Friday, August 28, 2015

Strategic Planning Issue: 3 Pieces of Paper



BACKGROUND
There has been a lot of discussion about how we have entered a “new economy” or a “post-capitalism business environment.” The idea is that businesses can no longer be managed like they used to. Profit has become less important. Being a good corporate citizen has become more important. A new relationship with employees is needed. And on and on the list goes. If you want to be successful now, you have to abandon the old rules and embrace the new rules. Traditional capitalism is passé. Embrace the new economy.

A lot of sophisticated reasons are usually given for the need to change. They usually include factors something like these:

  1. Changing Customers: The internet has shifted the balance of power from the company to the customer, and the customer isn’t all that interested in how profitable you are, but rather how nice you are.
  2. Changing Employees: The Millennial generation expects more from its employers than mere profit machines. If you want to hire the best of the Millennials, you have to satisfy their more diverse requirements for an employer.
  3. Changing Approach to Problem Solving: The world is full of serious global problems. Individual governments have not proven themselves to be particularly effective at solving them (they just talk and squabble with each other). However, if you point large international businesses at these problems, you may get a more effective outcome.
These all sound so noble and sophisticated and academic. And there is some truth in all of this. But I think the main reason why business is changing is a lot less noble, sophisticated and academic.
I think the main driver of change is the change in the type of paper we use to compensate employees.


THE OLD PAPER: CHECKS
In the middle of the 20th century, most of one’s compensation came in the way of a check. The vast majority of it was in the form of a regular paycheck. Then, at the end of the year was a bonus check.

The most important thing one needs to know about checks is that they only have value if there is enough money in the checking account to cover the check. Therefore, to keep the employees from rioting, you need to ensure that money is flowing into the checking account at levels to cover the checks.

In the middle of the 20th century, the primary source for the money in the company’s checking account was either profits or standard bank debt. And you couldn’t get standard bank debt unless you could prove to the bank that the company was on a path to create enough profits to pay off the debt.

Therefore, success at that time required a high focus on creating profits and significant cash flow on a regular basis. And the best way to do that was via traditional capitalism. It was all about profit, so that you could keep writing those checks.


THE TRANSITIONAL PAPER: STOCK CERTIFICATES
As we moved towards the later portion of the 20th century, compensation practices were changing. For executives, the percentage of their total compensation from their base of paychecks was shrinking. Non-base compensation as a percent to total was increasing. And instead of just being a bonus check, the non-base compensation was increasingly coming from stock or stock options.

Now stocks are different from checks. You don’t need a lot of money in the bank to issue stock. In fact, you don’t need any money at all in the bank to issue stocks. I had a lot of friends who worked at Best Buy in the early days, when the company always seemed to be on the verge of bankruptcy. The company couldn’t afford to write bonus checks, so it kept giving everybody tons of Best Buy stock. 
Although the stock had little value at the time, there was at least the hope that it could become very valuable in the future (which is better than a bounced check). And, in the case of Best Buy, eventually that stock did became extremely valuable (and made many of my friends very wealthy).

In a compensation world full of stock paper rather than check paper, management priorities start to change. It is no longer about focusing on keeping the checking account balance high through growing today’s profits. Now, it was about finding ways to increase the value of the stock.

Yes, the economists will tell you that there is a correlation between profits/cash flow and stock price. In other words, if profits keep going up, stock prices tend to go up. But the correlation is not as close to 100% as it is with check balances. Other things now start getting in the way.

As it turns out, there are a variety of other tools to increase stock price beyond activities to increase current profits. They include activities like:

  1. Changing People’s Perception of the Future: If you get people to think to that the future will get a lot better for your company, the stock price will go up, even if nothing is different in profitability today.
  2. Making the Company Bigger via M&A: At that time, growth through acquisition tended to increase stock prices, because the combined bottom line was larger. However, if you paid too much for the acquisition without meaningfully changing the rate of profitability, you were actually destroying value. But this was sometimes overlooked by the market at that time.
  3. Stock Buy-Backs: Earnings per share is a ratio. There are two ways to increase the ratio: either increase the numerator (earnings) or decrease the denominator (number of shares). So by buying back shares, I can increase the price per share without having to deal with profits.
So, as you can see, by shifting the paper from checks to stocks, I’ve moved a bit further away from pure capitalism. The profit motive is diminished a bit and other things are coming into play.

