Proper sales forecasting can help you create better plans. Here's how to do it well.
Forecasting your incoming revenue is the foundation for a useful plan for the coming year. With a solid forecast, you can make plans for growth and reinvestment in your business.
While forecasting sales might seem like a difficult prospect because there are so many moving pieces and uncertainties, I'm here to help you demystify the process.
Here are some tips for using a straightforward approach to forecast next year's sales.
Start With a Great Spreadsheet or Software Program
I can't emphasize this enough. You must get very specific with your forecast if it is to have any validity. And that's where a great spreadsheet or software program that will help you build a detailed forecast, becomes essential.
Even though I'm a huge believer in using accounting software to manage my books, I prefer to use a spreadsheet to do forecasts. Or use a marketing plan software program.
Why? Because most accounting programs focus on your actual financials. In other words, they focus on the past. Forecasts, on the other hand, are what you plan to do in the future. You need a tool that helps with the future.
SCORE, the Service Corps of Retired Executives, has a very straightforward forecasting template that will help you with both your expenses and your sales forecasts. Just flip to the Sales Forecasting tab.
On that spreadsheet, break down your forecast by month, and by product line. Granularity and detail are essential to an accurate forecast.
Look Back at Past Years
Look back at the past year. That means you have to start with some decent records.
If you've been remiss in keeping your books this year, resolve to change that. It's hard to predict the future if you don't even have a good handle on what happened in the past. Outsource it to a bookkeeper or accountant if you just don't have the time.
Past numbers inform you of what you can realistically achieve each month.
If you have more than one year's numbers, look back at other years too. I find a three-year look to be good, but the past year is usually going to be the best predictor unless a one-time unusual situation occurred.
Consider Factors that Affected Sales
Simply looking at the past numbers might not tell the whole story. If you had a major launch or large marketing push, for example, make sure to note those things as you go through your past years' sales. Or if a PR nightmare occurred, it may have impacted sales negatively.
Then you can consider how those things might or might not impact your sales in the year ahead.
Don't Forget External Factors
Look at factors like the economy and changing customer expectations. If you've noticed a slowdown in sales in the past six months due to a weakening economy, or if your product mix is changing due to customer demand, factor that in. Look at your competition, too. Have you heard rumblings they are coming on strong with a special offer to beat your offering? Factor it in.
Dream Big, Act Small
I forget who first advised the "dream big, but act small" mantra, but it's one that applies very well to forecasting sales. What it means is, have big dreams about growth in the coming year. But break it down into small steps.
You have to execute in order to grow sales, and for that you need to take many small steps on the right path.
So put a lot of time into outlining the actual small steps you will do every day, week and month to achieve your sales. It starts with daily activities--generating leads each day, making sales calls, and closing sales. Those small actions lead to achieving big dreams!
Forecasting sales isn't an exact science. But by putting in the time to analyze your situation and think about it, you'll eventually find solutions and gain a clear picture. That's the true secret to success.
This article was originally posted on Inc.