Sales forecasting is one of the activities that can help you avoid unexpected problems and more effectively manage your production, personnel and financing needs.
Let’s learn more about this essential tool for managing companies of any size.
What is sales forecast?
The sales forecast is a month-by-month prediction of the level of sales that is expected to be achieved. Most companies prepare a sales forecast once a year.
Armed with this information, you can quickly identify problems and opportunities and react.
While it’s always wise to expect the unexpected, a well-crafted sales plan, coupled with an accurate sales forecast, allows you to spend more time developing your business rather than responding to daily sales and marketing developments.
Importance of sales forecast
Simply put, the sales forecast influences many of the decisions your company has to make in several ways, not least because it will provide the data to support those decisions.
At the top of any sales team’s considerations are sales objectives, that is, the minimum figures that each salesperson or sales team should aim to contribute to the company’s plans and objectives.
Therefore, sales forecasting allows a company to set its objectives precisely. With precise and realistic objectives, sales teams work more effectively and contribute to the success of your company.
Sales forecasting not only allows you to set more precise objectives, but also influences budgets and hiring policies. Based on your sales forecast and resulting revenue, you can invest in staff or equipment to prepare for new opportunities.
How to make a sales forecast?
There are different methods for making a sales forecast, each has different advantages, depending on how your business operates, and it is wise to use at least two different methods.
1. Historical data method
Past sales data can be used to predict your company’s future results.
The downside is that historical data doesn’t take into account changes in your business and industry, such as the arrival or disappearance of a competitor, personnel changes, or changes to your products or services. We suggest using the historical sales forecasting method in conjunction with another method.
2. Sector forecasting method
Forecasts for your industry are particularly well suited to the historical data method. This is a simplified method that consists of applying the factors of your sector to your historical data to prepare an analysis based on a balance between the two.
This data is available from government agencies, trade associations, and some third parties. Therefore, the method is relatively fast and inexpensive.
3. Survey on customer purchase intention
Start by surveying the purchasing intentions of your potential customers or by interviewing a sample of these future customers. This method will allow you to better understand your plans and estimate future sales (relating the sample results to your entire customer base).
This method is normally recommended for industrial sectors, but is applicable to all types of companies.
4. Method based on the stages of the sale
The sales forecasting method based on sales or conversion stages allows you to estimate the potential associated with each stage of the sales funnel. Multiply this potential by the value of the sale to estimate the expected income.