Probably the best example of this transitionary period would be to look at Enron. Enron was one of the most extreme at using stock as a compensation tool. It dominated the total compensation package, it was administered quarterly, and it was the driving force behind Enron’s everyday decision-making.

The extreme focus on raising stock prices at Enron lead to far less focus on profits. In fact, in the final years of Enron, they typically weren’t paying taxes, because they weren’t really making profits. But the stock price kept skyrocketing, making the employees wealthy, because of the stock tricks they were using.

Of course, eventually they lack of a profitable business model eventually caught up with them and the company collapsed (along with the stock price).


THE NEW PAPER: DEAL PAPER
The new economy of today tends to be more about start-ups in the social media and technology space. There are a couple of things worthy of note in how these companies operate.

First, their checking accounts are not filled with money from profits or standard bank debt. They are filled with money from firms that invest in start-ups. In other words, the start-ups are writing checks that draw from someone else’s source of money, not their own.

Second, nearly all of the compensation comes from when the start-ups cash in, by either going public with an IPO or by selling at some outlandish price to someone like Google, Facebook or Apple. Regular payroll checks are an insignificant percent of the total compensation. The work is done to get to the point of cashing in. You’re looking to sign the deal paper that makes the cashing in possible. Practically your whole life’s earnings come from that single point in time when you sign the deal paper and sell out.

In this scenario, profits have moved from being less important to almost being non-important. Since the money at first comes from private equity investors and later from whomever you sell out to, profits are never a big part of the equation.

If the profit prognosis in the early stages becomes too dire, you typically don’t try to fix it. Instead you shut down the start-up and try again. That is why I sometimes refer to this as the “Lottery Economy”: You just keep trying start-ups until you luck into a winner.

When the whole operating model is built around getting to the “cash in” deal paper, you naturally have moved quite far away from traditional capitalism.

It is like people who flip houses for a living (buying houses with no intent of living there, but only to sell at a profit). They don’t invest in improving the foundational issues in the house. They invest the cosmetic issues that make a house more appealing to the next buyer without having to spend a lot (called curb appeal).

In the same way, the start-ups in the new economy don’t build the foundation for profits but work on the cosmetics that make it more appealing when it is time to cash in.


IMPLICATIONS
The implications here are that although there are some noble, sophisticated reasons for why the economy has changed, that is not the whole story. It may not even be the main story. The main story may be about how people are getting compensated.

Knowing the primary cause of the change is important because of what it implies. If the new economy is primarily a result of a changing environment, then we have to adapt to the new environment. But if it is primarily due to a change in compensation tactics, then perhaps the old rules of capitalism are not as obsolete as we think.

My fear is that extremism in the Deal Paper economy may lead to the same thing as extremism in the Stock Certificate economy. We may end up with a repeat of Enron, where the abandonment of profit as the focus eventually catches up to us and everything collapses.


SUMMARY
Yes, the economy appears to be operating under new rules. But until we fully understand the cause, we may want to be careful about the extent to which we embrace them. The dominance of profits in business may not be completely dead—just asleep.


FINAL THOUGHTS
This only briefly touches on the subject. It is too much to cover in a single blog. But hopefully this can get the conversation started.

Saturday, July 18, 2015

Strategic Planning Analogy #553 Part 5: Investment Statement & Putting it All Together


BACKGROUND
We are currently going through a series of blogs on the types of statements which are more relevant to planning than the traditional financial statements (income statement, balance sheet, cash flow). In this blog, we will look at the fourth and final one of the documents to use in their place—the Investment Statement.


THE INVESTMENT STATEMENT
The purpose of the Investment Statement is to provide a strategic framework for understanding corporate overhead. “Investment” consists of spending for items which provide benefits for multiple years Yes, the balance sheet and cash flow statements also have lines describing various costs related to investments. However, the income statement doesn’t tell you why these numbers were chosen, how they relate to strategies, or what benefits are expected from these benefits. That’s why I designed the Investment Statement.

Since there are so many different types of business models out there, the Investment Statement would need to be tweaked a bit to fit each type of industry. But a rough example can be seen in the figure below.



1) The Baseline
The first part of the Investment Statement is used to carry forward the investments already made.  This should be fairly easy to do, because these investments are already recorded in a company’s financials.

2) Strategic Investments
The next step is to outline all of the investments needed to complete each of the strategic initiatives. This would include the upfront costs, depreciation/amortization impact, and return on investment (typically based on a discounted cash flow analysis or other, similar type of measure).

