Sales forecasting is the
process of organizing and analyzing information in a way that makes it possible
to estimate what your sales will be. This guide outlines some simple methods of
forecasting sales using easy to find data. Books containing simple and
sophisticated techniques of forecasting sales can be found in libraries and
business oriented book stores
If you sell more than one
type of product or service, prepare a separate sales forecast for each service
or product group.
There are many sources of
information to assist with your sales forecast. Some key sources are:
Factors that can affect Sales
External:
Sales
Forecasting for a New Business
These steps for developing
a sales forecast can be applied to most kinds of businesses:
Step 1: Develop a
customer profile and determine the trends in your industry.
Make some basic assumptions
about the customers in your target market. Experienced business people will
tell you that a good rule of thumb is that 20% of your customers account for
80% of your sales. If you can identify this 20% you can begin to develop a
profile of your principal markets.
Sample customer profiles:
Determine trends by talking
to trade suppliers about what is selling well and what is not. Check out recent
copies of your industry's trade magazines. Search the Business Periodicals
Index (found in larger libraries) for articles related to your type of
business.
Step 2:
Establish the
approximate size and location of your planned trading area.
Use available statistics
to determine the general characteristics of this area.
Use local sources to
determine unique characteristics about your trading area.
How far will your average
customer travel to buy from your shop? Where do you intend to distribute or
promote your product? This is your trading area.
Estimating the number of
individuals or households can be done with little difficulty using statistics
census data. Statistics family expenditure survey can identify what the average
household spends on goods and services. Information on planned construction is
available from a variety of sources. Directories the Yellow Pages can help
identify names of companies located in your trading area.
Neighborhood business
owners, the local Chamber of Commerce, the Government Agent and the community
newspaper are some sources that can give you insight into unique
characteristics of your area.
Step 3: List and profile
competitors selling in your trading area.
Get out on the street and
study your competitors. Visit their stores or the locations where their product
is offered. Analyze the location, customer volumes, traffic patterns, hours of
operation, busy periods, prices, quality of their goods and services, product
lines carried, promotional techniques, positioning, product catalogues and
other handouts. If feasible, talk to customers and sales staff.
Step 4: Use your
research to estimate your sales on a monthly basis for your first year.
The basis for your sales
forecast can be the average monthly sales of a similar-sized competitor's
operations who is operating in a similar market It is
recommended that you make adjustments for this year’s predicted trend for the
industry. Be sure to reduce your figures by a start-up year factor of about 50%
a month for the start-up months.
Consider how well your
competition satisfies the needs of potential customers in your trading area.
Determine how you fit in to this picture and what niche you plan to fill. Will
you offer a better location, convenience, a better price, later hours, better
quality, better service?
Consider population and
economic growth in your trading area.
Using your research, make
an educated guess at your market share. If possible, express this as the number
of customers you can hope to attract. You may want to keep it conservative and
reduce your figure by approximately 15%.
Prepare sales estimates
month by month. Be sure to assess how seasonal your business is and consider
your start up months.
Sales Forecasting for an Existing Business
Sales revenues from the
same month in the previous year make a good base for predicting sales for that
month in the succeeding year. For example, if the trend forecasters in the
economy and the industry predict a general growth of 4% for the next year, it
will be entirely acceptable for you to show each month’s projected sales at 4%
higher than your actual sales the previous year.
Credible forecasts can come
from those who have the actual customer contact. Get the salespersons most
closely associated with a particular product line, service, market or territory
to give their best estimates. Experience has proven the grass roots forecasts
can be surprisingly accurate.
Sales
Forecasting and the Business Plan
Summarize the data after it
has been reviewed and revised. The summary will form a part of your business
plan. The sales forecast for the first year should be monthly, while the
forecast for the next two years could be expressed as a quarterly figure. Get a
second opinion. Have the forecast checked by someone else familiar with your
line of business. Show them the factors you have considered and explain why you
think the figures are realistic.
Your skills at forecasting will improve with experience particularly if you treat it as a "live" forecast. Review your forecast monthly, insert your actuals, and revise the forecast if you see any significant discrepancy that cannot be explained in terms of a one-time only situation. In this manner, your forecasting technique will rapidly improve and your forecast will become increasingly accurate.
Ken Roys, CEO
BTF Management Consultants Inc
866-385-1900 Toll Free 713-983-7904 Fax
Ken.Roys@btfmanagement.com
www.btfmanagement.com