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How to forecast sales?
- September 22, 2020
- Posted by: Shantam Khetan
- Category: Growth strategy
Your sales forecast is the backbone of your business plan. The sales measure your business growth, and forecast helps you set specific standards for expenses, profits, and development.
If you believe forecasting is a huge hurdle, so you need a professional, an accountant, or someone experienced, so you’re mistaken. Forecasting is something that every entrepreneur is capable of doing. It should be reasonable enough. Forecasting is considered as educated guessing. Don’t expect to get it perfect; what you need is just common sense, research of the factor, and motivation for an ideal guess. Your sales forecast should be shown monthly for 12 months in your business plan, as well as for 4-5 years. Three years is the most appropriate time considered for your business plan.
If you deal with multiple lines of sale, then make sure you show all the strings separately, but if your count for sales is more then ten, then summarize everything up, but it has to
Forecasting sales is straightforward to know more, just scroll below.
1. Develop a unit sales projection
Where you can start by forecasting unit sales per month. Not all businesses sell by units, but most do, and it’s easier to predict by breaking things down into their parts. Product-oriented businesses sell in units, but so do a lot of service businesses. For example, accountants and attorneys sell hours, taxis sell rides, and restaurants sell meals.
2. Use past data if you have it.
Whenever you have past sales data, your best forecasting aid is the most recent past. Some statistical analysis techniques take past data and project it forward into the future. You can get just about the same results by launching your two most recent years of sales by month on a line chart and then visually tracking it forward along the same line. Statistical tools are an excellent addition, but they’re rarely as valuable in a business plan as human common sense, mainly if it is to be guided by analysis.
3. Use factors for a new product.
Having a new product is no excuse for not having a sales forecast. Of course, you don’t know what will happen, but that’s no excuse for not drafting a sales projection. Nobody who plans a new product knows the future–you make educated guesses. So break it down by finding important decision factors or components of sales. If you have a completely new product with no history, find an existing product to use as a guide.
For example, if you have the next great computer game, base your forecast on a similar computer game’s sales. If you have a new auto accessory, look at sales of other auto accessories.
4. Be sure to project prices.
The next step is the prices. You’ve projected unit sales monthly for 12 months and then annually, so you must also project your prices. Think of this as a simple spreadsheet that adds the units of different sales items in one section, then sets the estimated prices in a second section. A third section then multiplies divisions times cost to calculate sales. The math is simple–the hard part is estimating guess of all units.
The math for sales forecast
- To calculate sales, multiply unit times prices. For example, unit sales of 36 cars in January multiplied by rs $500 average revenue per car means an estimated $18000 sales of car for a month
- Total unit sales are the sum of the projected unit for each of the five categories of sales.
- Total sales are the sum of projected sales for every five categories of sales. Calculate Year 1 totals from the 12-month columns.
- Units and sales are sums of the 12 columns, and the price is the average and this has to divide to calculates sales.
- The numbers for Year 2 and Year 3 are just single columns; unless you have a particular case, projecting monthly results for two and three years hence is overkill. It’s a problem of diminishing returns; you don’t get enough value to justify the time it takes. Other experts will disagree, by the way, and there may be exceptional cases in which extended monthly projections are worth the effort.
Method of sales forecasting
Qualitative sales forecasting method
The technique of forecasting is also qualitative. An expert panel is selected, and participants independently answer these. All responses are summarized then the q Once the question is planned. The company feels that the topic agreement is complete; the cycle starts again.
As per the expert group’s ideas and responses, the budget for sales and production is made. A method called Brainstorming is another qualitative method used. This is a technique involving a group used for promoting creative thinking and generating useful, new ideas. This is most effective with groups of about a dozen or less and works best when the group is varied. Thus, in a company, a session of Brainstorming should include participants from various backgrounds and departments.
Quantitative sales forecasting method
Considering a company’s past sales is one of the best methods for forecasting future sales. Since the business environment does not suddenly change, last quarter’s figures might help managers know the kinds of sales they can expect in the coming months. This is known as a quantitative approach to forecasting sales.
Usually, the components above reflect direction and analysis. Directly asking people what their future buying intentions and other market research data are other quantitative methods. Many large research firms in the market gather information such as this continually. They could ask consumers, like do you intend to purchase a tablet in the six to twelve months? Firms also sometimes research salary range and expectations that the consumer has to be worse or better off in the future.
All these things give you a clear picture of any doubts or queries; feel free to pin us..