3) Net Results
The third and final section looks at the net impact of the first two sections on investments, including the total level of investment and the total impact to depreciation/amortization.

BENEFITS
The benefits from using an Overhead Statement are as follows:
  • It proactively links all of your strategies to specific investments.
  • It separates all of the components of strategy, so that you can critique each one for reasonableness.

PUTTING IT ALL TOGETHER
Now that we have looked as all the documents separately, we can put it all together into a single process. It is illustrated in the figure below. The process has four parts:



  1. Baseline Assumptions: First we do internal and external research to determine two things:
    1. Where the market is going; and
    2. How we will play in that space if we do not change our status quo.
The result of this work will be our baseline assumptions.
  1. Strategy Development: Next, we devise strategies and strategic initiatives/tactics to optimize our performance and position in the future. This is your basic core work of strategic planning. 
  2. Quantification/Validation of Strategies: This third step is where we get specific on the expected costs and benefits associated with the strategies and tactics. To do this, we use the statements mentioned in this and the prior four blogs—the Revenue Statement, Operations Statement, Overhead Statement and Investment Statement. There is a sort of circular process between steps two and three. As we start quantifying the strategies, we may see a need to modify our strategies a bit to improve their impact. Also, as we look at the four statements (revenue, operations, overhead, investment), we may see some gaps that weren’t covered by our original list of strategies. This may require adding additional strategic initiatives. We keep up this circular approach until there is agreement on the final list of strategies and their quantifications.
  3. Translating to Standard Statements: Once the strategies and their quantifications are approved, one takes the data and translates it into the standard financial statements (income statement, balance sheet, cash flow). Now, you have the documents you share with the rest of your stakeholders. 

SUMMARY
Future projections in income statements, balance sheets and cash flow statements are only as good as the assumptions behind the numbers within them. To make sure the assumptions are solid, a lot of prior work needs to be done to properly quantify not only the tasks associated with those figures, but also the specific financials attached to each task. To help quantify the tasks and financials associated with them, I have devised the Revenue Statement, the Operations Statement, the Overhead Statement and the Investment Statement. When used properly, they can provide the missing link between what needs to be done and what outcomes are expected.


FINAL THOUGHTS
These forms were left a little bit vague, because each industry has its own nuances which will impact how the forms should look. But that doesn’t mean you should leave them vague. Your role is to customize them to your industry.

Friday, July 17, 2015

Strategic Planning Analogy #553 Part 4: Overhead Statement


BACKGROUND
We are currently going through a series of blogs on the types of statements which are more relevant to planning than the traditional financial statements (income statement, balance sheet, cash flow). In the past, we looked at the Revenue Statement and the Operations Statement. In this blog, we will look at another one of the documents to use in their place—the Overhead Statement.


THE OVERHEAD STATEMENT
The purpose of the Overhead Statement is to provide a strategic framework for understanding corporate overhead. “Overhead” consists of those activities NOT directly related to producing or marketing/selling what you sell. These are already covered in the operation and revenue statements (mentioned in earlier blogs).

Yes, the income statement also has lines describing various costs related to overhead. However, the income statement doesn’t tell you why these numbers were chosen and what the strategies are to reach these numbers. That’s why I designed the Overhead Statement.

Since there are so many different types of business models out there, the overhead statement would need to be tweaked a bit to fit each type of industry. But a rough example can be seen in the figure below.



1) The Baseline
The first part of the Overhead Statement is used to determine the baseline. This is what overhead costs would be if nothing changed and there were no new strategic initiatives.
As a result, the baseline is more or less a continuation of what you have done in the past.

2) Strategic Changes to Overhead
Over time, one’s overhead structure can become outdated. This could be due to internal factors like a change in the company’s business portfolio. Or it could be due to external factors, like new technologies or new approaches to management. Either way, change is change, and if you don’t change, your overhead will not be as efficient or as effective as it could be.

