The most important revenue number you present in a business plan

Written by Jim Logan
Wednesday, 09 April 2008 16:13
Some recent client work reminded me of a series of projects and a period of time when I worked with private investors and business owners on a number of investment and M&A opportunities. My role was evaluation of revenue plans and associated sales and marketing initiatives, opportunities, and challenges. In these projects, I met with a number of business leaders, listened to a lot of pitches, and saw far more than one up-and-to-the-right revenue plan. They all pretty much read the same - exponential growth and resultant compounding value. What I always jumped to first was the nearest revenue number the company would offer - typically their first year revenue projection. What I'd do is ask a series of questions about that number, the thought being if you can't answer how you're going to make money in the near term, how can anyone believe you'll make money in the long term. This was a lesson I learned from work with late-stage venture firms earlier in my career. Here's the typical range of questions I'd ask: What is your target market? What is the profile of the person you'll primarily be contacting? Who influences the person in their position? What does this person value or fear in their job? What are the steps to your target account's typical purchase cycle? How do they make decisions? What are your sales steps? What is your anticipated sales cycle? What is the expected time for each of your sales steps? Did you factor in time for making contact, scheduling, negotiating, etc.? What is the expected value of your average transaction? What is your expected close ratio? What is your expected time to revenue? What is your expected time to cash? How many prospective accounts do you expect to have to engage with each month to meet your revenue forecast? How are you going to find these prospects? How are you going to contact them? What means? What lead generation activities do you have planned? What sales tools do you have? What sales forecasting and review process do you have in place? How accurate were you past forecasts? Did they adjust much weekly and monthly? (a really bad sign) What is the skill-set and number of sales people you must have to reach your revenue forecast? How will the first customers weigh on the organization's ability to continue to sell? The questions often went on. The point was to be sure the company understood everything it takes to make the first number on their forecast. The same applies to established companies and sales organizations working on an annual revenue plan - if the sales team can't tell you exactly how they'll make the first quarter's number, their chance of making the annual number is based more on luck than ability to control their business. An important point to make is the companies who best answered the questions above weren't guaranteed to be successful, but the disproportionate number of companies who could answer the above questions in detail were. Food for thought. Set as favorite Bookmark Email This Trackback(0) TrackBack URI for this entry Comments (4) Subscribe to this comment's feed Great post, even better checklist written by Chris Yeh, April 09, 2008 Jim, you really knocked this one out of the park. I'm emailing to my friends in sales, and saving it for the entrepreneurs that I advise. report abuse vote down vote up Votes: +2 Thanks! written by Jim, April 10, 2008 Thanks for the kind words Chris! I appreciate the feedback. It's a good list and reminder for us all. report abuse vote down vote up Votes: +0 How much wood can a woodchuck chuck? written by David Daniels, April 14, 2008 It's refreshing to read the list of questions. When reviewing forecasts the first thing I zero in on is sales process assumptions and capacity. It's easy for organizations to rationalize revenue based on market potential. But it's another thing entirely to understand what it really takes to make a sale and the needed resource load required to realize those sales. I'd like to contribute the questions: "What resources are need through the sales cycle to make the sale?" "How many opportunities can each resource work on at the same time?" Thanks, --Dave report abuse vote down vote up Votes: +6 Excellent Additions! written by Jim, April 14, 2008 Hi David! Thanks for the additions to the list. I especially like the question regarding how many opportunities a resource can work on in a giventime. You touched on something key in your comment...revenue planning based on market analysis versus revenue planning based on ability to close sales. The difference is huge! report abuse vote down vote up Votes: +0 Write comment Name Email Website Title Comment smaller \| bigger

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