Mindmap: How to make a sales forecast

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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