How To Write A Business Plan by Edward T. Crego

Author:Edward T. Crego
Language: eng
Format: epub
Publisher: AMACOM Books
Published: 1995-03-11T16:00:00+00:00

xhibit 6–4

Impact of Sales Discounts on Revenue for XYZ Corporation (000s omitted)

FINALIZING THE SALES AND REVENUE PLAN

In addition to the impact of R&D activities, the effect of sales discounts must be incorporated into the final quarterly revenue plan because they are not a financial management issue based on historical trends; they are a matter of market strategy, particularly when new products or new customer segments are involved. Developing an estimate of the impact of sales discounts on revenues is a function of knowing what products or services will be sold to what customer segments and what kinds of sales discounts will be required to gain or maintain the loyalty of specific customer segments.

For existing customer segments, this information should be available through the internal diagnosis; for new customer segments, discount policies should reflect the results of the market analysis. The company should attempt to develop an estimate of the impact of sales discounts on the revenue for each product or service group because sales and revenue objectives are established on the basis of individual product or service groups. In addition, the competitive environment may define a need for sales discounts, which probably will vary among product or service groups. Exhibit 6–4 illustrates the impact of sales discounts on XYZ’s revenues.

The sales and revenue plan should reflect the goals, policies, and operating assumptions of the market strategy to ensure that operations reflect the strategic direction established for the company. It also should be consistent with the other operating plans.

Finally, because the sales and revenue objectives have a significant impact on the other components of the business plan, the company may want to establish alternative sets of sales and revenue objectives. To provide a basis for contingency planning, the company should develop a higher and a lower estimate around the expected level. A typical approach is to establish three sets of sales and revenue estimates—a moderate or expected growth estimate, a worst-case estimate, and a best-case estimate. The range of these estimates depends on the company’s degree of confidence in the accuracy of the initial estimate of expected sales. If confidence is high, the range should be narrower than if confidence is low. As a general rule of thumb, the company should believe that there is at least a 95 percent probability that actual sales will fall somewhere within the established range.

xhibit 6–5

Planning Flowchart Reference Guide—Part IV

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