If you are struggling to identify realistic sales goals or to achieve the sales goals that you set, then this post series is for you! It is the 1st of a multi-post series on how to identify and achieve your sales goals for product based businesses.
I have seen so many business owners use a "wishful thinking" approach to sales. They arbitrarily set sales goals based on what they feel they "should" be making, as opposed to what they feasibly can make with the current products, systems, and approaches they have in place. Some will look at last quarter's results and proclaim that they will do 10-20% more than that this coming quarter! But... they don't really understand what is working to drive their current sales or how they are going to increase them. It's more of a hope-it-will-happen or maybe-we'll-get-lucky approach to generating sales.
And as James Cameron says, “Hope is not a strategy. Luck is not a factor.”
The hope approach to sales is not sustainable. In the best-case scenario, it leads to disappointment; in the worst-case scenario, it puts you out of business.
So how do you consistently and predictably identify and achieve your sales goals for product based businesses?
The best way to hit your sales goals is to work backwards. Determine how much you want to make and then how many products you need to sell to hit that sales goal.
This guide is geared towards product based businesses - those with a physical product, whether you manufacture your own product, or buy/sell a product, or do both.
Have a service based business? Stay tuned! A post is coming next week.
No matter what type of business you have, let's start by setting 3 goals:
- BASE: How much do you need to make?
- TARGET: How much do you want to make?
- STRETCH: How much do you dream of making?
Your BASE GOAL is the amount you need to cover basic business expenses. It probably isn't the number that most excites you, but it is the one that keeps you in business and out of unnecessary debt and overwhelm. This is the sales goal that is critical to hit every month to run your business, also known as KTLO - Keeping The Lights On.*
*If you are in the start-up stage, be prepared that you may not hit your base goal until you find product-market fit. This can take 1-3 years for many new product based businesses, so ensure you have enough financial investment in your business to keep running while you are experimenting with finding what works and what doesn't.
Your TARGET GOAL is the one you aim to hit every month. This is a sales goal that excites you! It covers what you need to run the business and allows you to grow it too. This goal should be achievable but it will be a reach and take a lot of careful planning and
hard smart work to hit. Definitely a goal to celebrate when you achieve it!
Your STRETCH GOAL is the BAG (Big-Ass-Goal)! The wouldn't-it-be-AMAZING-if goal... It is a big stretch, not very likely, BUT not impossible. This is all about living the dream! For real. (Not in the sarcastic way your corporate friends say every Monday morning :D). You will only hit your stretch goals a small percentage of the time, but with proper planning and creative thinking, you CAN hit this goal. Hitting your stretch goals periodically are what allow you to truly transform your business.
Okay, so now that you know what goals to target, let's create an example. In the spirit of keeping the math simple, let's say your sales goals are as follows for the upcoming quarter:
- Base: $15k
- Target: $30k
- Stretch: $100k
So in this case, we are going after the target goal which is $30k for the quarter, which breaks down to $10k per month, and ~$350 per day.
How to Determine Your Sales Goal for Product Based Businesses
There are a few key metrics you need to understand.
The first metric you need to understand is Average Order Value (AOV).
SHOPIFY TIP: Go to your Analytics Dashboard and it will tell you what your Average Order Value is.
Your Average Order Value is calculated as the total sales revenue divided by the total number of orders during that time period.
Let's say your AOV for direct to consumer retail orders is $50 and your AOV for wholesale orders is $250. If we were only looking at AOV, you would need the following to hit the example sales goal:
- 200 retail orders per month, or 7 orders per day
- 40 wholesale orders per month, or 1 - 2 per day
Sounds easy enough, right? Well, the issue with only looking at AOV is that it does not factor in what it cost you to make the product. This is a mistake MANY businesses make, but not you, because you are going to factor in the second metric.
The second metric you need to understand is Gross Profit Margin.
Your gross profit margin = (Sales Price - Cost of Goods Sold (COGs) / Sales Price) x 100.
If you sell a product for $20 wholesale and your COGS are $10, your gross profit margin is 50%.
If you sell that same product for $50 retail, your gross profit margin on retail sales is 80%.
When you combine AOV with Gross Profit Margin, you would actually need to sell:
- 250 retail orders per month, or 8 - 9 orders per day
- 80 wholesale orders per month, or 2 - 3 orders per day
These targets are quite different from just looking at AOV, and much more realistic.
Setting Your Sales Goals Checklist
- Set 3 sales goals - base, target, and stretch
- Determine your current Average Order Value (AOV)
- Calculate your Gross Profit Margin for retail and wholesale sales (assuming you do both)
- Use AOV + Gross Profit Margin to determine the number of orders you need per month and per day to hit your target sales goal
These aren't the only metrics you will ever need to know
There is a lot more to setting sales goals for profitability and scaling and additional expenses and measures to consider... but AOV + Gross Profit Margin are a great place to start when setting targets, so start here before exploring more advanced strategies.
So, what's next?
Well, now that you know how many products you need to sell to hit your sales goals, you can start to define the sales and marketing strategies to achieve them.
What questions do you have about setting your sales goals? Share them below!
If you want some dedicated help identifying your sales goals and the best sales and marketing strategies to achieve them, book a 45-minute coaching intensive.
by Crista Grasso
Known as the "Business Optimizer", Crista has the ability to quickly cut through the noise and focus on optimizing the core things that will make the biggest impact RIGHT NOW to grow and scale your business. As a lean business consultant, she specializes in helping businesses gain clarity and focus through strategy, planning, and lean practices. She is the creator of the Lean Out Method and the 90-Day Lean Out Planner, and is also the founder of the global accessories brand Criscara Jewelry.