One of the biggest complaints that is often heard about business plans is that the sales projection is unrealistic. One of the greater shortcomings of financial forecasts in falling short of what was projected is not hitting the sales forecast.

Here’s one way to sort that out and test the sales forecasts for reality.

One way to do it is to take a look at the sales cycle and build that into the forecast. Among the elements of the sales cycle that can be put in are:

1. How many prospects would be contacted?

2. What percentage of prospects will turn into sales visits? This will lead to the numbers projected sales visits.

3. What percentage of sales visits will turn into customers? This will lead to the total number of new customers.

4. Expected order size from the new customers. This can lead to the total expected orders.

That covers some of the info from the new customers. Next then, we have a parallel side from existing customers if we look at what type of business will come in from the existing customers:

1. What percent of customers will generate new business?

2. Total number of existing customers.

3. Expected order size from existing customers.

4. This leads to total expected business from existing customers.

Then we combine the expectation from new customers as well as from existing customers to get the total sales forecast. This will test out the amount of new business that is expected to come in the business plan. By going through this, you can see if it’s realistic to expect to generate the amount of new sales that were projected in the plan. If by going through this exercise you come up with a smaller number, in particular a smaller amount of new business, then you know you need to scale back the forecasts and make it more realistic.

Go through this exercise, getting into more detail, in particular, on the sales cycle for new customers. You can cut out any of the fluff that might happen to be in there for the sales projection and come up with a much more realistic overall financial forecast.