Entrepreneurship is lucrative. It offers great opportunities for growth but is also daunting for newcomers. One of the most difficult things to do for a startup would be to project its sales. None of us are fortune tellers and predicting accurate numbers can be impossible. However, a few tips and tricks for sales forecasting can help you get close.
A sales forecast can be important when setting up a new business or even when scaling a current one. For the former, you may have to make arrangements for office space and hire enough resources. For the latter, you may wish to expand your current workforce or outsource customer experience to BPO companies like Telvista. So, instead of making guesses and taking wrong decisions, read this article to make a better call.
What Is a Sales Forecast?
Before getting to the nitty-gritty, it is important to understand what a sales forecast is, and what it entails. It is the process of estimating future sales and preparing accordingly whether it is hiring new employees, increasing office space, or stocking up on inventory. The more realistic the estimate is based on ground realities, the better it can be for the business. Cost of the goods or rent space, future estimated profit, and resource structure all come in together to make your sales forecast.
Your forecast can be the foundation of your company’s future financials and dictate how and when you plan to scale the business. So, a realistic forecast can allow you to set realistic goals and standards for your company. With a sales forecast, you can also easily create balance sheets, profit/loss statements, and other supporting documents for finance.
How to Create a Sales Forecast?
A sales forecast often entails the necessary goods that you will need over a time period. So, it also includes the cost the business will incur to sell, store, or produce these goods. There are certain specific methods and assumptions that you can use to create a sales forecast. However, here are some general steps to creating one:
- Make a list of the services you provide or the goods that you sell.
- Estimate (to your best judgment) how much of these goods you will sell.
- Set up a unit price for these services and goods.
- Calculate the total price by multiplying the number of goods with the unit price.
- Determine the production, selling, and marketing cost of these items.
- Multiple the production cost with the sales volume.
- Calculate net profit by subtracting your total cost from the total sales.
A forecast is not as simple as the steps above and this is a basic rundown of what it is and how it works. Each business is different and you may want to group similar products into one category based on the service. Moreover, you can also base your assumptions on how certain products align in your accounting balance statements. So, each sales forecasting report can be and should be curated based on your business. There are no rules for customization and you can tailor the forecast according to your requirements and the business solutions you are looking for.
Making Assumptions for a Sales Forecast
The sales forecast is an estimation and nothing is set in stone. So, it is obvious that you are going to make certain assumptions for the forecast. However, the forecast isn’t a future prediction and you merely collect information and aggregate it into meaningful speculations. As the assumptions change, so can your sales forecast. Here are some important things that you need to keep in mind:
#1: Market Conditions
The global market is in a state of chaos and volatility due to various reasons at all times. The biggest example of this is the recent effects of the COVID-19 pandemic or the Ukraine-Russia conflict. Any changes in the market conditions can have a direct impact on your sales forecast. The supply-chain forecast can be disrupted, the market could grow or shrink exponentially, or there can be an influx of industry competition.
#2: Seasonal Changes
Most businesses have high and low seasons throughout the year. So, your sales forecast can look a lot different for each quarter. Depending upon your product, you should consider growth and dips in sales accordingly. If you sell something that is hot during the holiday season, you may want to stock up on more inventory. The cost of your raw material can also differ according to the season.
#3: Changes to Products
Launching new products or making changes to current ones can also affect your assumptions. The new product can alter the market for any current ones. Moreover, you may have to change something about marketing, sales, or production because of market conditions or cost-cutting.
Sales forecasting isn’t an easy process and can get very complicated depending upon the business you are in. If you think that you need to bring in an expert, don’t hesitate to ask for help because your entire financial story can change because of this.