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August 22, 2010

The Entrepreneur’s Advisor | Understanding Sales Metrics

In a previous post Choosing What To Do With Your Website the concept of sales metrics was mentioned. This article will help you understand what sales metrics means to a new venture and how to use this information to create your web presence.

Do Your Sales Projections Fit?

Do Your Sales Projections Fit?

What are Sales Metrics?

The term sales metrics describes the reasons you will be able to make financial projections, budgets and cash flow decisions for your business. The principles are the same regardless of whether or not you are starting a disruptive technology venture, professional practice or web-based micro-enterprise. Without an understanding of sales metrics your new venture will never get off the ground and you will have zero chance of raising Angel or VC investment.

Sales Metric Components

Sales metrics begins with listing the sales variables of your business plan. This includes knowing:

  • How many people will perform marketing.
  • How many people will perform sales functions.
  • How many sales per month are in your budget.
  • How many sales can one person make.
  • What is your expected revenue per sale.
  • What is your expected cost per sale.
  • What is the length of the sales cycle (immediate, 1 month, 3 months, 1 year or more). In general the higher the dollar sale then the longer the sales cycle.
  • How many qualified leads will you need to receive to make a sale. This information can be found by speaking with others in your industry or by market research.
  • How much web traffic will you need to generate the needed leads. Read Measuring Blogging and Inbound Marketing to help develop realistic expectations.

Build Your New Venture Sales Projections From the Ground Up

With the sales metric information above, the next step is to determine a realistic sales number and the amounts of marketing effort needed to hit the sales numbers. Building your sales projections from the ground up means that you know precisely how you will achieve your leads and what it will take to get there. For example, To achieve 5 sales you may need 50 qualified leads from 5,000 web visitors. Therefore to average 5 sales per month you would need to generate 600 leads per year from 60,000 visitors to your web site.

Your marketing efforts should be measurable and be able to generate the traffic necessary. You will also need to make sure you have the ability to handle the amount of leads you are able to get. For example, how many people will it take to follow up on the 600 leads or make the 5 sales per month. Knowing how many people will be required for sales and marketing is part of your business plan and is how to build your budget/financials from the ground up. Part 7 of The Ultimate Checklist for Entrepreneurs,Innovators and Micro-enterprises will focus on different marketing techniques and ideas.

Knowing what it takes to achieve these numbers is part of your overall business plan.

Sales Forecasting for Start-ups | Mistakes to Avoid

Mistakes in projecting sales is where many new venture take a left turn. Projecting sales is part of your business plan development. Missing your sales projections, leads to cash flow shortages. With this in mind, NEVER, NEVER assume a percentage of market share and work backwards to your sales projections. If you assume a percentage of market share, you will always be disappointed and fail to meet your revenue expectations. In addition, investors will not take you seriously.
There is truth to the saying that after you complete your financial projections double your expenses and reduce your revenues by half, then do it again. Following this tip will help you avoid the second mistake of not being prepared for the financial reality that may happen. It may take years for a business to establish itself. Failure to accurately forecast your financial projections is a leading cause of failed businesses. Ask us for advice or assistance in preparing a budget or financial projections.

The Role of an Entrepreneur Advisor for Sales Metrics.

The Entrepreneur’s Advisor strongly recommends that if you are not numbers oriented then you seek the help of a qualified entrepreneur advisor or accountant to help you understand how numbers make a business work. Many people hang out a shingle and claim to be an entrepreneur advisor. Unfortunately, many unqualified advisors that I have run across do not understand how numbers make a business run. Understanding how to run a business by the numbers is critical for any high value, technology or professional practice venture.

A qualified entrepreneur advisor can help guide you or even create (yes – you pay for this) financial spreadsheets that form the basis of a business plan. A qualified entrepreneur advisor has the business experience especially in operations to help you understand what you will need to bring your idea or opportunity to business fruition.

When you have the sales metric numbers and an understanding how they work with each other, you are ready to begin implementing your web site. The next post will be Learning The Basics of SEO.

Articles in The Ultimate Checklist for Entrepreneurs, Innovators and Micro-enterprises so far are:

  1. The Ultimate Checklist For Entrepreneurs, Innovators and Micro-enterprises
  2. Choosing Your New Venture Legal Entity
  3. Choosing Names for New Ventures, Domains and Social Media
  4. How Entrepreneurs Can Determine Their Web Presence Needs
  5. The Entrepreneur’s Advisor | Choosing What To Do With Your Website

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