As we near the end of January, you’ve probably set your sales goals for 2012 but how do you know if you’ve set realistic targets? Realistic goal setting is an area where most clients fall down. The issue is that setting extravagant sales targets erodes their value as a business planning tool, for budgeting and forecasting.

Last year we grew by 25%, this year we’ll grow by 40%!
After a good year, it’s human nature that sales managers will want to increase the revenue target.  And why not? Onwards and upwards, right? Wrong.

The catch: Oftentimes a single source of referrals or a one-time client can lead to large amount of business in a single year. Basing your sales targets on a single client or stream is risky. What happens if your client goes out of business or changes direction? Meanwhile your company has spent based on that number…yikes. That’s why it’s important to know your businesses baseline and grow from there.

Here’s the fail-safe formula Kevin uses with Growth Path clients:

1. Review all your business over the last two to three years
2. Delete any one-off projects, business that are downsizing or have shifted gears from your baseline and take an average of what’s left
3. Look at where your business came from over the last two to three years
4. Delete any one-time referrals or sources that have disappeared from your baseline and take an average of what’s left
5. Take a look at how quickly your sector is growing (e.g. 8% nation-wide)
6. List new accounts or sectors you’re targeting and the growth in those areas
7. Take your average baseline (step 2 and 4) and increase it by the average growth in your industry and your client’s industries. Add business you’ve already booked. That should be your new sales target.

This formula eliminates the guess work and provides a reality check for what’s really happening in your business and your industry.

Why shoot for less?
Successful organizations need realistic goals that people believe they can achieve. While it’s true that some sales people respond well to a big audacious goal, many will look at an unrealistic goal as representative of management’s disconnection with reality, and start job hunting.

Making the business case
Most sales staff can’t imagine presenting lower sales target to their managers but there is a way…

It’s important to show management what business or sources of business have disappeared and what’s not replicable. The next step is to immediately show how you’re rebuilding the pipeline in those areas where you’ve indentified steady growth. It’s about working hard to fill pipeline and managing your manager’s expectations.

The important thing to remember is this strategy is great for management.

Consider this: When sales people have realistic targets, management is able to budget and spend properly for the year. So forget about inflated targets. It’s easier to plan based on what we know is going to happen vs. what we dream might happen. This honest approach to planning will keep both managers and staff happy over the long run and that’s key to strategic growth.