Five simple ways you can work out your sales forecast

Have you even a rough idea of how many sales your business might make over the coming year? If not, here are five simple ways you can work out your sales forecast.

Imagine that your business experiences a 10% rise in customer orders in the upcoming three months. If you haven’t had the chance to prepare, it might be challenging to meet demand and manage the increase in work flow.

That’s why it’s so important to have a sales forecast in place – it resolves this problem by giving you enough time to make the necessary adjustments.

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However, too many small businesses don’t have a sales forecast, and are missing out on this versatile and informative tool. And the main reason why is because they assume it’s too complex to attempt.

Five simple ways you can work out your sales forecast

Working out your sales forecast doesn’t have to be daunting. To help you approach this task and gain a more thorough understanding of your business, here are five small steps that make it easier.

1) Look for past trends

The first step of the sales forecasting journey starts with looking to the past. Dive into your accounting records and aim to work with precise numbers that go as far back as possible.

The data you need mostly depends on the type of business you run. In reality, forecasting isn’t exclusive to sales – it can also be applied to other metrics you might want to measure, such as email signups or visitors to your website. It’s all an exercise of finding repetitive patterns and understanding the reasons behind them.

The goal is to improve your knowledge of the way your sales changed across the year(s). By finding persistent trends in the past, you can also consider how these may transfer to the future.

From the previous example, if sales have steadily been growing, then the trend could continue and it might be time to look into the need for extra staff or inventory.

2) Discover seasonal changes

An additional benefit to analysing your past performance is discovering any seasonal changes that have had an impact on your business. Look for spikes and drops, particularly if they repeat over the years.

These may be caused by seasonal factors which you should incorporate in your future plans. Knowing when and why they happen allows you to strategically adjust and either take advantage of a surge in customer interest, or prepare for a lower period of sales.

A few helpful questions you might want to consider at this stage are:

  • How were my sales numbers changing – were they growing, decreasing, fluctuating or staying the same?
  • Are there any particular periods of time that show higher or lower numbers than the rest?
  • Do these changes repeat across the months and years, and what might be causing them?

3) Consider your future prospects

Once you’ve examined your sales’ past performance, you’ve done half of the equation. The next step is to look forward and identify any promising leads. Are there any orders or deals currently being negotiated that you haven’t included in your analysis? Is there an opportunity that you have been working towards, which can give your business a boost?

While it would be unreasonable to rely too strongly on promises which aren’t set in stone, you shouldn’t entirely ignore them either. Keeping them in mind adds that extra layer of strategic edge for when you make major financial decisions.

4) Prepare for adjustments

Note that a sales forecast can’t give you an exact snapshot into the future. While data will rarely be 100% accurate, you can still turn this to your advantage. For example, if you notice that you’re considerably falling behind on your targets, this can act as a trigger for you to stop and assess the situation.

While investigating, you may discover that a competitor has launched an aggressive marketing campaign that is diverting customer attention. The signal from the forecast has given you the chance to evaluate and find a way to respond to their efforts before the opportunity has slipped away.

There are also external factors which could influence your sales, but be entirely out of your control. Some examples include major events, either public (i.e. elections) or industry specific. While you might not be able to isolate yourself from them, you could include them in your business strategy in a way that will allow you to adapt and shift circumstances to your advantage.

5) Evaluate and review

Use your sales forecast not as the ultimate prediction tool, but rather as a means to evaluate, compare and motivate. Take notes of any differences when the numbers don’t match with the projected targets.

Did you struggle to match them? Did you surpass them? Can you find the reason behind these changes? With both negative and positive outcomes, always ask yourself why it happened. Once you know the ‘why’, you can take measures to avoid it, or make it happen again.

Not sure what software to use for your sales forecast? Spotcap have put together a free Excel template to help you get started – have a look here.