The following example shows how a hypothetical company keeps its business plan alive. The Starting Sales Plan
The example begins in the first illustration with the sales forecast portion of a finished web plan. This is the simple sales forecast shown in the previous discussion on developing numbers. It was taken from a rock climbing site.
Illustration: Beginning Sales Plan
Sample from Web Strategy Pro.
Actual Results for Sales
In the next illustration we see the actual results for the same company for the first three months of the plan.
Illustration: Actual Sales Results
Sample from Web Strategy Pro.
Plan vs. Actual Sales
The next illustration shows you the plan-vs.-actual results (or variance) for our sample website.
Illustration: Sales Variance
Sample from Web Strategy Pro.)
As you look at the variance for the sales forecast for the first three months, you should see several important points:
- First, a good illustration of the difference between positive and negative variance in different contexts. For sales, variance is calculated by subtracting the actual results from the planned results. Therefore, more sales than planned is a positive variance. For cost of sales, on the other hand, variance is plan less actual. Therefore, more costs than planned is a negative variance. This handling of positive and negative variance is a good illustration of the underlying concept, and is handled correctly, the way accountants and financial analysts expect to see it. It also makes good sense: more sales than plan is positive, more costs than plan is negative.
- In this case, product sales and sponsorship sales are way above plan, and advertising is way below. The "other" sales are disappointing. The amounts of variance are large. This is a plan that should probably be adjusted for future months with a revised budget that assumes higher sales of products and sponsorships, and lower sales of Web advertising.
- Costs of sales are generally less than anticipated. There are several instances of negative variances -- costs above plan -- that are clearly caused by increased sales, and not a problem. The "other" sales show a bad pattern, because both sales and cost of sales are negative variance, meaning sales less than plan and costs more than plan.
- Overall, this is a good scenario. Gross margin is higher than plan. Sales are higher than plan, and costs are lower than plan.
Remember to Analyze Variance
The example here shows how variance gives you insight into your business and suggestions for ongoing management. For example, although there's negative variance in cost of sales for sponsorship and product sales, neither of these negative items are a real cause for concern. In both cases, sales were above plan, so costs were above plan. There's nothing to worry about in that.
The "other" sales, in contrast, do show cause for concern. Why are they disappointing on both sides of the coin -- sales lower than plan, costs higher than plan? This is where management comes in, and plans need to be tracked and revised.
