A few days ago, the 2013 World Champion Boston Red Sox announced their spring training schedule for 2015 at JetBlue Park at Fenway South in Fort Myers, FL. According to the press release, “Tickets for the 18 home exhibition games go on sale on December 6 and will remain at 2014 prices. The Red Sox will permit fans to begin lining up for tickets at JetBlue Park on December 5, starting at 6 p.m. Fans can purchase tickets starting at 10 a.m. at JetBlue Park…”
Let’s see. Fans line up on Friday night, the fifth, for tickets that go on sale 16 hours later. That must mean that they’re expecting people to wait in line overnight!!??
These tickets are for exhibition games!! For a team that finished last in its division in 2014, twenty games under .500. Only three of thirty teams had significantly worse records than did the Sox. And people are going to give up a good night’s sleep for spring training seats??
It must be that folks can’t resist a bargain. Did you notice? Exhibition game prices will remain at 2014 levels. What a deal!
The Sox clearly understand their market. After all, they drew 2,956,000 fans to Fenway for 81 home games in 2014, just 106,000 shy of their all-time record attendance They exceeded their 2013 championship attendance by 120,000. And they were less than mediocre!
With regular season ticket prices climbing every year, the Sox not only enjoy price inelasticity (demand is not affected by price), but there appears to be no market sensitivity to failure, either.
We small business people should be so lucky.
But we’re not.
Even if we consistently put the best products on the field, there are no guarantees. Only in rare cases (think: Apple) do customers beat a path to the door in pursuit of the better mousetrap.
How, then, does your Sales Manager respond to the Controller or CFO when (s)he asks for a revenue budget for next year? It’s a tactical, risk-reward challenge for both parties. From the sales side, with commissions and/or a bonus based at least in part on meeting revenue targets, compensation is a significant factor in top-line budget negotiations. “If I go out on a limb and commit to a 20% revenue increase for next year,” thinks the Sales Manager, “do I get an added incentive, or are they just going to move the bar higher for the same total comp package? Do they really understand the challenges of this competitive environment? Are they going to provide the increased marketing budget that we need in order to generate sales leads? Is there budget money for an additional sales rep or two? 20% is hardly a slam dunk.”
At the same time, absent any major negative factors in the sales environment, the Sales Manager and his team all know that suggesting anything less than an 18-20% increase will be considered sand-bagging, obvious under-achieving.
The CFO, meanwhile, has been reading the same tea leaves, and is concerned about his/her representations to the bank and to the investors. Ultimately, the whole management team is charged with meeting bottom-line targets to satisfy bank covenants, but the investors want growth, and a result lower than 20% may dampen their enthusiasm for the long run. To the CFO, establishing credibility with all funding sources is critical, and credibility starts with meeting the budget: over-promising and under-delivering will be a haunting legacy in the next round of financing.
How do you bridge the gap among these competing interests? Let us count the steps on the road to peace and understanding among members of the management team, at least when it comes to revenue budgeting:
- Review the history – dollars by customer, by product/service, by sales rep for the past two years. What are the trends, and the exceptions? What did we miss, or misunderstand, in our last budget cycle? How could we have achieved all of our targets?
- Assess the present – where are we in the life cycle of the current products/services? What marketing programs are working/failing? Do we have the right sales incentives? What characterizes the top producers, and how can we replicate them?
- Gain insight about the outlook – from each member of the sales team, including the rep organization and the customer service people. From the best and the worst customers, and from some in between. From your developers – what’s coming on line, and when? From industry intelligence, including an assessment of the competition.
- Negotiate/assign performance metrics – 2015 goals for everyone on the sales team, with quarterly milestones to be accompanied by recognition and (budgeted) reward.
- Confront reality – budgeting is not about wishful thinking. If sales were flat in 2014, start with the assumption that they’ll be flat, at best, in 2015 and see where that leads. Find evidence to support an alternate reality going forward.
- Agree on the “stretch” – budget the reality, but incentivize the possibility. The top line for Finance can differ from the top line for Sales: conservative vs. aggressive.
- Document your budgeting decisions – you may want to revisit your assumptions when the 2015 results start coming in.
- Hold feet to the fire – timely and accurate reporting is critical to keeping the team in sync and on track. Celebrate the wins and investigate the losses. Learn from both.
So what can we learn from the Red Sox about budgeting? They work from the scarcity model: we have a small ballpark, we almost always sell out, there’s cachet about being first among your friends to get tickets, there are war stories about pulling an all-nighter in the shadow of Fenway (North, or South)…
But they cut their player payroll from $178,000,000 to $135,000,000 between 2013 and 2014, even as attendance went up. Did they make money on memories of last year’s product at this year’s (increased) prices?
Again, we should be so lucky.
But we’re not.
If you’re going to make money in business, it’s hard to do it without down-and-dirty budgeting.
Unless you’re the Red Sox.