Mindmap: How to make a sales forecast
The essential step in planning your business' future.
Basics
Price: you need to know the price of everything
you're selling before starting on your forecast. You can't figure
out how much money you'll make without knowing how much people are
going to pay. Use our guides on pricing for
help.
Units: at the most basic level, a sales forecast is
the number of units sold multiplied by the price of each unit.
Depending on how your business works, a unit can mean an hour, a
three-month contract, a kilogram or one product, and you may well
have lots of different units with varying prices.
Cost: you also need to know the average cost to you
per unit to find your gross margin when all other calculations have
been done. You multiply the cost per unit by the total unit sales
to get your cost of sales, which is used in other financial
projections.
3-case scenario: predicting your best-case, middle,
and worst-case scenarios is the safest way to make a forecast. Make
sure your business will be able to cope if the worst-case happens!
Considering different eventualities also impresses investors and
banks.
2-5 years: how far ahead your sales forecast should
go. Show the first year month-by-month, then subsequent years by
yearly or six-month periods. A three-year forecast is normally fine
for a business plan.
Making the prediction
Break it down: don't just guess you'll sell 1,000
products per month. Think about how many people will come into your
shop at a given time of day (or how many calls you can make), how
many of those will make a purchase, how many will buy more than one
product, what days of the week will be busiest, and so on - then
add or multiply these factors accordingly. Use the section below on
assumptions to help you.
Historical data: use sales history either from your
business, from any trial runs you've done, from similar businesses
if you can cajole them into sharing or by looking at market reports
on companies or products like yours to help you project future
sales.
Realistic: it's impossible to make a perfect forecast
(unless of course you have genuine psychic abilities, in which case
we suggest you focus your efforts on the National Lottery). So try
to be as realistic as possible instead. Pie-in-the-sky figures are
a massive turn-off for investors and risk the downfall of your
business.
Assumptions
Variables: there will be loads of factors that affect
your sales, and you need to account for as many as you can think
of. Here's a mere handful to get you going: potential threats to
your sales; predicted market changes; seasonal peaks and troughs;
micro-trends; expected changes in the size of your target
demographic and their habits; future marketing and advertising
activity; competitors' sales and marketing activity; likelihood of
repeat sales; hourly and daily footfall; planned business growth
which will increase your sales capacity; your ability to
distribute; word-of-mouth once you have an established customer
base. You need to adjust your forecast whenever one of these
factors changes.
Market research: sadly, it's not nearly as easy as
just recognising all the variables that shape your forecast. The
next step is to do plenty of market research to get as accurate a
grasp as possible for how and when they will affect your sales, to
refine your predictions.
Account & explain: you need to justify all the
assumptions you make when making your forecast (another reason why
the market research comes in handy). Write them out. Making
carefully considered assumptions impresses investors and banks and
gives you the best shot at getting your business ready for the
future.
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