Sales Forecasting is the process of estimating what your businesss sales are going to be in the future. A sales forecast period can be monthly, quarterly, half-annually, or annually. Show Saleforecasting is an integral part of business management. Without a solid idea of what your future sales are going to be, you cant manage your inventory or your cash flow or plan for growth. The purpose of sales forecasting is to provide information that you can use to make intelligent business decisions. For example, if your forecast indicates a 30% increase in sales of products or services, you may wish to begin searching for larger business premises and hire additional staff to meet the demand. Conversely, a forecast of shortfalls in sales can allow you to mitigate the effect by taking advance measures such as reducing expenses or reorienting your marketing efforts. How to Createa Sales ForecastA sales forecast is an estimate of the quantity of goods and services you can realistically sell over the forecast period, the cost of the goods and services, and the estimated profit. Typically this is done by:
If your business has a huge number of items in inventory it may be necessary to condense unit sales/costs into categories. Sales Forecast AssumptionsThere are many factors that can potentially affect sales that should form the basis for your sales forecast, including:
Sales Forecasting for Existing BusinessesSales forecasting for an established business is easier than sales forecasting for a new business; the established business already has a sales forecast baseline of past sales. A businesss sales revenues from the same month in a previous year, combined with knowledge of general economic and industry trends, work well for predicting a businesss sales in a particular future month. If your business has repeat customers, you can check with them to see if their purchase levels are likely to continue in future.If you don't wish to contact them directly you can infer future activity based on the health of the customer industry. Sales Forecasting for New BusinessesSales forecasting for a new business is more problematical as there is no baseline of past sales. The process of preparing a sales forecast for a new business involves researching your target market, your trading area and your competition and analyzing your research to guesstimate your future sales. See Three Methods of Sales Forecasting andSales Forecasting for Your Business Plan for further explanation. Sample 6 Month Sales ForecastJanFebMarAprMayJunTotal#Units SoldWidget 110101515151580Widget 2202025252525120Unit Price $Widget 1$50$50$50$50$50$50Widget 2$35$35$35$35$35$35SalesWidget 1$500$500$750$750$750$750$4000Widget 2$700$700$875$875$875$875$4900Total Sales$1200$1200$1625$1625$1625$1625$8900Unit CostWidget 1$25$25$25$25$25$25Widget 2$30$30$30$30$30$30Total CostWidget 1$250$250$375$375$375$375$2000Widget 2$600$600$750$750$750$750$4200ProfitWidget 1$250$250$375$375$375$375$2000Widget 2$100$100$125$125$125$125$700Total Profit$350$350$500$500$500$500$2700 Create a Range of ForecastsIt is a good idea to create multiple sales forecasts using a range of predictions, particularly for new businesses. After creating an initial forecast using your best estimates create another forecast based on optimistic numbers and another based on pessimistic ones. Update your forecast with the actual values as time progresses. Sales forecasting done on a month by month basis will give you a much more realistic prediction of how your business will perform than one lump sales forecast for the year. You can also update your forecasts on an even more granular basis if needed, for example, you might want to do it on a weekly basis if you are concerned about hitting a monthly sales target. Accounting Software Makes Forecasting EasierBusiness accounting software packages such as QuickBooks can perform sales forecasts, including individual forecasts, by customer, based on existing sales data. See6 Advantages of Using Small Business Accounting Software,Before You Buy Accounting Software for Your Small Business, andThe Best Accounting Software for Small Business. |