Common Mistakes To Avoid in a Sales Plan

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Common Mistakes To Avoid in a Sales Plan

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October 5, 2021

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When activity usually picks up around building a Sales plan for the next financial year, it is common to see people taking a top-down approach when projecting sales numbers or sales value. Which is to say, they look at how they have been selling categories in the last year and the current year and put an estimate to how they would sell them next year. It is a category driven approach and does not get down to plotting sales granularly at the level of point of sale (POS) or channel partner (distributor).

However, sales plans are best built in a bottom-up way. How points-of-sale behave at a category level and their growth trends need to be taken into account in formulating a sales plan.

Rationale:

One reason is that the Sale points grow differently depending on their age. As can be seen from the below example of Costco, how the newer stores (called a ‘warehouse’ in Costco) grow differently as compared to older stores which are settled in their Sales.
The other reason is categories and sub-categories behave differently from POS to POS and it pays to focus on these differences.
Previous mistakes in undersupply or oversupply in a category come to the fore through calculation of GMROII (gross margin return on inventory investment) for that category at sale point level. Very insightful.
Also, hitherto lower performing, lower-sales grade stores may exhibit a slightly better sale growth over better performing ones.
In providing for newer addition of Sale points, the initial base stock should not be forgotten to be added to the sale estimates. It is a commonly occurring mistake that initial base stock building is forgotten.

Sale planning exercise should be done with utmost discipline and rigour, and it is in your best interest to do away with broad based estimates that are prone to errors.

And lastly, Sales planning must be done at a volume level, not value level. Else you may face the unpleasant aspect of growing only in value (because of upward price revision) but not at volume level which stands for market share.

All the best! Write to us if you’d like to learn more.