When it comes to business one of the key principles for a successful one is sales forecasting. This key part of any business can determine if the business will fail or succeed. So, what is sales forecasting
Sales forecasting can be defined as the process of estimating future revenue by predicting the amount of product or services a sales unit (which can be an individual sales person, sales team or a company) will sell in the next week month year or quarter.
A good sales forecast must include units, price per units, sales, direct cost per units and direct cost. The math is really simple, with the directs costs per unit related to the total direct cost the same way price per unit relates to total sales.
Sales forecasts are usually based on historical data, industry trends, and the status of the current sales pipeline. Businesses use the sales forecast to estimate weekly, monthly, quarterly, and annual sales totals.
7 Key Steps to Creating a Sales Forecast That Scales With You
1. Start with the goals of your forecast.
2. Understand your average sales cycle.
3. Get buy-in is critical to your forecast.
4. Formalize your sales process.
5. Look at historical data.
6. Establish seasonality.
7. Determine your sales forecast maturity.
Top Four Types of Forecasting Methods
1. Straight line it is used for constant growth rate
2. Moving average used for Repeated forecasts
3. Simple linear regression to compare one dependent variable
4. Multiple linear regression to compare more than one independent variable with one dependent variable
Factors Affecting Sales Forecasting
Market subject to significant disruption from technological change. Demand is highly sensitive to changes in price and income (elasticity) Product is a fashion item. Significant changes in market share (e.g. new market entrants)
Create Realistic, Accurate Forecasts
1. Begin With Your Baseline. Accurate forecasting is built on an accurate base.
2. Focus On Key Factors. When forecasting, focus on the most meaningful data.
3. Build From the Bottom Up. When making forecasts, you could work from the top down or the bottom up.
4. Use Good Tools and Be Thorough.
Benefits of Sales Forecasting
One of the benefits of sales forecasting is that it provides you with an idea of how your sales team are performing both individually and as a whole. From your prediction, you should be able to identify any employees who do not have any upcoming sales and you may then want to raise this matter with them. It thus build relationship between employer and employee.
Consequences of Poor Sales Forecasting
Poor forecasting hits inventory harder than any other part of the business. Inaccurate sales predictions or failing to anticipate surges or troughs in customer demand can lead to an undersupply or oversupply of inventory, both of which can have negative consequences.
A sales projection is the amount of revenue a company expects to earn at some point in the future. It’s a prediction that is synonymous with a sales forecast. Both help determine the health of a company and whether sales will trend upward or downward. Small companies use various input to determine sales projections. It is the basis for determining future growth, expenses, profits and staffing.
Sales projection also help businesses to estimate their costs and revenue accurately based on which they are able to predict their short-term and long-term performance.
To project sales, multiply the number of units by the price you sell them for. Create projections for each month. Your sales forecast will show a projection of $12,000 in car wash sales for April. As the projected month passes, look at the difference between expected outcomes and actual results
Needs for Sales Projection
It helps reduce uncertainty and anticipate change in the market as well as improves internal communication, as well as communication between a business and their customers. It also helps increase knowledge of the market for businesses.
Projecting future cash flow is essential to identify trends and highlight potential cashflow problems in advance, giving you additional time and information in which to manage the impact on the business.
Businesses utilize projection to determine how to allocate their budgets or plan for anticipated expenses for an upcoming period of time.
Essential Sales Skills Every Rep Should Have
6. Business Acumen
7. Social Selling
9. Active Listening
10. Objection Handling