A perennial problem for all SME’s is the annual – and sometimes more frequent – problem of preparing a sales forecast.

In this article we will show you different methods that you can use.

Sales forecasting is the process of estimating future income by predicting the amount of product or services your company will sell. That forecast can be done by unit e.g. business category, by sales representative or just in total.

In its simplest form, forecasting is a projected measure of how a market will respond to a company’s marketing efforts.

Why is it so important to make a sales forecast?

Forecasts are always referring to the future and every business must look forward.

Generally speaking, companies gain confidence in their sales when their managers are able to trust forecasts, and for publicly traded companies, accurate forecasts give credibility to the market.

Every sales prediction adds value to every part of the organization. Finance, for example, relies on predictions to develop budgets for capacity and hiring plans. Production uses sales forecasting to plan its cycles and assists business operations with planning and sourcing.

Supply chain dealing with the purchase of materials and production capacity can be negotiated with the confidence of an accurate sales strategy underpinning it.

These are just some of the examples. Unfortunately, in many companies, these processes remain disconnected, which can lead to ineffective business results.

If information from a sales forecast is not shared, what can happen is that marketing a product can create demand plans that do not meet sales quotas or their achievement levels. This leaves the company with either too much or too little inventory.

That represents a cost whichever way you look at it.

One golden rule is that you should put time and effort into making a quality forecast. This will help you avoid costly mistakes.

What are the main components of a Sales Forecast?

1. Vision

Vision refers to the analysis and the strategic perspective that must be applied when analyzing the following types of data and thus obtain useful information to optimize sales processes.

2. Historical Data

Historical data will give you the understanding of your past results and will help you make better decisions about the performance of your company.

3. Current Data 4. Future Estimates

Current data provide information about the current status of a product or service within your company.

4. Future Estimates

It is not automatic that the future will repeat the past but with a good grasp of your business dynamics, reliability of your past results and confidence in your staff and products you can make a significant contribution to your companies’ future prosperity by addressing these challenges and preparing your Forecasts with confidence.

In our next article we will showcase some of the best sales forecasting methods, explaining the most appropriate to be used and to help you choose the one that best suits your business.

Stay tuned!