Properly
forecasting sales helps you plan and prepare for the months and years ahead,
allowing you to control costs and focus on successful growth strategies. A good
sales forecasting methodology also helps your business run more efficiently.
The most practical method for forecasting sales is to base your projections on
historical sales results and your past experience. The right sales forecast
method for your business is the one that is closest to your actual sales
results within a reasonable margin of error.
Step 1
Gather your company's past income
statements. Go back several years. Sales data from your income statements over
the last five to 10 years has more predictive power than just using last year's
sales to forecast this year's sales.
Step 2
Calculate the sales growth rate from
year to year. Divide the current sales by the prior year's sales. For example,
if your sales this year were $487,000 and last year's sales were $412,000, the
sales growth rate is 18 percent ($487,000 divided by $412,000). Repeat the
process for all other years in the series of sales data. You should have five
year's worth of sales growth rates if you go back five years.
Step 3
Compare the sales growth rates year
to year. Plot the sales growth rates using a spreadsheet for visual
representation. Ideally, your sales growth rate should increase over time.
Step 4
Analyze various factors that impact
sales to gain a better understanding of why sales grew or slowed from year to
year. Determine the cause and effect relationship of variables, such as
customer demand, worker productivity, advertising and promotion. For example,
hiring an additional salesperson has an impact on sales. Demographic trends,
such as an influx of consumers with high household income, can also have an
affect on sales. Greater advertising and promotion affects sales, as well.
Step 5
Identify external factors that
affect sales. External factors include the general economic environment or
macroeconomic trends, such as unemployment, interest rates, consumer sentiment
and inflation. Other macroeconomic trends include the level of competition. A
greater number of competitors can potentially depress your company's sales,
which you must forecast into your sales projections.
Step 6
Make adjustments to account for
seasonality of sales. Look at extenuating circumstances specific to your
business. If you run an ice cream parlor, summer sales usually outweigh winter
sales. If you run an office supply store, increase your sales projections to
account for "back to school" promotion. Tweak your sales growth
projections around your personal experience in running your business.
Step 7
Apply a growth rate for sales based
on your sales model. Compare your sales forecast with actual sales results. If
your projections were off, go back and look at your various assumptions. Your
goal is to forecast sales within a reasonable margin of error. Analyze sales on
a regular basis and make adjustments accordingly. You project an annual sales
growth rate, but review your projections on a monthly basis to adjust your
numbers and get a more accurate determination of sales for upcoming months.
