sales pipeline
Reality checks – setting sales targets and more …
Continuing the theme of sales, we welcome back Ellen O’Hara, Head of Business Development at Cockpit Arts for this post on setting targets. Look for a free worksheet to download towards the end of the post.
Some tips, tools and learning on calculating an annual sales target for those self-employed, product based businesses among you. These are drawn from a workshop series entitled ‘Creating An Outline Business Plan’, which I recently delivered at Cockpit Arts for an enthusiastic group of self–employed designer-makers.
The first workshop began with some exercises on defining success and articulating values. Each participant’s tasks was to clarify which rewards they were hoping to reap from their self employment.
It was pretty clear that most people had no problem describing what they wanted to gain in personal and creative terms. However, most of the group had trouble defining financial success and what money meant to them. I recommend working through these exercises as they can be quite illuminating – a worksheet can be found on our website here.
So, as we moved on to ‘goal setting’, we spent some time discussing ideal levels of drawings – i.e. the amount you take from the business for personal use when you are self employed. This figure ranged enormously from person to person, but overall, most makers were aiming to generate enough profit to enable them to pay themselves at least £30k pa in the medium-long term.
Using break-even analysis as the basis, the group then spent some time with their calculators working out what level of sales they would need, at current costs and prices, in order to achieve that level of target drawings and cover other costs To do this for your business, you will need:
- Total annual fixed costs: including studio and related costs, marketing and sales costs, administration, any permanent staff.
For example £10,000.
- An annual drawings target: i.e. the amount you would like to pay yourself from the business.
For example £25,000.
- Average selling price for one unit of your work: if you find this tricky, you could use the price of your best selling product, or a mid point between wholesale and retail prices.
For example £150.
- Average variable cost for one unit of your work: this would include materials, small replaceable tools, production outworkers, packaging if you always supply this with your work, research and development costs and other costs related to the production of your work. Again you may wish to use your best selling product as an example.
For example £40.
Step 1
Sum your total annual fixed costs and drawings target.
£10,000 + £25,000 = £35,000. We’ll refer to this as A.
Step 2
Subtract your average variable cost per unit from the average price per unit to work out the profit per unit.
£150 – £40 = £90. This will be B.
Step 3
Divide A by B to give you the volume of sales you would need to achieve in a year to cover your costs and acgieve your drawings target.
£35,000 / £90 = 389 units
Step 4
Finally, multiply this volume by the average selling price per unit to calculate your annual sales target.
389 units x £150 = £58,350
Bear in mind that this assumes fixed costs and prices, and doesn’t account for you putting cash away for next year’s tax bill or retaining profit to invest back into the business. It does, however, start give you a clearer, more realistic idea of type of business activity you need to engage in order to become sustainable.
The exercise raised some interesting issues among for the group. For some it illuminated the need to increase prices in order to improve unit margins, which in turn raised questions about repositioning and branding. For others it emphasised the importance of streamlining production in order to increase production capacity and productivity. For others it was all about controlling costs.
Recent research from Cockpit Arts shows well performing, sustainable designer-makers are generating sales in the region of £65-£70k. But this is with net margins of around 40%.
So what do your figures tell you?
For ease you might want to use this breakeven tool, which you can incorporate a retained profit target into. Download worksheet here.
Ellen O’Hara, Head of Business Development at Cockpit Arts.
A summary of out recent research report can be found on our website.
Managing your sales pipeline of new work ~ free tool
How do you gain an overview of the forward pipeline of work for your business and therefore work out what the priorities are for winning new work vs. research & development vs. admin vs. time for a holiday?
We’re fans of online CRM systems such as Tactile but if you’d rather there is a more manual way of doing things.
First of all you need a long list of all the possible clients for each of your products and services. Depending on how long this list is (i.e. 10′s vs 100′s) you might want to prioritise them according to how easy you think it would be for you to sell to them and the volume or scale of work they might buy/commission.
It is a good idea to do some homework on each of these to see what they already buy that overlaps with what you offer … so if they’ve just placed a large order with someone else or recently signed a contract with a competing agency then they’ll probably end up lower down your priority list.
Once you have a shortlist of priorities it is mostly about being clear as to what you’d like them to buy and tracking the stages of conversation you’re having with them. Here is a client status and planning tool that you might find useful. See the yellow notes for our thoughts on how to fill in each column. You might also want to add a column where you record your thoughts on the chances of winning the work (one way to show this is the % chance of the project/sale happening).
On the second sheet in the tool you’ll find a layout for you to use to track the phone calls and emails you make to each potential client. This means that not only can you track your activities but if others in the firm speak to them you can track this too.
You might also like to consider how long the list of possible sales needs to be in order for you to win enough to stay at the same level of business revenue vs grow the company? If you track all your leads over time you’ll be able to spot what percentage you tend to win … and therefore how many new leads you need in order to win enough work. In the service based creative sectors this is probably somewhere between 15-25% of all early stage conversations … just as a very very rough guide. If you’ve been receiving a lot of press coverage for your work of course this percentage will probably increase but you might not want to build in a higher win rate as necessary to fund the costs of the business!
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