Strategies will be needed to determine how best to change and adapt the overhead.  That is why the second part of the Overhead Statement looks at the impact of strategic goals on operations.

a) Cost Control (Becoming More Efficient): One of the simplest strategic goals is to reduce the cost of overhead. If that is a goal, then you would place here what the cost control strategy is and how much you expect it to lower overhead expenses (by individual overhead line). Some of these cost reductions may require up-front capital investments. This amount gets transferred to the Investment Statement (which we will talk about in a later blog). If you plan on using the cost reductions to support price reductions, then those price reductions would be reflected on the Revenue Statement.

b) Management Improvement (Becoming More Effective): There are lots of ways to improve the effectiveness of one’s overhead. This might include delayering (or adding layers). Or it could be a major reorganization. Or it could be technology and system improvements. Or maybe it includes outsourcing a function. Whatever the strategy to improve overhead effectiveness, it needs to be captured. In this section, one would explain what the strategy is and how it impacts the overhead. Then, the incremental overhead costs associated with each strategy would be calculated and listed by line item.

If there are any ripple effects from these changes to overhead that would impact sales or operations, those changes would be transferred to the revenue and operations statements. This is highly likely, since one would typically not change overhead unless it improved these other areas. Similarly, if the changes to overhead required major capital investments, you would want to transfer that cost to the investment statement.

c) Compliance: Sometimes, you just have to change the way you do things in order to remain compliant with the ever-changing regulatory environment. You would capture the overhead impacts from that here as well.

3) Net Results
The third and final section looks at the net impact of the first two sections on overhead expenses. Basically, you take the baseline overhead expenses (by line) and add to it changes from cost reductions, management improvement, and compliance. The end result is your estimated costs per overhead line item for baseline PLUS changes.


BENEFITS
The benefits from using an Overhead Statement are as follows:

  • It proactively links all of your strategies to specific overhead activities.
  • It quantifies how the implementation of each strategy will impact the costs of overhead.
  • It separates all of the components of strategy, so that you can critique each one for reasonableness.
  • It separates overhead issues to its own document, making it easier for those in charge of overhead to see what they are being held responsible for.
  • It forces one to consider issues beyond cost control when looking at changes to overhead.

SUMMARY
To more comprehensively understand the operations portion of a strategic plan, it is recommended that some form of an Overhead Statement be used. An Overhead Statement has three sections:

  1. Calculation of Baseline Overhead
  2. Calculating Impact of Strategic Initiatives on Overhead
  3. Net Results

FINAL THOUGHTS
Overhead might not be the most exciting part of the business, but it is an important part of the business. A little bit of strategic effort in this 

Thursday, July 16, 2015

Strategic Planning Analogy #553 Part 3: Operations Statement


BACKGROUND
We are currently going through a series of blogs on the types of statements which are more relevant to planning than the traditional financial statements (income statement, balance sheet, cash flow). In the last blog, we looked at the Revenue Statement. In this blog, we will look at another one of the documents to use in their place—the Operations Statement.


THE OPERATIONS STATEMENT
The purpose of the Operations Statement is to provide a strategic framework for understanding operations. “Operations” consists of those activities directly related to producing what you sell. Yes, the income statement also has lines describing various costs related to operations. However, the income statement doesn’t tell you why these numbers were chosen and what the strategies are to reach these numbers. That’s why I designed the Revenue Statement.

Since there are so many different types of business models out there, the Operations Statement would need to be tweaked a bit to fit each type of industry. But a rough example can be seen in the figure below.



1) The Baseline
The first part of the Operations Statement is used to determine the baseline. This is what operating costs would be if nothing changed and there were no new strategic initiatives.

As a result, the baseline is more or less a continuation of what you have done in the past. It would be tweaked to correspond to the projected baseline sales volume created in the Revenue Statement (which we talked about in the last blog).

2) Strategic Changes to the Operational Business Model
Strategy is often about change, about adapting to the future. This adapting usually requires business model changes which impact the operations. Change is not just done for the sake of change, but in order to achieve strategic goals. Therefore, one must first understand the strategy goals before embarking on operational changes. Otherwise, you may end up making changes with move you further away from your strategic goals and objectives. That is why the second part of the Operations Statement looks at the impact of strategic goals on operations.

a) Cost Control: One of the simplest strategic goals is to reduce the cost of operations. If that is a goal, then you would place here what the cost control strategy is and how much you expect it to lower operations expenses (by individual operational line). Some of these cost reductions may require up-front capital investments. This amount gets transferred to the Investment Statement (which we will talk about in a later blog). If you plan on using the cost reductions to support price reductions, then those price reductions would be reflected on the Revenue Statement.

