Sales forecasting is important for all types of business. This applies to businesses in the pre-start-up phase as well as established businesses. Proper sales forecasts give you an idea of the potential of the business and where you could be in one, two, three, or five years’ time.
Forecasting sales is not easy, however. After all, the process involves making the best estimate you can. Accuracy levels can, therefore, vary.
In addition, the process of sales forecasting is very different depending on whether you have historical data to work with or not. If you are planning a new business launch, for example, or are launching a new product, you won’t have directly relevant historical data to refer to.
Here are some tips for sales forecasting in both scenarios, i.e. when you have historical data and when you don’t.
Quantitative Sales Forecasting
You can use quantitative sales forecasting techniques when you have historical data to use. The best place to start is by working out your current growth rate. This involves looking at your historical data and working out an average per month growth rate. So, if your sales grew by an average of 10 percent per month over the last 12 months, this should be the starting point for your sales forecast.
You then need to look at things that might influence sales. Here are some examples:
- Did a particular event occur in the previous 12 months that had an impact on your sales figures? This could be the launch of a new product, something outside your control that had a positive or negative impact on your sales, a particularly effective promotion which boosted sales, staffing or production issues which damaged sales, or any other event.
- Do you expect an event to occur within the forecast period which may impact sales?
- Has a new competitor entered the market or have any competitors left?
- Are there other factors which could impact sales? This could be disruptive technologies, for example, new regulations, or changing consumer behaviours.
- Do you plan to increase or decrease your prices within the forecasting period? What impact will this have on total sales?
- What do your salespeople think? After all, they are closer to your customers than anyone. Do they think customers plan to increase spending, keep spending at current levels, or reduce spending? Are they finding it harder, easier, or just the same to make sales?
Once you have looked at the above, you should modify your sales forecast accordingly.
Qualitative Sales Forecasting
What if you don’t have historical data to work with? In this situation, you need to use qualitative sales forecasting techniques. Here are some steps you should take:
- Start by working out unit sales. For example, if you are a restaurant, what is the maximum number of meals you can sell per day? What percentage of this maximum is realistic. From this number, you can then work out a sales forecast.
- If you don’t have a unit sales calculation to work with, try to find a suitable comparator. This could be a similar product, for example, or a competitor. You can then use these actual figures to work out your forecast.
- Consider factors that might impact sales and factor them into your forecast. This includes seasonal variations in your sales. For example, your business might have busy months and months that are not so busy.
- Find out the size of your market and factor that into your sales forecast.
- Speak to experts inside and outside your business to get their viewpoint.
Here’s one final tip – don’t be overly optimistic when creating a sales forecast. Optimism is good, but your sales forecast should also be credible and realistic.
If you need advice or help with your business, please contact a member of the Gilroy Gannon team today.