One crucial part of a complete business plan is your sales forecast. This component is the basis of a company’s financial projections and should be given high priority when creating a marketing plan. The future direction of the company may rest on the accuracy of your sales forecasting. There are many ways to forecast sales. Lets highlight some of the most common and simple methods for this.
Here are a few things to keep in mind when creating your sales forecast.
– Be conservative, be realistic, unrealistic forecasts can cast doubt on the credibility of entire business plan.
– Break your business down into units.
– Pick one of 3 forecasts methods which best meets your business requirements.
-When building your forecast, make sure to base your numbers off of reasonable assumptions about your company and industry.
– Remember: Sales Forecasting is an Art not a Science! Experience is helpful, but creating totally accurate projections is extremely difficult.
The three sales forecasting methods are: The Build Up Method, The Work Backwards Method, and the Market Share Method.
1: Build Up Method:
First you must predict how many units of each product/service you will sell in month 1. It is often helpful in month one to project by week or even by day. Be conservative. Then project out for the next 12 months individually, and then by month or by year for the next 3-5 years. This method is better used in big industries, many competitors and many potential clients, such as the internet industry.
2: Work Backwards Method:
Just like it sounds, this method has you start at the end of your projections and work backwards. Define your sales goals in the final year. Work backwards to determine which sales goals you would need to reach in each year prior in order to arrive at your final year projections. Determine if this is realistic given the internal and external factors.
3: The Market Share Method
In the Market Share Method, you can calculate your sales goals based on simple industry statistics, including revenue, growth rate, and initial unit cost. This method is better used in an industry with few competitors and few clients (for example, 100 restaurants in a city of 100,000 people, or 10 airplane manufacturers with 50 airlines that buy them).
In conclusion, whether you are trying to secure funding for your business or just trying to get an accurate picture of what your sales will be, you must create a conservative, realistic sales forecast. Doing this properly will give you great insight as to what you should expect from month to month as well as year to year as you operate your business. The benefits of these insights are numerous and will really help you understand your business and industry much better.
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