How to set a monthly sales target you can believe
Build a monthly target from capacity and conversion rather than from what you need, and set a floor and a stretch so a miss stays informative.
Everybody knows the number is fiction
The target was set by taking last year and adding a percentage somebody found acceptable. Nobody on the team believes it. They have not said so because disagreeing with a target is read as a lack of ambition. So it sits on a slide while the team works at whatever pace the work allows. At month end nothing is learned.
A target has one job. It should tell you by the middle of the month whether you are on course so that you can do something about it. A number nobody believes cannot do that job because nobody checks it until it is too late.
What a target does and does not do
A target creates no demand. It does not make buyers appear and raising it does not raise capability. It changes what people pay attention to and that is all. Treat it as an instrument of focus rather than motivation.
A target is also not a forecast. The forecast is your honest estimate of what will happen. The target is what you are organising the month around. Businesses that collapse the two end up either forecasting optimistically to match the target or setting targets so low they forecast themselves. Keep them in separate columns. The cost of doing this properly is an hour a month and the willingness to write down a number that may be smaller than the one you need.
Who should not use monthly targets
Do not set flat monthly targets in a seasonal business. If your trade concentrates around festival months a school calendar or a monsoon then an equal twelfth every month manufactures failure in the quiet half of the year and complacency in the busy half. Build the shape of your year first and set each month against its own history.
Do not set revenue targets at all in the first months of a business. With no conversion history any figure is invented and missing an invented number teaches nothing. Set activity targets instead such as conversations held or proposals sent and switch to revenue once you can see a pattern. And if your business runs on a few large deals a quarter then a monthly revenue target is the wrong unit. One deal signing on the first of the month instead of the last moves two months at once and the noise will swamp any signal. Use a quarter.
Building the number from the bottom
Work from what you can actually do rather than what you would like to earn. Start with the enquiries you reliably receive in a month. Apply the conversion rate you have genuinely achieved over the last several months not your best month. Multiply by your real average order value. That product is your baseline and it is often uncomfortably below the figure in your head.
Then set three numbers. A floor which is the amount the month must produce for the business to be fine. A plan which is the baseline you just calculated and the number the team organises around. A stretch which requires something to go right. Publish all three. The floor is what prevents panic in a slow month and the stretch is where ambition lives without corrupting the plan.
If the plan is below what the business needs then you have found a real problem and it is better found now. Closing it needs more enquiries better conversion or a higher average order. It cannot be closed by raising the target.
Judging whether the target is set well
A target you always hit is the flattering case. It looks like excellent performance and usually means the number was set below capability. Consistent overachievement is a sign of a badly set target rather than a well run team.
Read your hit rate over six months. Hitting the plan in most months and missing in some is roughly the right calibration. Hitting every month means raise it. Missing nearly every month means the number was never built from anything and the team has already stopped treating it as real.
The common mistake
The expensive error is setting the target from what the business needs to cover its costs. The logic feels responsible. Salaries rent and loan repayments add up to a figure so that becomes the target. But a cost base has no information in it about what your pipeline can produce and a target built from need is simply a wish with arithmetic attached.
Two things follow and both are costly. The team stops believing targets generally which damages every future one. And you lose the early warning. A target built from capacity tells you in week two that the month is short while there is still time to act. A target built from need tells you only that you are worried which you already knew.
What to do in a month you miss
Ask one question first. Was the number wrong or was the execution short. Check whether enquiry volume conversion or average order value moved against the assumptions you built the target from. One of the three almost always explains it. Adjust the assumption rather than the ambition and carry nothing forward. Adding a shortfall to next month's target is how a single difficult month becomes a quarter the team has given up on.
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