A sales forecast is a
projection of the performance of sales for the organization for a defined
period. This is usually a year, broken down into months and quarters. The one
thing you can be certain of with a sales forecast is that it will be wrong. But
a business must have planning built into it, and a professionally organized
sales forecast will be less wrong than a wild guess! Sales forecasting is
important for any company’s planning purposes, it is key to budgeting, staff
and resource planning, and management of all aspects of the business. Forecasts
should be reviewed and revised regularly, in the light of actual sales figures,
competitor activity and other market factors.
Forecasting is about
assumptions and statistics. There are sophisticated forecasting models
available, and consultants who will produce forecasts for you, but the people
best placed to estimate sales are the sales management team. They know the
business, competitors and markets, (ideally!), and if they produce the
forecasts, they own and manage them. Forecasting in great detail is tricky, it
is probably best to look at the overall figures rather than product by product,
but this will depend on the individual company and your business needs.
Points to consider
It is good to have
your forecasting and accounting integrated, so that actual sales can be taken
from the accounts department figures. And the forecasts can feed into the
company forecast. Consider a rolling 12 month forecast, with individual months
(or even weeks) having their own forecast figure. It is usually best to
forecast units multiplied by selling price, to show a forecast cash figure.
This way you can track changes in selling price in the actual figures. You can
also forecast and track direct costs, allowing you to forecast margin too.
What do you base your
forecast on?
If you are an
existing business, you can take past data (look at a couple of recent years to
smooth out anomalies) and project forward , making assumptions based on your
knowledge of the market ,your sales team , competition, new market entrants. If
you are a new business, this is much more difficult, but will be required as
part of a business plan. You have to consider your sales drivers and make some
assumptions, use your judgement. Your sales drivers are the factors that
influence the likelihood of a sale. For a hotel, the predicted number of
guests; for a store, it will be predicted visitors.
Sales Funnel or Sales
Pipeline
A sale is only a sale
when it is closed, but one way of forecasting is track the potential business
in the “sales funnel “ or pipeline . That is to say, is at various stages in
the pre-sales process, various stages in the opportunity process.
The stages
might be;-
- Quote requested and sent
- Sample sent or trial begun
- Price in negotiation
- Business closed
The sales person
allocates a probability of sales closure to each opportunity, and the forecast
sales are multiplied by that percentage. Each opportunity is itemized and moves
through the funnel, with the probability of closure often increasing as it
does, this will vary by opportunity obviously. Equally if there are many
companies negotiating for a product the probability at that stage might be
lower than suggested in the table below.
For more on how to
come up with a sales funnel/pipeline contact us.
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