Sales forecasting isn’t just for large enterprises: every business can benefit from these forecasts. If you think that your small company or startup can’t benefit from forecasting, we’re going to show you the importance of running your own forecasts.
What is a sales forecast?
It's a prediction of how many sales you’ll make over a pre-defined period. For example, public companies often create sales forecasts for the coming quarter and year. Smaller businesses can benefit from having short-term forecasts that may be as short as one week.
They'll be able to better prepare for the sales ahead, whether that means:
A consistent sales forecast definition would be: a process to estimate the sale of a product or service over a specified period of time.
Accurate sales forecasting is challenging for many businesses, but when your forecasting method is accurate – or close to it – you'll benefit in many ways:
Utilizing forecasting means being better prepared for the future. It's unlikely that your forecast will be 100% accurate, but it can help you develop contingency plans for periods of growing or declining sales.
Forecasting sales can be done using multiple methods, but many companies are using software to run the calculations. However, some of the most common methods when creating forecasts are:
Utilizing consistent forecasting models will allow you to track the accuracy of forecasts.
Below are examples using multiple sales forecasting methods:
Creating a sales forecast template can help simplify the forecasting process. Spreadsheets and software tools are available that can help you create templates.
First, frame out the template by outlining:
Looking at a sales forecasting example can help you with creating your own template.
When it comes to sales forecasting, it’s important to follow the best practices to ensure they’re reliable and accurate.
If you have an established business, use historical data to create your forecasts. If you have a new business or haven’t implemented analytics or other forms of data tracking, now is the time to start.
Understanding your past will help you understand where you’re headed.
Historical data isn't always an accurate prediction of the future, but it can serve as a solid foundation for your forecasts.
It's tempting to use a variety of sales forecasting models, but try to resist this temptation. Instead, start with a simple model and improve it over time.
The fewer variables you have to keep track of, the better. Why? Because it will be easier to:
If you start with a simple model, you can build on it slowly over time.
If your business has high and low seasons, don’t forget to incorporate that into your forecasting model.
If your forecast is linear, you will lose some accuracy and reliability due to seasonality or other factors.
Sales are affected by more than internal factors, like your sales team. There are many external factors and variables that are market-related that will affect your sales and, ultimately, your forecasts.
Let’s say that you have two products – one that is new and trendy and another that is a steady staple in your lineup. These two products should have separate segments because their growth trajectories would also be different.
Competition is another consideration. If you have a competitor that has similar offerings and decides to lower their price, this will undoubtedly affect your sales.
Keeping a pulse on the market is important, as you can take these factors into account and create more accurate sales forecasts.
Creating “what if” scenarios will allow you to look at your business from different perspectives and gain new insights.
These scenarios can help you with building sales forecasts.
Tools and software can help simplify and streamline sales forecast modeling. These tools connect with your accounting software and use that data to create forecasts automatically.
One big advantage of using tools and software is that they reduce the risk of error because all of the data comes directly from your bank account.
A wide range of solutions are available to help make sales forecasting as simple and easy as possible.
Sales forecasting plays an important role in running a business. It helps you understand whether you will have the funds to carry out your plans, hire new staff or have the ability to expand your operations.
Tools and software can help automate the process and virtually eliminate the risk of error.
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