Sales Forecasting is much easier than you think, and more useful than you imagine. It’s not about guessing but about assumptions, expectations, tracking and management. You also need to review and revise your forecast regularly because they relate to costs and expenses. The sales forecast will help you to do budgets and manage them.
Step 1: Plan your income streams
Plan how many income/revenue streams your business have. Look for the right level of detail. Always try to set your income streams to match your accounting, so that you can look at the difference between the forecast and actual sales later.
Step 2: Forecast row by row
Among the main methods are:
* Unit Sales – Sales= units x price. You set an average price and forecast the number of units.
* Service Units – Although services don’t sell physical units, most sell billable units, such as billable hours for doctors, lawyers and accountants, or engagements for consultants.
* Recurring Charges – Subscriptions –For each month it has to forecast new signups, existing charges and cancellations.
* Revenue Only – For those who prefer to forecast revenue by the streams (item) do it without the extra information of breaking it into units and prices.
What numbers to put into your forecast?
Predicting he future humans don’t do well. Therefore, don’t try to guess the future accurately for months in advance. Instead, aim for making clear assumptions and understanding what drives sales, such as web traffic and conversions or direct sales pipeline and leads. Review results every month, and revise your forecast. Your educated guesses become more accurate over time.
Using past results
Use results from the recent past if your business has them. Start your forecast by putting last year’s numbers into next year’s forecast, and then focus on what might be different this year from next year. Think about opportunities that will make sales grow, new marketing activities, promotions etc. Then increase the forecast. To forecast sales for new mobile app, you might get data from the Apple and Android mobile app stores about average downloads for different apps.
Estimate direct costs – C.O.G.S – cost of goods sold.
Direct Costs are important because they help calculate gross profits, which is used as a basis for comparison in financial benchmarks, and are an instant measure (sales less direct costs) for your underlying profitability. Not all businesses have direct costs. Service businesses supposedly don’t have direct costs, so they have a gross margin of 100%. This is true for some professionals but some services do have direct costs like taxis have gasoline and maintenance.
Live with your assumptions
Sales Forecasting is not about accurately guessing the future. It’s about laying out your assumptions so that you can manage changes effectively as sales and direct costs come out different from what you expected. Use this to adjust your sales forecast and improve your business by making course corrections.
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