b) Quality Improvement: Perhaps a strategic goal is to do a better job of owning the “quality” position in the marketplace. Increasing quality may require adjustments to operations. This is the section where the incremental costs associated with improving quality through operations is outlined. Any anticipated changes to sales as a result of quality improvement would be transferred to the Revenue Statement and any investments needed to improve quality would be transferred to the Investment Statement.
c) Service Improvement: Perhaps a strategic goal is to do a better job of owning the “service” position in the marketplace. Increasing service may require adjustments to operations. This is the section where the incremental costs associated with improving quality through operations is outlined. Any anticipated changes to sales as a result of service improvement would be transferred to the Revenue Statement and any investments needed to improve quality would be transferred to the Investment Statement.

d) Speed Improvement: Perhaps a strategic goal is to do a better job of managing the speed to market (reducing cycle time and getting to market faster). Increasing speed may require adjustments to operations. This is the section where the incremental costs associated with improving quality through operations is outlined. Any anticipated changes to sales as a result of speed improvement would be transferred to the Revenue Statement and any investments needed to improve quality would be transferred to the Investment Statement.

There are many other strategic goals (besides the ones listed above) that could impact operations. They would be handled in a similar manner to those mentioned above. In all of these cases, the important parts to be included on this statement would be:

  1. What is the strategic goal?
  2. What changes will occur to operations to achieve that goal?
  3. What are the incremental financial impacts from these changes:
    1. Impact to Operations
    2. Impact to Sales (Transferred to Revenue Statement)
    3. Impact to Investments (Transferred to Investment Statement)
3) Net Results
The third and final section looks at the net impact of the first two sections on operations expenses. Basically, you take the baseline operational expenses (by line) and add to it changes from cost control, quality improvement, service improvement, speed improvement, or any other new strategic initiatives. The end result is your estimated costs per operational line item for baseline PLUS changes.


BENEFITS
The benefits from using an Operations Statement are as follows:

  • It proactively links all of your strategies to specific operational activities.
  • It quantifies how the implementation of each strategy will impact the costs of operations.
  • It separates all of the components of strategy, so that you can critique each one for reasonableness.
  • It separates operational issues to its own document, making it easier for those in charge of operations to see what they are being held responsible for.
  • It forces one to consider issues beyond cost control when looking at changes to operations.

SUMMARY
To more comprehensively understand the operations portion of a strategic plan, it is recommended that some form of an Operations Statement be used. An Operating Statement has three sections:

  1. Calculation of Baseline Operations
  2. Calculating Impact of Strategic Initiatives on Operations
  3. Net Results

FINAL THOUGHTS
You wouldn’t undertake a new strategic initiative unless you believed there was some benefit to doing so. Usually that benefit is either some form of improved external marketplace positioning (which would improve sales), and/or some form of internal efficiency improvement (which would reduce costs). This form helps you incorporate these improvements into your financials. If you are having trouble finding sales or cost benefits from a strategy, you may want to ask yourself why you are bothering to do the strategy at all.

Wednesday, July 15, 2015

Strategic Planning Analogy #553 Part 2: Revenue Statement


BACKGROUND
In my last blog, I discussed why the traditional financial statements (income statement, balance sheet, cash flow) are inappropriate for planning. In this blog, we will look at one of the documents to use in their place—the Revenue Statement.


THE REVENUE STATEMENT
The purpose of the Revenue Statement is to provide a strategic framework for predicting sales. Yes, the income statement also has a line for sales. However, the income statement doesn’t tell you why that number was chosen and what the strategies are to reach that number. In addition, as mentioned in the last blog, the sales line in an income statement is disconnected from the other lines which directly influence it, like marketing. To remedy these weaknesses, I designed the Revenue Statement.

Since there are so many different types of business models out there, the Revenue Statement would need to be tweaked a bit to fit each type of industry. But a rough example can be seen in the figure below.



1) The Baseline
The first part of the Revenue Statement is used to determine the baseline. This is what sales would be if nothing changed and there were no new strategic initiatives.

To calculate the baseline, one needs to make two calculations. First you need to project a baseline for the overall industry. This number would be based on anticipated demand and competitive response to that demand. This number would come from insights from your industry research.

Second, you need to project what portion of that demand (market share) you will get if you stick with your current status quo approach.  In other words, if you do nothing new, what portion of the business should you expect to achieve. In the example, we see that the baseline sales is expected to decline over time. This is not unusual, since if you do nothing to the business there is a greater risk of becoming less relevant and losing share to astute competition.

That is one of the reasons why strategic planning is so important. It helps a company find initiatives that will increase sales beyond the baseline.

