Understanding what kind of profit, you can accomplish with your potential sales is crucial to successful financial forecasting in any business. While being able to define sales potential doesn’t necessarily guarantee you a certain level of income from your sales team, it does help you to determine what kind of benchmarks you should be working towards.
Here’s everything you need to know about defining and using sales potential in your business strategy, to improve your chances of positive long-term results.
Sales potential definition: What is Sales Potential?
Determining sales potential is a good way of understanding how well your company might be positioned for growth. When you define sales potential in your business, you determine what kind of outcomes your sales professionals should be aiming for with their quotas.
Sales potential is a concept that occurs at the company and product level, showing the maximum number of sales a company can achieve factoring in all potential buyers in a specific category. This is different to market potential, which looks at the sales potential of all competitors in a market.
The Importance of Sales Potential
Using the sales potential method as a tool for examining the potential performance outcomes of your business helps you to determine whether a product or market is worth your time. You can use sales potential to identify which products or services have the most potential value for your business, based on potential market demand. Using your sales potential formula:
Helps companies to predict the quantity of a product they need at any time.
Helps management to determine expected revenue for a business.
Ensures companies can determine the required raw materials and labor required
Helps with planning to achieve specific targets
Provides a good foundation for sales forecasting
What is market potential?
Sales potential can often be confused with market potential in some sales circles. Market potential refers to the total sales or total potential sales which can be achieved by all players in an industry, often within a set geographical area.
Companies determine market potential to decide whether it’s worth pursuing a specific market with their product or service. Sales potential, on the other hand, is a figure which focuses on the maximum or total sales from all prospective buyers of a specific product from a certain company.
How to Calculate Sales Potential
There isn’t a specific equation used for calculating sales potential among all companies. However, you can get a better overview of sales potential by looking at certain metrics in your business. The metrics used to calculate sales potential include:
Start by looking at your current customer base and divide the number by the total number of buyers within a demographic or specific region. This should provide a rough indication of how much of your target market you have been able to convert. If the value is low, this indicates you can still access a wider range of potential customers.
Quantified Purchasing Capacity:
This metric looks at the maximum number of purchases a customer can reasonably make from your company in a single year. For instance, if you sell supplements which last 30 days, your customers are likely to only buy a maximum of 12 servings of those supplements.
The quantified purchasing capacity of your business or product in this case would be the value of your product, multiplied by the number of times a customer could buy it. For instance, if your supplements sell for $50, the quantified purchasing capacity for one customer for a full year would be $600.
Take this figure and compare it to the average number of purchases made by your customers. If your customers aren’t reaching their full purchasing potential, look for opportunities to convince them to buy more from your business on a yearly basis.
Competitor growth rate:
You can also look at the growth rate of your competitors as a way of determining your sales potential. Looking at your competitors gives you a good benchmark to work with. However, it’s worth remembering different companies do have various different strategies and systems in place which can influence their growth potential.
If your growth rate lags far behind that of your competition, this is an indication your company has some issues which may need to be addressed for you to achieve your full sales potential.
Sales potential examples
Sales potential examples exist in all parts of the sales landscape. For instance, Coca Cola makes its potential sales forecast each year by looking at various factors, including economic and social parameters, seasonal variations in purchases and historical data.
The company regularly hosts weekly reviews so they can check their existing sales potential at any given moment and adjust monthly forecast. In most cases, the forecast is also conducted on a regional basis, so it’s easier to consider the individual regional and submarket demands of different locations.
Understanding Sales Potential
Understanding sales potential is an important part of evaluating the full potential of your company and its ability to earn various profits. Sales potential can help to determine whether you should continue to progress your plan to introduce a new product to a new market or not.