished their budgets long ago. If you haven't done yours yet, then there's no time to waste. Most years, you do the same thing...that is, wait until the last minute, take a look at your current year's results and figure, "Next year should be better, so we are forecasting a growth rate of 10 percent."

You can be sure Coca-Cola or Procter & Gamble don't do their forecast this way, and neither should you. If your goal is to develop some sound quotas and forecast systems, then read on. In this article, we highlight some key issues to consider when setting your goals and quotas for 2004.

Your corporate strategy

If you are a sales manager or a salesperson, you need to know the big picture of your company. Is your entire company forecasting growth? Are they adding new divisions? Will they be adding or removing new products that might have some serious impact on your results? If you are not 'privy' to this information, then have a sit down with someone who does know the answers. They can also provide you with much of the historical data that you will find useful in setting goals.

Review historical data

Your first real step in setting goals is to review your past performance. Here you can notice some trends. You can tell if certain products of your offer are growing, if new products generated income last year and are expected to yield a big increase. You should also take a very close look at your key accounts, and see what percentage of your business they represent. We find that the 80/20 rule is pretty accurate in our business; that being 80 percent of your sales comes from the top 20 percent of your clients. If you are a sales manager, you will want to review clearly, month by month, results by each salesperson and territory.

How to calculate growth

The goals you set for your sales team should be challenging but achievable. All salespeople are not created equal, so when preparing individual quotas, you must take into account several factors such as:

- Sales reps' level of experience

- The territory potential

- Their current clients

- Competition. Competition might be tougher in some territories

Include sales reps in the process

The worst thing you can do is to hand your sales reps a budget and say, "Here, this is your target for next year." You really need to include them in the process, and get their "buy-in" on the numbers you are setting. It sounds obvious, but many new reps who join a company have to deal with this exact scenario. "The average rep of our company did zł.2 million in sales last year, so you have to do the same . . . Good Luck." This type of approach will result in de-motivation and ultimately lead to high turnover. They will leave your meeting and start complaining to the other sales reps that they were handed something totally unachievable.

Instead, start by outlining the process you will use in setting their quota. Have them prepare historical and client data. Then sit down and go about discussing the possibilities and factors that might have positive impact on their results. We generally like to go in very optimistic, and would hardly ever budget a sales rep to have lower results next year then they do this year. When you are through discussing all your points, then you should both agree on the numbers and put it down in writing.

Stretch targets

Most large corporations set a sales budget and what they call a "stretch target". Achieving the basic sales budget should be a "no-brainer" but the stretch budget should be that ambitious goal that the finance department would love to see, but sales management is afraid to commit to. It can be five percent more than the base line, or 20 percent more, depending on your business, historical growth rates and market conditions. Either way, it's a good idea to set a stretch goal and then somehow reward sales reps in an extra special way for achieving this target.

Sales budgeting can be tedious and painful, but done correctly, the process can set the tone for a successful year and head off potential problems that could occur in achieving the company's sales goals. By involving your staff in the process - by creating a bottom-up budget and correlating it with a top down approach, you'll have a budget that management can live with and sales reps will believe in.

Customer Loyalty Alert! We are working on a future article on customer loyalty and loyalty programs in Poland. Do you think customers in Poland are loyal? Are loyalty programs worth their weight in kiełbasa? Let us know your thoughts about customer loyalty and loyalty programs and we may include your comments in our upcoming article. saleseye@lynka.com.pl