The management team had agreed on a clear objective: grow revenue by 20% next year
The target sounded ambitious but achievable. The market was expanding, the company had a strong reputation and the sales team believed several large opportunities were developing
Then someone asked a simple question:
Where, specifically, will the additional revenue come from?
The answers became vague. Some would come from new customers, some from existing accounts and perhaps some from higher prices. Everyone supported the target, but nobody could explain the path from the current business to the number in the plan
“A target tells you where you want to finish. A business plan explains how you intend to get there”
Start with the growth gap
Imagine a company currently generates $5 million in annual revenue and wants to grow by 20%
That means it needs to produce an additional $1 million next year
Management should not begin by distributing the target across the sales team. It should begin by identifying the realistic sources of that growth
Perhaps $250,000 will come from price increases, $350,000 from expanding existing accounts, $250,000 from new customers and $150,000 from launching a new service
Those figures create a bridge between ambition and execution. They also expose the assumptions underneath the plan
A $250,000 pricing contribution assumes customers will accept higher rates without materially reducing demand. A $350,000 contribution from existing accounts assumes those customers have additional needs, budget and willingness to buy. Revenue from new customers assumes the business can generate enough qualified opportunities and win them within the year
The target is only as credible as those assumptions
Test the commercial logic
Each source of growth should answer four questions: which customers will buy, what will they buy, what price will they pay and when will the revenue begin
Suppose the company expects $250,000 from a new service. Management should identify the target customer, the number of sales required, the average contract value, the expected win rate and the time needed to close each opportunity
If the average contract is worth $50,000, the company needs five wins. If it wins one out of every four qualified opportunities, it may need approximately 20 credible opportunities to produce those five contracts
If only six opportunities currently exist, the plan has a gap
“Revenue forecasts become useful when they can be traced back to customer decisions”
The same logic applies to price. A 5% price increase does not automatically create 5% more revenue if customers negotiate, reduce volume or move to competitors
Management must test how prices are expected to evolve by customer, product and contract rather than applying one percentage across the entire business
Revenue growth is not enough
The company must also determine what the additional revenue will cost to produce
New customers may require more advertising and sales effort. A new service may require specialist employees, technology or training. Higher volumes may increase overtime, supplier costs and working capital
A business can reach its revenue target and still miss its profit target if the cost assumptions are weak
The plan should therefore explain how gross margins and operating costs will evolve as the business grows. If revenue increases by $1 million but the company must add $900,000 of cost, the growth may create activity without creating much value
“A credible growth plan connects revenue, cost and capability”
This is where commercial planning and operational planning meet. The sales forecast determines the people, assets and working capital the company may need, while operating constraints determine how much revenue the company can realistically deliver
Look for upside without building the plan on it
A strong business plan should identify potential upside, but it should not depend on every favorable event occurring
The company may win a large contract, enter a partnership or benefit from stronger market demand. These opportunities can improve the result, but they should remain visible as upside until enough evidence exists to include them in the core plan
This prevents management from using uncertain opportunities to close uncomfortable gaps in the forecast
The same discipline should apply to risk. A major customer could delay spending, a supplier could increase prices or a new hire could take longer than expected to become productive
Management should identify the few risks capable of materially changing the plan and define how the business will respond if they occur
“A plan becomes stronger when it shows what could go wrong and what management will do about it”
Turn the target into management actions
A useful business plan should tell leaders what must happen next
If growth depends on expanding five existing accounts, each account needs an owner and a plan. If it depends on price increases, the business needs customer-level pricing decisions and a communication strategy. If it depends on new customers, marketing and sales must build enough qualified pipeline early enough to affect the year
The plan should also contain leading indicators. Waiting for monthly revenue results tells management what has already happened
Meetings booked, qualified opportunities, proposals submitted, win rates, pricing achieved and customer retention can reveal whether the plan is working before the full financial impact appears
The objective is not to predict the future perfectly. It is to make the assumptions visible enough that management can act when reality begins to differ from the plan
Your Better by Monday action
Write down next year’s revenue target and calculate the growth gap between that target and the current business
Separate the gap into four sources: price, existing customers, new customers and new products or services. Estimate how much each source must contribute
For the largest source, identify the customers, number of sales, average price and timing required to produce the revenue
By Monday, you should be able to complete this sentence:
“We expect to grow by $___ because these customers will buy these products at these prices by these dates”
If you cannot complete it, you have a target, but you do not yet have a business plan
Until next time …
One practical way to improve your business each week