What will 2014 hold? Care to guess? Me neither. I prefer my forecasts to be scientifically imperfect but founded on data. Data doesn’t have an agenda, only people do.
Struggling with your revenue forecast for next year? Think back to when you started your business. Why did you think you would succeed? Did you already have customers lined up? Were you sure you could find demand for your services? How much business did you think you would do? Even though you were probably quite uncertain about how things would go, the data told you it was worth trying. An ongoing business has access to even more data: past sales, job cost, product utilization, and profit by customer to name a few. There is also macro data such as the state of the economy, business trends, or local (or global) events.
Once we have some data, we can use it to perform a series of useful things starting with analysis, extrapolation, then prediction, followed by wishing and perhaps guessing. Indeed, most of us will do all five of these to varying degrees, and each is valuable in its own way. Analysis is the most valuable tool of the set. We examine the data over time and extrapolate the trend lines forward. If profits have been decreasing steadily over time, then we can predict that they will continue to do so unless we make appropriate course corrections. By reviewing prices, adjusting margin expectations, and retraining the salesforce, one could expect profits to increase. Therefore, we might predict improvement pending these changes. Some part of us wishes that the results will be better than the prediction, which should in turn inspire us to also work on reducing costs. That takes us back to the data for more analyses, extrapolation, and prediction. And with any forecast, there is a finite amount of guessing. But, save that for the last step.
Say for instance that your analysis predicts that you can increase prices and reduce direct costs for a 5% improvement in gross profit. At the same time, reductions in overhead costs yield another 2% for a 7% overall improvement in net profit for 2014. For many of my readers that would be a doubling of net profit! The reasons why you will achieve this goal are validated by the data, yet a majority of the companies that set profit goals fail. Why? Because there are always customers, employees, and competitors that we can predict will react negatively or otherwise undermine your forecasted results. These stories or anecdotes erode the knowledge the data provides us. “My customer looks at every price on our quote. If he sees a change he will flip out and choose another supplier” is a typical response when someone wants to protect a house account (that probably hasn’t had good margins for years). Your reaction may be to adjust the forecast based on this kind of anecdote, but all your projected gains will erode on paper before you’ve even tried. The problem with anecdotal forecasting is that anecdotes are by their nature, isolated stories. They tend to contradict factual data, which is why they have so much power. It seems black and white, with the human element overriding the facts.
Instead, meet each objection with an invitation to develop an action plan with your employees. How will you address these isolated pockets of resistance? Can you introduce products or services that can capture the higher revenue and margins without losing the old guard? Or, is it time to let some accounts (and maybe some employees) deselect themselves from the new economy and make room for fresh business and new ideas? If the data tells you the business is there, then clearly you need to work on the internal objections. Trust the data and you will be better prepared to face the tougher decisions. And as for the guessing, if you find that you need to guess then I would start over. You must have missed something along the way.
Tom Stimson, MBA, CTS, is president of Stimson Group LLC, a Dallas-based management consulting firm specializing in strategy, process improvement, and market research for the Audiovisual Industry. Tom is a Past-President of InfoComm International and a current member of InfoComm’s Adjunct Faculty.