Are you chasing the quarter?
5 tips to get your revenue budget right this financial year
You know the drill. It’s a few months before budgets need to be set for the new financial year and the sales and marketing teams are asked to project revenue and GP. The Sales Director has a sudden interest in the CRM, talks to the sales team about what’s happening in the market and what they think can be achieved in the year. There’s a reflection on last year (of course we have to do better). The head scratching starts and a number magically appears that will hopefully satisfy the Board. The Board will then say that’s not enough and supply the required number anyway. It’s a common theme that’s played out each year.
The budget should be based on the strategic growth plan and supported by data from the CRM coupled with industry knowledge from the sales team (and a little stretch in there for improvement).
Many companies I’ve worked for have snapped into the re-forecast mode after the first quarter because the actual revenue is so far from what was budgeted. (who would have thought?) The forecast is then tweaked each quarter and that becomes the new target. It’s far different from the submitted budget and that’s when panic sets in.
The plan is quickly out the window and reactive mode sets in. The growth strategy if forgotten and the process of “chasing the quarter” begins. A laser-like focus on short term sales with regular questions from the Sales Director of “What’s closing next month?” Rather than asking “Is the plan working as we expected for the end of the year?” It’s madness.
If this is familiar in your organisation, then there’s probably a few things you should start doing now in preparation for the mid-year budget submission.
1/ Base your budget on your growth strategy. If the revenue and GP budget isn’t based on what you plan to do, then change the plan or change the budget. Stop guessing.
2/ CRM discipline from your team is paramount. Just like Strava, if it’s not in the CRM, it didn’t happen. Your CRM is the one place your future revenue is projected from opportunities and leads. CRMs have forecast modelling that can help get a clear picture of the future. If used properly, it makes any decision you make for your budget defendable.
3/ Defend your Budget. So often a Sales Manager will crumble and accept a number that’s forced on them just to appease the Executive or Board. If you don’t believe you can achieve the budget, you’re heading for a year of pain. You need to be able to defend your budget based on data, market intel and sales team knowledge. Anything other is a wild swing at a figure that will keep the board happy when the budget is submitted.
4/ Your sales team should be all over it. No one knows better than the sales team as to what’s happening in their territory. Make sure they are part of the process and hold them accountable. Ask for supporting data, detail and intel of their estimates. Although there’s an element of the unknown, this can be factored in. If your team can’t back their estimate, then that’s another conversation that needs to be had.
5/ If your first quarter result is very different from the budget, then seek help. Like a decaying tooth, it will fester and get worse each quarter. There really is no point having a re-forecast each quarter that is so far removed from the original budget. Act quickly to work out how you are going to improve growth.