2) Pricing Decisions
One area where strategy can improve sales is with pricing decisions. How should you charge for your offering and how much should the charge be? Should you use a Freemium model, where most pay nothing and only the premium customers are charged (like Linkedin)? Should you have tiered pricing like the airlines? Should pricing be raised? lowered? Should pricing be bundled like fast food combo meals (or unbundled)? Who do you charge for services (in health care it can be patients, insurers, government, etc.)? Is my strategic position anchored on low prices or something else?

Remember, sales is based on how much money you get for what you offer. Pricing decisions have a huge impact on how much money comes in. This can be very strategic.

It is a good idea to review your pricing strategy when planning and this is the place to do that. So in the second section of the Revenue Statement, you would state any changes to your pricing strategy. Then you would calculate the impact on your sales.

The impact could be threefold. First, your pricing decisions could impact overall demand for the product. For example, back in the 1980s, it could cost close to $100 to buy a prerecorded video of a movie. As a result, most people rented movies rather than buy them. But in the 1990s, Warner Brothers decided to slash the price its videos to $20 or less. Suddenly, the demand for purchasing videos went up astronomically.

The second impact is what a pricing change could do to your market share. If your change makes you more or less competitive in the marketplace, it should impact your market share (although keep in mind that competition may retaliate on their own pricing and mitigate some of your impact).
Finally, your sales will change at a different rate from your units if you change prices. For example, if you used to sell something for $1 and now you sell it for $2, your sales per unit double.

All of this gets calculated in the second section.

3) Marketing Decisions
Your baseline sales assume a baseline marketing expense. Any changes to that level of marketing should have an impact on sales. After all, you probably wouldn’t increase marketing spending if you didn’t think it was going to improve sales.

So in this third section, you put in the baseline marketing expense and the anticipated change in marketing expense. Then you calculate how you expect the change in marketing expense to change sales.

4) Sales Force Decisions
Similar to marketing, changes in salesforce expenditures should have an impact on sales. Therefore, similar to section 3, this section looks at baseline sales force expenditures, changes to the baseline, and how the changes to sales force expenditures impact sales.

5) New Strategic Decisions
Almost every new strategic decision is made in order to improve the company’s long-term position. And most of the time, that improvement includes an impact on sales. So in this fifth section, one calculates the anticipated impact on sales from each strategic initiative (each covered separately in this section).

In a sense, while sections 2 and 3 looks at the changes in the QUANTITY spent to improve sales, section 4 looks at the changes in the QUALITY of what you do to improve sales.

In a simple example, if a strategic initiative is to add a new product line, the impact to sales is rather straightforward. You add in the sales of the new product and subtract out the cannibalization of the old product.

If the initiative is to improve the quality of a baseline product, then one must estimate how improved quality will impact sales.

Since strategic decisions are often made for long-term benefit, there may be a short-term decline to sales during the transition. That is why, in my example, I show a negative impact in year one from the strategic initiative (but larger improvements later).

6) Net Results
The sixth and final section looks at the net impact of the first four sections, both in terms of impact on sales and impact on sales-related expenses. Basically, you take the baseline and add to it changes from pricing, marketing, salesforce and other strategies. The end result is your estimated sales and the estimated sales-related costs to get there. When you subtract those costs from sales, you get your “Sales Contribution”: the money you have left to pay for everything else.


BENEFITS
The benefits from using a Revenue Statement are as follows:

  • It proactively links all of your activities to their impact on sales. It makes sure that when you change your approach, the appropriate change to sales is also made.
  • It separates all of the components of sales, so that you can critique each one for reasonableness.
  • It provides the ability to look at the more indirect influencers of sales, like changes in product quality, product features, service levels, repositionings, etc.
  • It makes sure that the benefits and costs of each strategic initiative are incorporated into the plan (at least the sales portion).
  • It forces one to reconsider issues like pricing and the expenditures for marketing and sales forces.

SUMMARY
To more comprehensively understand the sales portion of a strategic plan, it is recommended that some form of a Revenue Statement be used. A Revenue Statement has six sections:
  1. Calculation of Baseline Sales
  2. Impact of Pricing Decisions
  3. Impact of Marketing/Advertising Decisions
  4. Impact of Sales Force Decisions
  5. Impact of Other Strategic Decisions
  6. Net Results

FINAL THOUGHTS
Sales is too important an element of strategy to be left as a single line on an income statement.