What is a Sales Forecast?
Having an idea of the expected amount of revenue that a business is estimated to make and the quantity it will be able to sell over a certain amount of time is known as a sales forecast. Sales forecasting can help a business to estimate the expected revenue it should make over a period of time, be it in the short term or long term. Short-term forecasting aims to determine the amount of sales quantity on a daily or weekly basis, while long-term forecasting looks to determine the sales quantity on a weekly or monthly basis, particularly when looking at the following seasons. There are many different ways that these estimates are drawn up, and it is important that they be accurate, as the information provided can help a business to better prepare, both in terms of estimated revenue and in costs that a business accumulates.
Sales forecasting can also set out goals that need to be met over a certain period, helping a business to better understand where revenue currently sits compared to where it needs to be. Sales forecasting helps every aspect of a business, from the purchasing of stock to the prices that need to be maintained to ensure that profits are made. Being able to forecast sales can be incredibly useful to a business and can help ensure that every facet of a company, from sales to marketing, is aware of the goals that need to be met over a period of time.
Why Make a Sales Forecast?
The importance of sales forecasting should not be underestimated as it is used in just about every department of a business and can help employees better predict and determine goals and milestones that need to be reached over time. Running a business without a sales forecast is like navigating a car without directions or knowing where you are going, and it can have detrimental effects on the overall productivity and efficiency of a business. The purpose of sales forecasting is to outline the goals that need to be achieved over time which can help a business plan budgets for each department, as they have a better understanding of how much money will be coming in through the revenue made over a period of time.
A sales forecast is also necessary when it comes to determining quantities for different products. How much you purchase of certain items needs to be in line with expected demand, otherwise you run the risk of having too much of one product. Having an accurate forecast can also help to determine markdowns on items that have not yet sold and may be going out of season. Having this information can help to ensure that you are still meeting your sales goals for the week, month or season at specific branches of a business.
Why is Sales Forecasting Important?
Sales forecasting helps a business to better place purchasing orders, with items being bought in line with the demand and expected revenue received from these products. Having a good idea of the quantities needed to be purchased over a period of time can help a business to better prepare itself in terms of stock and purchasing. When looking at sales forecasting, a business is able to better prepare itself financially, measuring the estimated sales versus the costs that are associated with running a company. Having this information can ensure that a business is not spending more than it is intending to make and can also help to identify how much can be spent within each division of a company. Sales forecasting can also help when it comes to meeting customer demands, estimating price points and helps to keep investors informed of where a business is estimated to be financially in the future. This is why sales forecasting is so important and it is vital that estimates are as accurate as possible to ensure that the system works effectively.
What are The Benefits of Sales Forecasting?
The following are just a few advantages of sales forecasting to consider if you are thinking about including this type of data retrieval in the future.
- The business makes better decisions: With sales forecasting comes the knowledge and understanding of future market trends that may impact your business. With the knowledge that is acquired through sales forecasting software, a business is able to make better decisions based on actual data.
- Helps determine budgets: With sales forecasting processes comes the ability to make budgets for the upcoming year. These budgets are based on information and estimates of the future revenue of a business. They are therefore more reliable and accurate compared to just basing the information on how a business has done in the past. This also helps when thinking about purchasing accurate quantities of certain products, ensuring that the replenishment of products is based on demand. The accumulation of different data and the monitoring of KPIs can help a business to determine better how budgets will need to be structured and also ensure that no unnecessary budgets are created for things that may not be relevant in the future.
- Helps to manage future growth: Predicting the future growth of a company can help a business better prepare itself in terms of stock, marketing and the future development of a business. Sales forecasting is incredibly important when it comes to managing future growth and can help a business to better prepare things like budgets, and the number of employees and can even help investors make informed decisions that are based on relevant data.
How to Accurately Forecast Sales?
In order to reap the advantage of sales forecasting, it is important that it is done accurately and with thought-out plans that improve over time. The following are just a few ways that a business can accurately forecast sales and improve revenue and overall efficacy.
Examine Historical Trends
One of the difficulties of sales forecasting is that we cannot ever predict the future, but there may be a way that we can use information from the past to better make predictions. While looking at past trends and sales will not give you all the answers, it can help a business to better understand fluctuations over a period of time. Though we cannot estimate if any issues will arise, things like weather issues or economic conditions, estimates can be made using past sales over a period to estimate how future sales will look. Quantitative sales forecasting is a process that is used to estimate future revenue based on historical patterns and trends. This type of forecasting uses a mathematical formula to estimate trends for the future and it is used to help better forecast sales within a business.
As with any part of a business, in order to succeed, changes should be made regularly to see if there is a better and more profitable way of achieving certain goals. Breaking standard patterns and changing up your sales forecast template can help a business to better predict the future, incorporating more reliable estimates and improvements over time. Looking at data in new ways can help a business to determine whether or not targets are being met and how improvements can be made over time, which is incredibly important when it comes to the success of a business not just for right now but also looking to the future.
Predict Market Trends
When looking at how to forecast sales accurately, using analytics to predict market trends can help a business better prepare for market fluctuations. As with any business, there are periods of time when sales increase and decrease, and ensuring that you are fully aware of these different times and know how to manage them can ensure that you are not met with any surprising difficulties. Knowing market trends and strategically aligning yourself to benefit from these trends can help to increase sales and the overall amount of revenue that a business makes.
What your competitors are doing can help a business to more accurately predict and forecast sales. Businesses that may be bigger than you and have gone through the changes that you are implementing within your own business have valuable information about how growth has impacted sales and revenue. This ensures that a business is able to better predict changes over time, allowing for a more accurate sales forecast.
What are The Things To Do When Doing Sales Forecasting?
The following is a look at a few factors affecting sales forecasting and how a business can initiate effective processes.
- Have a sales process: Having a process that the entire sales team follows will help to streamline the department and ensure that every member of the team is fully aware of the requirements that need to be met and how to meet them. When your team is using the same process, it becomes easier to forecast sales as the process is predictable and constant. As a sales team will lead customers through the same sales funnel there is a consistent standard that is set and can be measured. Having documents that outline the process and making changes as needed will help not only improve the functioning of a sales team but also make sales forecasting an easier process to measure.
- Set quotas: Having a set number of goals that a team needs to meet over a period of time will ensure that the forecasts that you have made are either met or exceeded. A team needs to know what is expected of them to properly function. and setting quotas that are reachable ensures this.
- Consider how you will use sales forecasts: When forecasting sales, consider where you will use the information you gather. It is important to develop your methodology according to this data as it will shape what you need to find out. If you are, for example, using a replenishment methodology that is based on the previous year’s sales, this will differ from the replenishment that may be needed in the next few weeks. This is why it is important to think about a sales forecast in such a way that you are not relying too much on numbers and computer processes. That human touch and ability to think logically about current situations will help ensure that your sales forecasts are both accurate and relevant.
- Include data from various departments: Sales Forecasts should not be separated from the other merchandise planning tools such as financial planning, item planning, and auto-replenishment. Sales forecasting does not just involve monitoring and including information from only the sales team, but it is rather an accumulation of information from many different facets of a business. From marketing to accounting, every part of a business has vital information that can help improve your sales forecasting strategies and ensure that you have all the information that you may need to accurately predict trends over a period of time.
- Keep your sales team informed: Part of developing a sales forecast is involving your sales team in the decisions made and how they are performing, Regular updates on targets, whether they are met or not, and future goals set out should be done as often as possible. This not only keeps management in the loop with how the sales team is performing, but it can also help initiate confidence in the team and spur them on in meeting their goals. This helps immensely when it comes to forecasting sales growth over time and keeping your team motivated to continue meeting targets!