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Sales forecasting

Not the easiest of tasks at first but it is one of the most essential for business. The survival of a business relies on sales revenue so take the time to give this full attention. The closer forecasts become, the greater the cash flow and overall profit making capacity.

A number of things can drive buying patterns, and customer activity, most of which you have no control over. But awareness of these, and monitoring of the factors will allow you to anticipate the market trends and react quickly. With practice you'll learn what to watch for and which information to record.

Factors to consider
These will give you a clear indication on whether to expect sales to go up or down:
  • Check out the overall market share for your industry. Is it increasing or decreasing?
  • Are the buying habits of customers changing? What are they buying instead?
  • Check out competitor activity and try to anticipate their next move:
    • Are they confidently increasing prices?
    • Or are prices being slashed to get sales?
  • Are new competitors entering the market, or are competitors leaving the market?
  • What effect will interest rate or exchange rate changes have on business
  • If already operating a business:
    • Are sales trends up or down from prior years
    • What are existing customer expectations? Talk to them, will they continue to buy your products, what are their key challenges, and how can you help?
    • Find out about prospective customers buying plans
    • Look at additional marketing in place. Ascertain what the conversion rate is from enquiries to leads to sales.
    • When will a marketing strategy show on your bottom line?
  • If you are starting a new business:
    • Do rigorous market research to get your first forecast.
    • Get promises of advance orders by interviewing potential customers
    • Use trial products to test the market
Should you overestimate or underestimate future sales?
Preferably, neither. Try and get your sales forecast as accurate as possible. Review it and compare it with ongoing sales on a weekly basis, or at least monthly. It is a guide not rules to live by. To maximize marketing opportunities and sales you will need to be flexible. Plus checking in means you will know exactly what to record for next time. If you are a more visually stimulated person chart results into a graph. This is also handy used as a tool to inspire staff motivation.

Sales forecasts are a key component to the cash flow forecast, which is used to set your budgets and make sure you don't overspend. Being accurate is important because if you underestimate and your sales revenues are higher than calculated you may not have enough working capital to cover daily cash needs.

A number of free templates, including one for annual sales forecasting and a sales commission calculator, are available from the Microsoft Office Online website.
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