How to Create a Sales Forecast That Boosts Your Business
Are you working on a business plan for a new venture, making changes to an existing business, or looking to gain a deeper understanding of your enterprise so that you can make more informed decisions? At every stage of your business, a sales forecast is a powerful tool that can help you make better predictions about the future. It may seem daunting at first, but with many useful sales forecast templates available for free online, it is easier than ever to create your own sales forecast and take control of your future success.
What is a sales forecast, exactly?
As the name suggests, a sales forecast is a document that outlines what a company’s forecasted future sales will be. There are many sales forecast methods that you can use to make informed predictions of your sales numbers.
A sales forecast isn’t something you only create once as part of your business plan when you launch, and then forget about. It’s a tool that you should return to regularly to measure how you’re performing against your predictions and to help guide your decision making. In most cases, your sales forecast will cover the 12 months ahead. You can also add annual forecasts for subsequent years, although you will probably revise these forecasts since it’s difficult to forecast accurately far into the future.
Why are sales forecasts so important?
This is a great question because it’s not immediately obvious why predicting your future sales matters. Shouldn’t you just be focused on the all-important task of selling? The reality is, a thoughtfully created sales forecast can not only help you sell more, but it can help you adjust your strategy to make sure your business is focusing on the strategies that work. A sales forecast encourages you to:
- Conduct quality research. If you’ve been in business for a while, you can use your historical sales to calculate your monthly growth and project into the future. However, if you’re just starting, the best way to build your sales forecast is to research your industry. You’ll want to gain a strong understanding of what kind of sales you can expect based on your competitor’s sales figures, information from your relevant industry association, or your local Chamber of Commerce.
- Set realistic goals. Armed with all the useful information you gained from your research, you can set goals for your business that are based in reality. If you just plug huge, wishful numbers into your sales forecast template, it won’t be of much use, but if you forecast your sales based on reliable data, you can be confident of what is achievable for your business and set goals based on this.
- Be smart about budgeting. Since you’ll have a rough idea of what your sales will look like, you will be able to make sure that any expenditures your business makes are sustainable in the long run.
- Notice problems before they get too big. For example, if your sales were tracking your forecast, but have been off for a couple of months, what changed? Have you tried implementing a new strategy that needs to be refined? Or is there a seasonal variation to your business that you hadn’t considered when building your sales forecast? Regularly checking your bookkeeping ledger against your sales forecast is a great way to spot potential issues and keep yourself accountable.
- Make better decisions. Maybe a large portion of your business revenue is coming from a source you didn’t expect, while the product you thought would sell quickly isn’t performing as well as you anticipated. Tracking these disparities against your sales forecast will help you spot where your efforts should be focused so that you’re not wasting your time on unproductive activities.
How to create a sales forecast for your business
Choose your sales forecast interval
The first thing to consider is the time interval you want to use in your sales forecast. For example, you can forecast your sales on a weekly, monthly or quarterly basis, and check in at each interval to see how you performed against your forecast. For many businesses, a monthly schedule is perfect. It’s frequent enough to allow you to include things like seasonal fluctuations in sales, but not so frequent that it becomes a guessing game. However, you should think about the needs of your particular business and choose a time interval that works best for you.
Define your sales units
Another factor to consider is how you will define your sales units. There is no one-size-fits-all approach to this since it will vary quite a bit depending on the type of business you have.
For example, if you have a toy company, you may have 30 different SKUs on offer. You could count each SKU as a unit, but it might be too difficult to predict sales at such a detailed level. Instead, grouping your SKUs by the age group they are appropriate for will reduce the units in your sales forecast to a manageable number and still be detailed enough to help you track important sales data. The trick is to pick a category system that is appropriate for your business.
Defining your units gives you a birds-eye view of which aspects of your business are doing best, so you can be responsive. In this example, you might tweak your email marketing strategy in response to a boost in interest in toys for children aged 3-6 by promoting new toys in that category.
Choose your sales forecast method
There are many ways to come up with reliable, informed numbers for your sales forecast. Some options include:
- Historical forecasting. If you have historical data to draw from, creating a new sales forecast based on that data can be a part of your year-end checklist. You can also do a version of this if you are a brand new business by using historical sales data from similar businesses in your industry. Search online for sales forecast examples from businesses similar to your own.
- The bottom-up approach. If you don’t have historical sales data, you can consider how many potential clients you can potentially reach in a given time period. Consider your resources, and what percentage of those can reasonably become paying customers, to arrive at realistic sales forecast numbers.
- Opportunity stage forecasting. This involves assigning a likelihood of closing a sale based on the stage of the sales pipeline it is in. For example, if you are a freelancer and have a 30% chance of closing with clients you meet for a second time, and the value of a potential client contract is $1000, that would go into your forecast as $300. This type of forecasting is most appropriate for businesses that have longer sales cycles and require multiple interactions with a client. It works best if you update your sales forecast template regularly to reflect changes.
- Length of sales cycle forecasting. With this method, you assign a likelihood of closing to the age of your prospect, rather than to the stage of the sales cycle you are in. For example, your chance of closing a deal with a new client may be higher at 40 days than at 10 days.
Use online sales forecast templates
A good way to get started is to look at a few different free sales forecast templates to see what people choose to include in theirs. That way, you can choose one that best fits the needs of your business, and you don’t have to build a new sales forecast template from scratch.
No matter what stage you are at with your business, dedicating some time to creating a realistic and informed sales forecast is a valuable use of time for any entrepreneur. Remember, what makes a sales forecast useful is checking in and measuring your performance against it, so make sure to set some time aside each month to check in and see how your business is doing.