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How to Identify Your Sales Goals for Service Based Businesses
In our last post, we explored how to identify achieve sales goals for businesses with a physical product. This post is for all of you with service based businesses or those with digital products such as e-courses and workshops. Let’s start by recapping a couple core concepts: The best way to hit your sales goals is to work backwards. This is true no matter what type of business you have. Also true no matter what type of business you have is the practice of setting 3 goals: BASE: How much do you need to make? TARGET: How much do you want to make? STRETCH: How much do you dream of making? Explore our last post to find out more about what each of these goals are and how to set them. We will use the same example and say your sales goals are as follows for the upcoming quarter: Base: $15k Target: $30k Stretch: $100k So in this case, we are going after the target goal which is $30k for the quarter, which breaks down to $10k per month, and ~$350 per day. How to Determine Your Sales Goal for Service Based Businesses The key metrics you need for a service based business are similar to that of a product based business with a few key differences. I always recommend to my coaching and consulting clients that they have 3 – 4 tiers of services and products which could include e-courses, workshops, 1:many services like group coaching and masterminds, and 1:1 services like private coaching and VIP days. The price range for each tier of product varies by market and your level of experience, but generally: Low end offers (LEOs) tend to range between $20 – $200 Mid tier offers (MEOs) tend to range between $100 – $500 High end offers (HEOs) tend to range between $300 – $1500 VIP offers (VIPs) tend to range between $1000 – $30000+ These various tiers are all part of your sales funnel. You need far fewer customers to purchase a HEO or VIP offer to reach your sales goals but most customers will not take action on these offers without first having worked with you. They usually invest in a LEO or MEO before they will move through the funnel to the higher priced / higher value offers. You will want to plan your courses, group and private coaching programs accordingly. This takes us to the first metric you will need to understand which is Average Order Value (AOV). Instead of a single average order value, identify the AOV for each tier of service and related products that you offer. For example, let’s say you offer the following services and digital products: LEO AOV: $100 (DIY e-course) MEO AOV: $250 (e-course with private FB group) HEO: $1000 (3 month group mastermind) VIP: $5000 (Private VIP Day) Want a workbook to capture your offers + business plan? DOWNLOAD OUR FREE GUIDE TO CREATING A SIMPLE, EFFECTIVE BUSINESS PLAN. In order to hit your sales goal of $10k per month, you would need following # of orders every month: LEO: 100 per month MEO: 40 per month HEO: 10 per month VIP: 2 per month Sounds straight forward enough, right? Well, the issue with only looking at AOV is that it does not factor in what it cost you to create and deliver the service or digital product. This is a mistake MANY businesses make, but not you, because you are going to factor in the second metric. The second metric you need to understand is Gross Profit Margin. Similar to the metrics for a physical-product based business, service based businesses also have 2 different metrics to look at that are comparable to Retail Gross Profit Margin and Wholesale Gross Profit Margin. While you may not be selling your courses, packages or services wholesale, you may be working with affiliates or doing joint ventures where someone receives a percentage of sales. To keep it simple, we are going to equate the sales you do directly from your own webinars, sales pages, website and events as DIRECT sales, and we are going to consider those where someone gets a commission for referring sales to you as REFERRAL sales. Gross profit margin is calculated as (Sales Price – Cost of Goods Sold (COGs) / Sales Price) x 100. If you are doing DIRECT sales, using our example above: LEO – DIY e-course: Sales Price: $100 | COGs: $10 GPM: 90% ($100 – $10 / $100) At $90 profit, you would need 111 monthly sales to hit the target sales goal MEO – e-course with private FB group: Sales Price: $250 | COGs: $30 GPM: 88% ($250 – $30 / $250) At $220 profit, you would need 45 monthly sales to hit the target sales goal HEO – 3-month group mastermind: Sales Price: $1000 | COGs: $150 GPM: 85% ($1000 – $150 / $1000) At $850 profit, you would need 12 monthly sales to hit the target sales goal VIP – Private VIP Day: Sales Price: $5000 | COGs: $750 GPM: 85% ($5000 – $750 / $5000) At $4250 profit, you would need 2 – 3 monthly sales to hit the target sales goal REFERRAL SALES Now, let’s say you are working with others to promote your services and digital courses and they receive a 40% commission on any referrals. With REFERRAL sales using our example above: LEO – DIY e-course: Sales Price: $100 | COGs: $10 | Commission: $40 GPM: 50% ($100 – ($10 + $40) / $100) At $50 profit, you would need 200 monthly sales to hit the target sales goal MEO – e-course with private FB group: Sales Price: $250 | COGs: $30 | Commission: $100 GPM: 48% ($250 – ($30 + $100) / $250) At $120 profit, you would need 83 monthly sales to hit the target sales goal HEO – 3-month group mastermind: Sales Price: $1000 | COGs: $150 | Commission: $400 GPM: 45% ($1000 – ($150 + $400) / $1000) At $450 profit, you would need 22 monthly sales to hit the target sales goal VIP – Private VIP Day: Sales Price: $5000 | COGs: $750 | Commission: $2000 GPM: 45% ($5000 – ($750 + $2000) / $5000) At $2250 profit, you would need 4 – 5 monthly sales to hit the target sales goal These targets are quite different from just looking at AOV, and much more realistic. Now in reality, most service or digital product based businesses do not have an evergreen model for all of their offerings, so while you want to build up to generating sales every month, you will likely have peaks and dips in sales based on your launch calendar, enrollment periods, and sales funnel. Sound complicated? It can be, which is why I spend a lot of time working on this with my private coaching and consulting clients, but the good news is that there is a lot you can do on your own when you strategically plan your offers and your launch and relaunch sequence. We will dig into this model in the next post on How to Achieve Your Sales Goals for Service Based Businesses. For now, let’s wrap things up with a checklist of the activities you need to do to set realistic sales goals. Setting Your Sales Goals Checklist Set 3 sales goals – base, target, and stretch Define your pricing tiers and determine your current Average Order Value (AOV) for each tier Calculate your Gross Profit Margin for direct and referral sales (assuming you do both) Use AOV + Gross Profit Margin to determine the number of orders you need per month to hit your target sales goal These aren’t the only metrics you will ever need to know There is a lot more to setting sales goals for profitability and scaling and additional expenses and measures to consider… but AOV + Gross Profit Margin are a great place to start when setting targets, so start here before exploring more advanced strategies. So, what’s next? Well, now that you know how many products you need to sell to hit your sales goals, you can start to define the sales and marketing strategies to achieve them. Stay tuned for Part 2 of the Series – How to Achieve Your Sales Goals for Service Based Businesses. What questions do you have about setting your sales goals? Share them below! XX, Crista If you want some dedicated help identifying your sales goals and the best sales and marketing strategies to achieve them, book a 45-minute coaching intensive.