A sales forecast is an essential tool in managing any business. It is an opportunity to identify and plan for any problems or opportunities that may arise in the coming year.
Some people believe that forecasting takes training, maths and advanced qualifications, whilst others have suggested that forecasting is mainly educated guessing or a process of trial and error. Either way, a sales forecast is a prediction based on past sales performance and expected market conditions.
There are a lot of desktop software and Web-based services built to generate sales forecasts, but here’s a simple example of how to calculate your sales forecast:
last year's annual sales + (last year's annual sales x rate of inflation) = next year's sales forecast
There are a number of factors that can potentially affect your sales forecast, such as economic downturns, employee turnover, changing trends and increased competition. It’s also easy to be over-optimistic when planning ahead. However, you could calculate several forecasts for different outlooks and compare them, for example: pessimistic, optimistic and realistic. This may make it easier to prepare for the best and worst case scenarios.
The important thing to remember when forecasting sales is to have a defined focus and set strategic objectives before you start. Try out different methods of measurement when you begin. Once you have a realistic and working forecasting solution in place, it will be easier going forward.
There’s no excuse for not planning or forecasting, especially in the current economic climate. Your sales forecast is a vital measurement of your company’s health and sets the standard for expenses, profits and growth. It’s important to plan ahead, as an accurate sales forecast can inform every other aspect of your business. The overall result could be a business that runs more efficiently, saves money, increases profit and improves customer service.
What are the main challenges you face when forecasting sales?
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