Building Your Sales Plan:
Assumptions that Drive Your Sales Forecast

A sales plan is required to forecast not only sales, but the number of customers you will need to achieve those sales; the type of products or services you plan to sell; the number of staff you will need to support your planned sales (and in the case of manufacturing, to operate production equipment); and new or replacement equipment to support and achieve the plan.

A sales plan is also required to help forecast cash flow projections (cash will be needed during sales growth periods – your supplies expenses will go up, your labor costs will go up, etc.).

Sales and operations planning go hand-in-hand: you need a sales forecast to build your operations plan; you need an business operations plan to support your sales plan. And both of those plans drive the business financial plan; which needs the information in those plans to forecast financial needs and outcomes.

And all these plans together form the basis of your overall business plan.

The first step in building your small business sales plan is to determine the period your sales forecast will cover: 1, 2, 3, 4 or 5 years.

Typically from a business management perspective you would want your sales planning to look-out at the next two years. That gives you a near-term view of what you want to achieve.

Set up internal reporting to compare your actual sales (by product, by customer, by month, by sales representative, by geographic location, etc.) to your planned sales - focus on the strengths and weaknesses of your sales results.

When you are looking at significant business events, such as expanding your business; new products or services; a new location (to name just a few), you need to prepare a 5 year sales plan.

Longer term sales planning will force you to look at the longer term benefits/costs. (You will also need to do a financial plan, operations plan, capital expenditures plan, and more depending on the business event you are undertaking.

Recognize that the further out your planning horizon goes, the less likely it is to be accurate. However, you will still need to do longer term plans in order to predict your necessary capital expenditures, your financing and cash flow needs, your staffing needs and more.

After you have determined the forecast period, the next step is to define the sales assumptions that you are using to build your forecast.

Each year is likely to have some variation.

Some Sales Plan Assumption Examples:

• US/Canada dollar exchange rate – remains at par.
• Inflation rate – is 3% for each year of the plan period.
• Market will grow at the same rate as GDP – 3.3% (this works if the industry typically tracks GDP).
• Market will grow due to an explained event (e.g. Olympics, US election year, etc.)
• Market will shrink due to a disaster (unplanned event): this is an interesting one – how do you plan for an unplanned event. Well, if you live in an area that is hit every year by hurricanes, you need to plan for an impact during hurricane season.
• Market will shrink due to new competitors entering your market.
• Market will shrink due to new competitive products being introduced and impacting your market share.
• Market will grow due to competitors leaving the market (e.g. business closing, bankruptcies, mergers and acquisitions, etc.).
• To support the rapid sales growth planned, you will need to add 25% to your sales staff and to your customer service support.
• To support the rapid sales growth planned, you will need to add plant floor staff to produce the increase in goods for sale.
• If your plan shows shrinkage in the market size, you may decide to reduce your marketing and advertising budget or conversely increase it to gain market share. In either scenario, state your assumption.
• To support your rapid sales growth, you will need to move to a larger location. Define this assumption.
• You will increase your prices at the rate of inflation plus 2%. (This may have an impact on sales growth and on net revenue.)
• Define where your products/services are in their product life cycle. If they are in the growth stage, your assumption will be rapid sales growth. If in the mature or declining stage, assume that sales will track those stages.
• What does your market research tell you: size of market, your market share, how much can you increase your share (if you are already at 80% market share it will be hard to grow with that product/service – and some new products or services).
• If you have actual (historical) sales information (e.g. you’ve been operating your business for the past 8 years and your sales growth has been about 2% per year or up and down state the pattern as an assumption or state why that pattern won’t continue in the upcoming plan – you’ve added or lost a significant customer for example.

At the end of the assumptions section of your sales plan, ensure that the assumptions you’ve made in the sales plan are ‘transported’ or transferred to the operations plan and the financial plans (e.g. advertising cost increases or decreases, staff increases or decreases, moving locations, expanding your geographic market – which means additional transportation costs and time-to-market costs, etc.).

After you have defined your assumptions (and some of these will come to you as you write your plan), set up your plan. Try to drill down to the product or service level by geographic market and perhaps by month as well as year. If geography is important, develop a sales territory planning section to address products, sales representative assignments, and customers – look for best fits in your plan.

To test your sales plan numbers, make sure that you compare your plan to your existing sales (if you have them) and if you're a new business, or launching a new product or service, or selling in a new location, do your market research first.

Return from Sales Plan to Small Business Planning.