SALES FORECASTING
Sales forecasting is the process of organizing and analyzing
information in a way that makes it possible to estimate what your
sales will be. This document outlines some simple methods of
forecasting sales using easy to find data. Books containing simple
and sophisticated techniques of forecasting sales can be found in
libraries and business oriented book stores.
If you sell more than one type of product or service, prepare a
separate sales forecast for each service or product group.
There are many sources of information
to assist with your sales forecast. Some key sources are:
Competitors
Neighboring Businesses
Trade suppliers
Downtown business associations
Trade associations
Trade publications
Trade directories
Government Statistics
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Factors that can affect Sales.
External:
Seasons
Holidays
Special Events
Competition, direct
Competition, indirect
External labour events
Productivity changes
Family formations
Births and deaths
Fashions or styles
Population changes
Consumer earnings
Political events
Weather
Internal:
Product changes, style, quality
Service changes, type, quality
Shortages, production capability
Promotional effort changes
Sales Motivation plans
Price changes
Shortages, inventory
Shortages/working capital
Distribution methods used
Credit policy changes
Labor Problems
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Sales Forecasting for a New Business
These steps for developing a sales forecast can be applied to
most kinds of businesses:
Step 1
Develop a customer profile and determine the trends in your
industry.
Make some basic assumptions about the customers in your target
market. Experienced business people will tell you that a good rule
of thumb is that 20% of your customers account for 80% of your
sales. If you can identify this 20% you can begin to develop a
profile of your principal markets.
Sample customer profiles:
- male, ages 20-34, professional, middle income, fitness
conscious.
- Young families, parents 25 to 39, middle income, home owners
- Small to medium sized magazine and book publishers with sales
from $500,000 to $2,000,000
Determine trends by talking to trade suppliers about what is
selling well and what is not. Check out recent copies of your
industry's trade magazines. Search the Business Periodicals Index
(found in larger libraries) for articles related to your type of
business.
Step 2
Establish the approximate size and location of your planned
trading area.
Use available statistics to determine the general
characteristics of this area.
Use local sources to determine unique characteristics about your
trading area.
How far will your average customer travel to buy from your shop?
Where do you intend to distribute or promote your product? This is
your trading area.
Estimating the number of individuals or households can be done
with little difficulty using Statistics census data. Survey of
Family Expenditures can identify what the average household spends
on goods and services.
Neighborhood business owners, the local Chamber of Commerce, the
Government Agent and the community newspaper are some sources that
can give you insight into unique characteristics of your area.
Step 3
List and profile competitors selling in your trading area.
Get out on the street and study your competitors. Visit their
stores or the locations where their product is offered. Analyze the
location, customer volumes, traffic patterns, hours of operation,
busy periods, prices, quality of their goods and services, product
lines carried, promotional techniques, positioning, product
catalogues and other handouts. If feasible, talk to customers and
sales staff.
Step 4
Use your research to estimate your sales on a monthly basis for
your first year.
The basis for your sales forecast can be the average monthly
sales of a similar-sized competitor's operations who is operating in
a similar market. It is recommended that you make adjustments for
this yearıs predicted trend for the industry. Be sure to reduce your
figures by a start-up year factor of about 50% a month for the
start-up months.
Consider how well your competition satisfies the needs of
potential customers in your trading area. Determine how you fit in
to this picture and what niche you plan to fill. Will you offer a
better location, convenience, a better price, later hours, better
quality, better service?
Consider population and economic growth in your trading area.
Using your research, make an educated guess at your market share.
If possible, express this as the number of customers you can hope to
attract. You may want to keep it conservative and reduce your figure
by approximately 15%.
Prepare sales estimates month by month. Be sure to assess how
seasonal your business is and consider your start up months.
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Sales Forecasting for an Existing Business
Sales revenues from the same month in the previous year make a
good base for predicting sales for that month in the succeeding
year. For example, if the trend forecasters in the economy and the
industry predict a general growth of 4% for the next year, it will
be entirely acceptable for you to show each monthıs projected sales
at 4% higher than your actual sales the previous year.
Credible forecasts can come from those who have the actual
customer contact. Get the salespersons most closely associated with
a particular product line, service, market or territory to give
their best estimates. Experience has proven the grass roots
forecasts can be surprisingly accurate.
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Sales Forecasting and the Business Plan
Summarize the data after it has been reviewed and revised. The
summary will form a part of your business plan. The sales forecast
for the first year should be monthly, while the forecast for the
next two years could be expressed as a quarterly figure. Get a
second opinion. Have the forecast checked by someone else familiar
with your line of business. Show them the factors you have
considered and explain why you think the figures are realistic.
Your skills at forecasting will improve with experience
particularly if you treat it as a "live" forecast. Review your
forecast monthly, insert your actuals, and revise the forecast if
you see any significant discrepancy that cannot be explained in
terms of a one-time only situation. In this manner, your forecasting
technique will rapidly improve and your forecast will become
increasingly accurate.
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Understanding and Developing Your Sales Force
Measuring Sales Force Performance
Selling Products on Consignment
Developing New Accounts
Small Bizz Workshop
Marketing Basics
Marketing Primer
Researching Your Market
Sales Forecasting
Business Promotion Idea List
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