Understanding Sales Forecasting

Sales Forecasting for New Businesses is Harder But Still Necessary

Sales Forecasting
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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.

Sale 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 an 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

 JanFebMarAprMayJunTotal
#Units Sold       
 Widget 110101515151580
 Widget 2202025252525120
Unit Price $       
 Widget 1$50$50$50$50$50$50 
 Widget 2$35$35$35$35$35$35 
Sales       
 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
        
Profit       
 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

Create a Range of Forecasts

It is a good idea to create multiple sales forecasts using a range of predictions, particularly for new businesses. After creating an initial forecast using your best estimates create another forecast based on  optimistic numbers and another based on pessimistic ones. Update your forecast with the actual values as time progresses.

Accounting Software Makes Forecasting Easier

Business accounting software packages such as QuickBooks can perform sales forecasts, including individual forecasts, by customer, based on existing sales data. See 6 Advantages of Using Small Business Accounting SoftwareBefore You Buy Accounting Software for Your Small Business, and The Best Accounting Software for Small Business.

Also Known As: Sales forecast, sales predictions.

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.

See also:

Cash Flow Management Tips to Keep Your Cash Flow

3 Ratios for Business Health

10 Low-Cost Ways to Promote Your Business

10 Ways to Get Positive Word of Mouth for Your Business

How to Create a Social Media Plan to Increase Sales

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