You have probably heard the term “Open Book Management” where the budget and actual results are shared with all coworkers. I’ve got a better budget sharing process that results in even more improved revenues and profits, involves all coworkers and is far better understood. Even though the budget is shared with all coworkers it removes your fear of sharing numbers that may very well get outside of your company to people you don’t want to share with … including your competitors.
The budget method I use actually results in two budgets. The first budget is a document as you normally think of them. It reflects the anticipated financial numbers in dollars. Owners, general managers and certain other leaders have an understanding, appreciation and the skills required to interpret financial numbers. However, other coworkers do not have a complete comprehension of what those financial numbers mean, and the numbers can easily be completely misunderstood. These coworkers are not less intelligent. They simply have a different set of skills.These other coworkers have an understand and appreciation for units, not dollars.
Here is an example of my budget process. Let’s suppose that your residential replacement equipment budget in 2010 is $2,200,000. The owner or general manager and certain other leaders understand the number. But, what about the other coworkers? $2,200,000 means little to them except it sounds like a lot of money. So, here is how we break financial budgets down to a unit number. In this example we determine that in 2009 the average residential replacement equipment sale was $7,497. We expect to improve the number in 2010 to to $8,172, an average sale increase of 9%. That means the company needs 269 sales. The presentation closing rate in 2009 was 52%. By maintaining the overall closing rate at 52% your company must make 517 sales presentations. That’s the most important number in this entire exercise, 517 year 2010 sales presentations will get you the $2,200,000 in residential replacement equipment sales.
Next, you need to take a look at the last two or three years of residential replacement equipment sales and determine how you should spread the 517 sales presentations (which of course drives the sold jobs) representing 100% of the presentations across all 12 months of 2010. The monthly percentage of required sales presentations, because of seasonallity, can range from as low as 4% or 5% to as much as 12% or more.
Getting in front of all my coworkers and telling them that we must sell and install $2,200,000 of replacements doesn’t mean much to them. But, getting if front of them and saying that we need 517 sales leads that result in presentations does mean something to them. And, they can do things to help us obtain the leads. They also will be rearded for doing so. Better yet, telling them in early January that we must sell and install 14 jobs in that month (5% of the total for the year) certainly means something to them. The same if we tell them early in July that we must sell and install 32 jobs (12% of the total for the year).
On the first day of each month post in a highly visable location the required number of sales leads, sales presentations and installed sales for that particular month. Post the actual results daily and bring their attention to the postings. They are now a part of the process and will help you obtain and exceed the budgeted unit results.
Remember, owners, general managers and certain other leaders deal with dollars. Other coworkers deal with unit numbers. Having a unit budget and creating enthusiasm towards reaching those unit numbers will translate into your desired financial results. In my next blog I’ll explain how you can use this same budgeting process in budgeting for service, system enhancements, service agreements and other sales.
If you have any questions regarding this budgeting process just email me at ronlsmith2@bellsouth.net
