Understanding Sales Forecasting

Sales Forecasting for New Businesses is Harder But Still Necessary

Sales Forecasting
Image (c) Corey Jenkins / Getty Images

Sales Forecasting is the process of estimating what your business’s sales are going to be in the future. A sales forecast period can be monthly, quarterly, half-annually, or annually.

Sales forecasting is an integral part of business management. Without a solid idea of what your future sales are going to be, you can’t manage your inventory or your cash flow or plan for growth. The purpose of sales forecasting is to provide information that you can use to make intelligent business decisions.

How to Make a Sales Forecast

A sales forecast is a estimate of the quantity of goods and services you can realistically sell over the forecast period, the cost of the goods and services, and the estimated profit.

Typically this is done by making a list of the goods and services to be sold, an estimate of the number of each to be sold, the unit price of each, and a total (price * #units) and a grand total. Another list is made for the estimated cost of each good or service and a total cost (cost * #units). Subtracting total cost from the total sales gives an estimated profit for the forecast period.

If your business has a huge number of items in inventory it may be necessary to condense unit sales/costs into categories.

Sales Forecasting for Existing Businesses

Sales forecasting for an established business is easier than sales forecasting for a new business; the established business already has a sales forecast baseline of past sales.

A business’s sales revenues from the same month in a previous year, combined with knowledge of general economic and industry trends, work well for predicting a business’s sales in a particular future month.

If your business has repeat customers, you can check with them to see if their purchase levels are likely to continue in future.

  If you don't wish to contact them directly you can infer future activity based on the health of the customer industry.

Sales Forecasting for New Businesses

Sales forecasting for a new business is more problematical as there is no baseline of past sales. The process of preparing a sales forecast for a new business involves researching your target market, your trading area and your competition and analyzing your research to guesstimate your future sales. See Three Methods of Sales Forecasting and Sales Forecasting for Your Business Plan for further explanation.

Sample 6 Month Sales Forecast

Units Sold       
Widget 110101515151580
Widget 2202025252525120
Unit Price       
Widget 1$50$50$50$50$50$50 
Widget 2$35$35$35$35$35$35 
Widget 1$500$500$750$750$750$750$4000
Widget 2$700$700$875$875$875$875$4900
Total Sales$1200$1200$1625$1625$1625$1625$8900
Unit Cost       
Widget 1$25$25$25$25$25$25 
Widget 2$30$30$30$30$30$30 
Total Cost       
Widget 1$250$250$375$375$375$375$2000
Widget 2$600$600$750$750$750$750$4200
Widget 1$250$250$375$375$375$375$2000
Widget 2$100$100$125$125$125$125$700
Total Profit$350$350$500$500$500$500$2700

Also Known As: Sales forecast, sales predictions.

Common Misspellings: Sales forcasting, sales fourcasting.

Examples: Sales forecasting done on a month by month basis will give you a much more realistic prediction of how your business will perform than one “lump” sales forecast for the year.

Continue Reading...