How to Create a Sales Forecast for your Business

A sales forecast is the backbone of any business plan. Its growth measures business and the sales forecasts set the standard for the expenses, growth as well as profit. It plays an important part throughout the success of your company (and your career development). As per Aberdeen Group study, businesses with accurate sales estimates are 10% more likely to increase their revenue year-over-year and 7.3 percent more likely to hit the target.

Important Ways of creating a Sales Forecast for your Business

What is a Sales Forecast?

Sales Forecasting is indeed the method of projecting what the sales will be in your business soon. A forecast cycle for revenues can be monthly, quarterly, half-yearly, or annual.Sale forecasting is an essential part of entrepreneurship. One cannot manage the inventory or the cash flow or the growth plan without any idea of what your future sales would be.

Sales forecast aims to provide information that can be used to make smart business decisions. Once you are clear with the concept of the sales forecast, the next thing you are bound to know is the importance of the sales forecast.

smart business decisions
smart business decisions

Importance of Sales Forecast

Sales forecasts help you to detect potential problems while the time remains to prevent or minimize them. When you find, for example, that your team is trending 35% below target, you can figure out what’s going on, and the course is right. Your rival may have launched an aggressive new promotional scheme, or your new sales reward program involuntarily encourages bad behavior. It often plays a role in a series of decisions, ranging from recruiting and handling staff to set goals and financial planning.

Assume that your revenue outlook expects an improvement in incentives of 26 percent. You will start recruiting to ensure that you keep demanding. On the other hand, if chances are expected to go down, it would be smart to pause the recruiting efforts. At the same time, look around bumping up spending on ads and investing in training opportunities for your reps.

One of the essential points to note about sales forecasts: To be useful, they don’t have to be flawless. Sometimes, if not always, the sales forecast will be slightly different from the results. Wildly inaccurate results are, of course, troublesome— but if you use clean data and have chosen the right method, your sales forecast will help you both prepare and drive growth.

drive growth via sales forecast
drive growth via sales forecast

How to create a sales forecast?

The sales forecast is typically done by:

  • Making a list of the saleable goods and services
  • An estimate of each number to be sold.
  • Multiplying a unit price by either the estimated number of to be sold goods or the services.
  • The cost of each good or service is determined.
  • The cost of each good or service is multiplied by the estimated number to be delivered.
  • Subtracting gross selling costs.

The Assumptions for Sales Forecast

Many variables could have an impact on sales that should form the basis for your sales forecast.

1) The Regulatory changes

Sometimes new laws and new regulations can have a positive or a negative impact on your sales prospects.

2) The marketing efforts

Would you start any new marketing campaigns, or invest more or less on advertising? Perhaps putting online a new company website, beefing up your email marketing, or expanding to social media to boost sales? Hire additional sales staff or lose the best sales representative?

3) Products and Services

Would you launch new products or new services that might increase sales or decrease sales of your current products/services due to improved products/services or lower competitive prices? Because of expanded inventory, labor, or other costs, will you be forced to raise rates, and how this could affect sales?

Sales Forecasting for your existing Business

Sales forecasting is better for an established business for building financial estimates than forecasting for a new business; the established company already has a reference sales estimate of past sales.

The sales revenues of a company from the same month in a prior year, combined with an awareness of general economic and industry patterns, work well to forecast sales of a business in a specific future month.

building financial estimates
building financial estimates

Sales Forecasting for New Business

Sales forecasting is more troublesome for a new business, as there is no precedent for past sales. Preparing a revenue forecast for a new business includes studying your target market, your business area, and your competition, and evaluating your analysis to predict your future sales. For further clarification, see Three Revenue Projection and Market Forecasting Strategies for Your Business Plan.

Lead-Based Forecasting

Creating your volume lead-based forecasting on your lead generation potential is one of the best techniques to forecast the revenues of companies that have a sales force. Let’s see how one example works. Let’s presume you are selling services to small businesses, and the sales process is as follows: you are contacting potential customers to get a meeting, then going to the meeting, and trying to close the deal.

You can predict how many phones calls an average salesperson will manage in one day, to forecast your revenue. From there, you can calculate how many meetings your sales representative would possibly be based on an expected rate of success. And then add another projected rate of progress to subtract the revenue from the number of meetings.

Instead of using a regional conversion ratio, try to work out the entire sales funnel. That way, you can monitor the intermediate steps and change your sales forecast on the fly as you get more information about what the conversion rate is at each stage. You’ll also be able to set the sales force more realistic goals.

A month-to-month sales forecast will give you a much more accurate estimate of how your company will perform than one “lump” year-to-year sales forecast. You can also change your predictions even more granularly if needed; for example, if you are worried about meeting a monthly sales target, you may want to do it every week.

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