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