How to Create the Perfect Sales Forecast

Have you ever created a sales forecast? Most business owners would say “Yes.” Those that have never done so will be surprised to learn that they should also answer with “Yes.” How come?

Even if you’ve never created a document that contained your projected sales, you most certainly had an idea about your sales forecast when you ordered your inventory.

After all, you didn’t order all those products to collect dust on your shelves, right? You ordered them because you believed you could sell them. That’s a sales forecast.

However, planning your annual projected sales on a month-by-month basis can contribute to more accurate inventory, better cash flow, easier invoicing and payments, as well as early detection of possible problems.

Basic Questions

To prepare your forecast, you have to ask yourself a couple of questions. Base your answers on your business’ data from previous years. If you’re just starting out, look out for market trends and data gained about similar businesses in your segment.

• What kind of products and in what volume do you usually sell to your customers?
• What is the annual fluctuation of your customer base?
• Is any month slower or faster than others? Think of the holiday season, or the late winter lull.

Market and Sales Assumptions

Your small business’ market is unique and ever-changing. What do you expect will happen in the next twelve months? Emerging competitors, a move to another location, or a product launch will all affect the market, and consequently, your projected sales.

Look out for market trends and make assumptions about the future. Try to predict what’s about to happen. Will current trends of growth/decline continue? Is demand going to grow, shrink, or stagnate? List anything that could have an effect on your sales.

Additionally, come up with projections related to your small business. For example, if you’re moving to a new location, that could have a significant effect on your sales figures.

Similarly, if you’re launching a new product, it may take a bit of time for it to take off, which means you may have to wait for it to become profitable.

Feel free to ask your regular customers about their planned purchases. Their input is crucial for creating an accurate sales forecast.

Forecasting

Based on your market assumptions and your answers to the basic questions above, you can create the first rough draft of your forecast.

Create a spreadsheet for each month. Write down sales projections for each of your products and multiply them by your estimated rate of conversion. For example, if you think there’s an 80% chance that you’ll make a sale of $1000, your sales equation goes like this:

1000 x 0.8 = 800.

This means that you’ll estimate a $800 sales for that product.

Software Tools

If you’re not a fan of math, you can relax. There are many software products that can help you estimate your sales without making you feel like you’re back in elementary school.

MoData, Prophix, and Copper are just a few examples of sales forecasting software you can use. Beware, though, some of these products are quite expensive. Make sure you look at the features and only buy what you really need.

Avoid Mistakes

There are a few common mistakes business owners commit when forecasting their sales. Wishful thinking, for example, doesn’t contribute to accurate projections. Try to be realistic and forecast what you expect, not what you want to see.

Ask others for input when creating your forecast, and similarly, give your finished projections to people who know the field and ask their feedback. Business partners, employees, and even customers can be a valuable source of information and feedback.

Be flexible. No forecast is set in stone; if you see a new trend emerging in March, make sure to amend your projections for the following months.

Once real data starts flowing in, compare it to your forecast. Discovering what you got right and wrong will give you valuable market insight and knowledge to base your forecast for next year on.