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What Makes a Sales Forecast Credible?

[fa icon="calendar"] Wed, Jun 15, 2016 / by Tim Berry

So for me, what makes a sales forecast credible?

It starts with product market fit. I want to understand the story of the need, and not necessarily big numbers, but who needs this and why.

That’s the beginning.

 

FULL TRANSCRIPT:

So for me, what makes a sales forecast credible?

It starts with product market fit. I want to understand the story of the need, and not necessarily big numbers, but who needs this and why.

That’s the beginning.

Is this really believable? That’s important.

Beyond that, how the numbers grow. I want to see a sales forecast with drivers. Specifically, if you’re an app or an website for example, your drivers are going to have to do with search engine optimization, keywords, paper click, conversion rates. I’m going to look for some sense of reality in those conversation rates.

And I’m also going to look outside of the sales projection for credibility in the projected marketing spend.

When reading business plans, we can’t afford to just believe that you’re this next huge breakthrough.

So if your numbers are here, going up in a hockey stick—and let’s just say this is your hockey stick—and your marketing expenses go up, and how do I do? Yeah, it would be more like that, so that the expenses go up before the revenue and generates some revenue, and there is a deficit spend for a while. And as you reach some sort of steady state, your marketing expense in these key driving factors is a credible amount that keep the machine going. Well then, that helps makes a sales forecast credible.

Interestingly enough, I’ll comment often on I don’t like unrealistic profitability. More often than not, the problem with unrealistic profitability is, it cuts into the credibility of your sales forecast.

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In the world of web and apps, where I sort of understand, you just can’t get to those big numbers unless you’re spending the big numbers or you’re that special, once-in-a-generation… I mean, there was Twitter and there was Facebook, and they were the special phenomena. But when reading business plans, we can’t afford to just believe that you’re this next huge breakthrough of thing that will defy the normal laws of gravity.

And for me, some relationship between growth rate and marketing spend is one of the laws of gravity.

So I hope that helps.

This post originally appeared on Bplans.com.

Tim Berry

Written by:
Tim Berry

Topics: Financial Modeling & Forecasting

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