The last few weeks we took a look at two ways of looking at Sales and Marketing. The primary reason to look at these elements of a business is that ALL businesses have Sales and Marketing. The details of other parts of the business are unique. The secondary element of getting to a revenue plan in place.
In either case, you should expect to have to do a bit of math at this point. The best way to create a financial plan is using a spreadsheet like Microsoft Excel. You don't have to do it that way. You can do some basics with pen and paper or in your head. In the longer term, we want to be able to do some "What If" scenarios and it just simpler to use a spreadsheet program for that. You also want to use formulas wherever possible because of that. If you use hard numbers, it becomes a bit harder to propagate changes across the plan.
The next thing you need to think about is Time. You should expect to do at least 2 years worth of Financial Projections on a monthly basis. It often takes that amount of time to become profitable (or at least Cash Flow Positive). We need a plan to get there and so, expect to run numbers out that far! On a first pass through don't try to get perfect. Use simple formulas to create forecasts going forward.
If we start with the revenue side, go back to the work that you did at estimating the average time between new customers to create a view to the number of customers in a month. So for example, if you think you will be able to land 10 new customers a month then you would have 10, 20, 30, 40, 50, etc. at the start of your company. You can multiply this by what you came up with with your Average Sales Price to get to a Revenue number. Over time you can look at repeat business, customer retention rates, and other things to fine tune the numbers. But you now should have the very first revenue projection for your business. Now take a step back and ask in your mind 2 questions: Do the numbers make sense? and Does this Revenue plan give me enough Money at the end of the Plan? Remember we are just at the Revenue line and you are going to be working on the Profit Line after we deduct all the expenses.
Now go back to the expense side with the same idea. How much money are you going to have to spend on Sales and Marketing? This is not just salaries and commissions. The cost for websites, business cards, banners, flyers, and advertising are among the costs that need to be considered. One simple way to get started is by estimating Marketing costs at a flat cost plus a percentage of revenues. That way costs increase as Sales increase and there is an upfront cost.
If you think about that, you can see that most of the time you will have to expend much of that money before you have customers. This is why you need this plan. That initial money has to come from somewhere. It might be your pocket. It might be an SBA Loan. But you need a plan to help tell you how much. We have just started to get to that number.
So, actions for yourself to get started:
- Expect to build at least 2 year plan in a spreadsheet
- Start with very simple formulas - we can make it more complicated later
- Know your goal to start - we need to understand how much cash is required to get started.
Have a great day!
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