End your struggle to forecast sales with the Ultimate Sales Forecasting Guide
Suppose you are a restaurant owner. You wish to forecast sales for your restaurant in the upcoming financial year. You will forecast each dish’s sales or certain meals like lunch, dinner, etc. In short, you will be forecasting sales for the following year. It will help you predict the budget and pave the way to set realistic goals. As a result, sales forecasting will lead to the success of your restaurant. Before jumping on how to do sales forecasting, let’s understand what it is?
What is sales forecasting?
In the simplest terms, sales forecasting predicts a picture of your future sales pipeline. The concept is derived from actual sales, economy, and industry data and trends. It helps in enhanced inventory, workforce, and cash flow management. An established business can forecast more quickly than a new brand as a new company is bereft of previous sales data. Eventually, they depend on industrial databases and competitive benchmarks.
Importance of sales forecasting
Primarily sales forecasting helps in mapping out sales growth. Eventually, you can prepare actionable sales to forecast reports. Also, it becomes easy to tap sales team performance, and Secondly, it leads to better resource planning.
Thirdly, sales forecasting is the base of the sales budget, including hiring new employees or increasing the inventory, machinery, etc. Fourthly, you can anticipate the product interest. In simple words, while looking at previous sales data, you learn which of your products sold the most. Likely, you can figure out the consistent best-selling item over the last few years.
As a result, you can predict and prioritize the best-selling product. And all these benefits are directed towards positive earnings. So last but not least, sales forecasting also helps in forecasting revenue. Now, let’s sneak peek into how you can forecast sales for your small business.
How to do sales forecasting?
- Set up a sales process & pipeline for your team
An effective sales pipeline system and a well-mapped sales process lead to business growth. A growing business demands defining a sales pipeline as per prospect behaviour, and a well-defined and managed sales process is required to be set up. The sales process focuses on consistency and increases accountability, which comes into the role while converting a lead to a customer.
- Map Individual Lines of Sale
The second steps include separating your products and services into distinct category. For instance, ‘product’ and ‘product’s parts. Similarly, services can be separated based on billable hours, subscriptions, etc. One thing to be noted, always use a similar unit throughout the sales forecasting.
- Take past data from other departments
Sales forecasting becomes a piece of cake with historical sales data. This data draws the baseline of sales forecasting numbers. Moreover, it guides you about the season ability or cyclical fluctuation of a product. You need to analyze previous year’s data from other departments like marketing, development, or finance as it gives insights into the quality of the sales pipeline. At the same time, the finance team makes you understand the alignment of your sales goal with the company’s overall financial plan.
- Choose a Sales Forecasting Method
In the fourth step, you must study and choose the best forecasting method for your company. Around 79% of sales companies inaccurately predict sales by forecasting more than 10%. Therefore, you must choose a proven sales forecasting method. There are various methods to forecast sales. For instance, pipeline, historical, initiative, sales cycle length, opportunity stage forecasting, etc. So always study your business model, sales team, and industry trend before opting for a sales forecasting model.
- Prepare a unit sales and price projection to estimate sales revenue.
If you are projecting sales from the historical data, use the parallel period. Firstly, forecast unit sales for each month. Then predict unit sales each year as we advance for three years. You may include quarterly projections to prepare for high seasonality. Secondly, forecast sales revenue, multiply the unit sales projection and respective prices. Then with basic math and accounting, you can discern the sales and cost. You will get the estimated profit or loss by deducting cost of sales from sales.
Sales forecasting is based on many assumptions or historical data. So the accuracy of forecasts is never 100%. As a result, you always want to forecast the closest sales with the industry expert who understands your company like their own. So, if you wish to have an industry expert’s consultancy while projecting sales and forming sales reports, then contact SKB Accounting now!
-By Dipali Nishad