All those sophisticated techniques depend on data from the past.
It is the basis for determining future growth, expenses, profits and staffing. The sales forecast is essentially an educated guess, based on your knowledge of the company, the market and any external factors, such as economic outlook, that may affect sales.
Most business plans include Projected sales sales projections for the coming year.
There is no single correct method among the several ways to determine sales projections. Time-Series Projections This type of sales projection, which bases future sales on past sales, works best for well-established businesses.
Past sales are broken down into four components: Taking all factors into account, management predicts whether sales will rise or fall based on the projected market conditions. Market-Based Forecast A market-based sales projection may be useful for new businesses, which do not have enough past data to rely on a time-series forecast.
In market-based forecasting, you conduct research to determine market demand, your customer base and the likelihood of customers purchasing from you in the coming year. This forecast may include estimating your market share and determining what customers in this market have done in the past; these data may be available from industry trade groups.
For example, if you are opening a dog grooming service, you can forecast sales and predict your possible share of the market by determining how many people in your area use dog grooming and what they spend annually on the service. Resource-Based Projections A resource-based sales projection determines future sales based on what you are able to produce or sell.
Many businesses, especially small and medium-sized companies, have a set maximum capacity.
Once that capacity is reached, these companies cannot increase sales without spending money to increase capacity. To create a market-based forecast, first determine your capacity. For example, if you are a mobile dog groomer, you can see only a certain number of clients each day.
If you are in manufacturing, your machinery may limit your capacity. Small businesses may also be affected by the amount of cash flow, being able to purchase only a limited amount of stock each month.
Once you have determined capacity, set your sales forecast at that capacity or at a level below it. Seasonal Projections Some types of business make a large part of their sales in certain seasons.
Businesses that sell products may rely on Christmas sales to generate a large part of yearly revenue; other businesses may rely on summer sales. When you make sales projection, take seasonal factors into account.
If you are a new business, collect information about seasonality in industry sales and factor this into your monthly projections.A restaurant owner wants to calculate her projected sales for the month of May.
Research uncovered that the average monthly revenue for previous years was $30, with an average of customers each day, or 3, customers per month. Sales never did hit those lofty goals they projected. But they were probably a good incentive tool to drive our international sales force.
And, finance never missed a budget by much. This statistic shows projected sales of electric vehicles throughout the world in It is expected that nearly five million electric vehicles will be sold to customers in China by China sold some , electric vehicles in Sales forecasting is especially difficult when you don't have any previous sales history to guide you, as is the case when you're working on preparing cash flow projections as part of writing a business plan.
Here, Terry Elliott provides a detailed explanation of how to do forecasting using three common sales forecasting methods.
Form for keeping track of projected and actual sales from multiple salespeople every week. The sales forecast is essentially an educated guess, based on your knowledge of the company, the market and any external factors, such as economic outlook, that may affect sales.
Most business plans include monthly sales projections for the coming year. There is no single correct method among the several ways to determine sales projections.