Module 6 - Forecasting

Where should you start when you are forecasting?

Start at the end goal and work backwards. Forecasting is essentially planning for the future, and when I am forecasting for a client, or in general, what I like to do is always work backwards from the end goal, from what you are trying to get to.

Say for example you are working towards an 80% profit margin. Work backwards from that, because realistically you are definitely not going to get that from month one. Be very realistic on what to pay per sale or per lead, and be very, very conservative, especially in the first month when you are testing all of the ads and all of the targeting and you are testing so much all at once.

Work from the worst case scenario towards what you are expecting in month one, month two and month three. Generally I would do it by week, so you can see improvements each week, rather than by month.

What does the worst case scenario formula look like?

It starts with the profit on one sale, which is your selling price less what it costs you to deliver. I have done a bit of a formula just to try to keep it as simple as I can, and again, this is worst case scenario, so just to cover costs.

Let us say the price of the product you are selling, or the course, or whatever it is, is a thousand pounds. I have said a thousand pounds to keep it nice and simple. I am not doing any 997 here, for whatever reason. It is a thousand pounds just so I can work out the maths in my head.

Let us say it costs £200 for you to deliver this product, whether that is staff, whether it is software, all the costs. So essentially, if you sold this product you would get £800 profit.

How much can you pay for a sales call?

Divide your profit by the number of calls it takes to make one sale. Let us say you are a coach and you sell this on a phone call, or some kind of sales call, and you get an opt-in rate of 20%. So every five calls you get one sale.

That would mean you could pay up to £160 to get those five sales calls, because five times £160 is £800. If you were doing it that way, you could spend up to £160 per call.

How much can you pay for a free download?

Divide the same £800 of profit by the number of downloads it takes to produce a sale, which in this example is 50, giving £16 per download. Most funnels start with an opt-in page, so I have taken it one step further.

To get the one sales call you might need 10 PDF downloads. So to get five sales calls, we would need 50 downloads. If we take the £800 profit and divide it by 50, ideally we want to be spending no more than £16 for a free download.

That is a very high number for a free download. If you are spending any more than £16, there is going to be something wrong with your ads or your targeting. But for a free download, £16 is going to be our worst case scenario in the first month.

Why work to the worst case every month?

Because if you do any better than the worst case, it is amazing and it feels great. You want to do this for each month, and you want to be looking to decrease the cost per conversion, or the cost per sale for phone calls, each month.

It is a very basic formula. You can change it for your niche or for whatever you are selling, but this is the basics of what it comes down to. You want to be spending no more than £16 just so you know you are covering costs. You know that you need 10 PDF downloads to get one sales call, and that to get one sale you need five calls. Five times ten is fifty, so you need 50 downloads for the £800, which is £16 per download.

I hope that makes sense. If it does not, let me know and I will explain it a different way.

How does this turn into a scaling plan?

Halve your cost per call step by step across the months, and watch what that does to your cost per sale. This is a very loose example. You can work backwards from six months, or from three months if you think that is okay.

Using the call as the example, when you know how much you can spend to acquire a customer, you can start to plan. You can say this is my goal each month, and decrease it by half, then half again. So that would be £80, then £40, and then by month four you are looking at £20 per phone call. The cost per sale figures that sit alongside those steps come through as [figure unclear] in the captions, but the end point in the example is £100 per sale.

Using the same figures as a thousand pound product, if you make a sale for £1,000 and it costs you £200 to deliver the product, and £100 to get the sale, you are taking £300 off £1,000, so each time you are making a very nice £700 of profit.

That is what this scaling is. Work at the worst case scenario at the beginning to learn what works, and then maybe by the third, fourth or even sixth month you know what the patterns are, you know what is working, and you know the figures you need to hit to get the right results. You can test, learn and understand how to get there by month four, month five and month six.

How do you keep track of it all?

Keep a spreadsheet, so you can track your cost per sale in Google. There are going to be lots of other videos on how to build the spreadsheet, and on how to find all of this information, especially in Google. But that is it for scaling and forecasting, and I hope this has been helpful.