If you’ve been following along on our blog then you are already familiar with the small business growth cycle. You also understand that each phase has a specific goal on which you must focus.
This week we want to begin looking functionally at what you should be doing within each phase of growth. Because revenue is one of the most critical measures of growth let’s start by looking at sales and sales within the existence phase specifically.
You should already know that they goal of the existence phase is:
Get monthly cash flow to the point of consistent breakeven.
Getting cash flow to breakeven is critical. If you can’t do that you’re business becomes another of the 98% that fail in the first 5 years of existence.
In the existence phase sales is all about mechanics – getting to breakeven as fast as you can. So, you need to understand exactly what it takes to get there and forget about all the “bells and whistles.” You can look at the sexy side of sales after your business is on solid ground!
How Many Sales Does It Takes to Breakeven?
The first thing you need to know is how many sales do you need to make to breakeven? It’s just a simple calculation, but you’d be surprised at how many small business owners, even ones that are at this stage, even understand that number.
To figure this out, figure out how much money you need to pay all the bills for your business for a month and include all the materials and labor for your service or product. Next, divide this by the AVERAGE price for one unit of your product or service.
Monthly Breakeven $ / Average Price per Product/Service = Number of Sales/Month
For example, a handyman needs to bring in $7,000 to pay all his bills, loans, and salary. He bills an average of $350 for a service call. Applying our formula here:
$7,000 / $350 = 20 service calls
Where Will They Come From?
This next question is to get you focused on your target market. Who buys what you sell? Are there more than one group? And if so, what does one group want something different than the other?
The whole point of this step is to begin refining where you will spend your time. Too often startup companies are all over the board trying to be everything to everyone. This is a bad idea. You have limited time and money. So, you need to spend it where it will give you the best payoff.
If we go back to our example, who can he sell his services to?
- rental property owners,
- property management companies,
He needs 20 sales a month. If he sells to homeowners he needs a lot of homeowners. If he sells to rental property owners each owner has more than 1 property, so he needs less. And, if he finds a handful of property management companies, they could keep him business all month long.
How Do You Reach Them?
Now that you know who you want to speak to, where do they look to buy your type of product or service? Internet, friends, colleagues, store, directories, etc. This tells you how to engage with them so that you can get their attention and begin engaging them in a conversation. This is really more marketing than sales at this point, but you need to understand where you will find the opportunity to sell so that you can build the appropriate sales & marketing plan.
From our previous example, property management companies while the biggest bang for the buck may be too big for him as he gets started. So, he will target rental property owners. He may find these people by talking to realtors or by contacting areas where larger groups of rental properties exist. Again, this approach is much different than trying to find individual homeowners and might require a lot of advertising.
By answering these 3 basic questions you have all the information you need to create a solid sales plan. Build a targeted list and begin connecting so you can tell your story and create interest in your product or service. Once you get here sales are well within view!
One reason you want to build your plan this way is because you can document what you did and how you did it. Once you know it works and is creating breakeven consistently you want to pass it on to someone else. This is a sales specific example of what we describe in our eBook The Startup Guide to Small Business Growth and may help you understand how to apply this approach to other aspects of your fledgling business.