Forecasting and Planning Sales

Accurately forecasting your sales and developing a sales plan can help you avoid unexpected cash flow problems and manage your production, staffing and financing needs more effectively.

Sales forecasting is an essential tool for managing a business of any size. This is a month-by-month forecast of the level of sales you hope to achieve. Most businesses write a sales forecast once a year.

Armed with this information, you can quickly identify problems and opportunities, and react.

While it’s always wise to expect the unexpected, a well-crafted sales plan, coupled with an accurate sales forecast, allows you to spend more time growing your business rather than responding day-to-day sales and marketing developments.

Sales forecasts allow you to run your business more efficiently. Before you begin, here are some questions that may help clarify your situation:

  1. How many new customers do you gain each year?
  2. How many customers do you lose each year?
  3. What is the average level of your sales for each customer?
  4. Are there particular months in which you acquire or lose more customers than usual?
  5. Existing businesses

The starting point for your sales forecast is the sales figure for the previous year.

Before considering a new product launch or an economic trend, consider the level of sales for each customer over the past year.

Do you know customers who will buy more, or less, from you next year?

For customers who represent a large amount of sales, you might ask them if they plan to change their level of purchases in the near future.

What if i’m a new company?

New businesses should make assumptions based on market research and common sense.

Each business can also add the new customers it hopes to attract without really knowing who they are, or what they will buy. Simply put “new customer” in your forecast.

Depending on your type of business, you can include sales volume in your forecast, for example, how many 3.78 liter containers of paint you sell, as well as the sales value. By knowing the volume, you can plan the resources needed in areas such as production, warehousing and transportation.

Every year is different, so you should note any changes in circumstances that could significantly affect your sales. These factors, known as sales forecast assumptions , form the basis of your forecast.

Where possible, assign a number to the change as shown in the examples below. This way you can get an idea of the impact this will have on your business. Also, state the reasoning behind each number so other people can tell if they find it realistic.

Here are some typical examples of assumptions:

The market

The market in which you are selling will grow by 2 percent.
Your market share will decrease by 2 percent due to a competitor’s success.

Your resources

You will double your sales force from three people to six people by the middle of the year.
You’ll spend 50 percent less on advertising, reducing the number of inquiries from potential customers.

Overcoming sales barriers

You’re moving to a better location, which will result in a 30 percent increase in customers buying next year.
You increase prices by 10 percent, which will reduce the volume of products sold by 5 percent, but result in an overall increase in revenue of 4.5 percent.

Your products

You are launching a new product line. Sales will be low this year and costs will outweigh profits, but over the next few years you will reap the benefits.
You have newly established products that have the potential to quickly increase sales.
You have established products that enjoy steady sales, but have low growth potential.
You have products facing declining sales, perhaps due to a superior product from a competitor.
For new businesses , assumptions should be based on market research and common sense.

Developing your sales forecast

Start by writing out your sales assumptions. See the page in this guide on your sales assumptions.

You can then develop your sales forecast. It becomes easy when you have found a way to break down the forecast into individual components.

Can you break down your sales by product, market or geographic region?
Are individual customers important enough to your business to justify their individual sales forecasts?
Can you estimate the conversion rate (the percentage chance the sale will occur) for each item in your sales forecast?
For example, you might predict that a customer will buy $1,000 worth of products. If you estimate that there is a 70 percent chance of this happening, the predicted sales for this customer is $700, ie. 70 percent of $1,000.

Selling more of your product to an existing customer is much easier than making a first sale to a new customer. Thus, conversion rates for existing customers are much higher than those for new customers.

You could include information about the product each customer is likely to buy. This way you can detect any problems. One product might sell while supplies last, while sales of another might not take off.

By predicting actual sales, you forecast what you think will sell. This is usually much more accurate than making a forecast from a target number and then working out how to get there.

Once completed, the sales forecast is not just used to plan and monitor your sales efforts. It is also a vital part of cash flow.

A wide range of sales forecasting software is available which can make the whole process much simpler and more accurate. These software generate forecasts based on historical data. If you’re considering buying software, get advice from an IT expert, your trade association, business advisors, and companies of a similar size and in similar markets.

Avoiding Forecasting Pitfalls

The four most common forecasting pitfalls are:

1) Taking wishes for reality

It really is too easy to be too optimistic. It’s best to refer back to the previous year’s forecast to see if your numbers were realistic.

New businesses should avoid the mistake of studying the level of sales they need in order for the business to be viable, and then listing that number as the forecast.

You must also assess whether it is physically possible to achieve the levels of sales you expect. For instance :

  • a taxi can only make a certain number of trips to the airport each day
  • a machine can only produce a given number of components for each shift
  • a sales team can only visit a certain number of customers each week
  • Ignore your own assumptions

Make sure your assumptions relate to the detailed sales forecast, otherwise you may end up with completely contradictory information. For example, if you assume a market decline and a decline in market share, then it is illogical to predict an increase in sales. For more information, see the sales assumptions page in this guide.

2) Moving the goalposts

Make sure the forecast is finalized and accepted within a set time frame. If you spend a lot of time refining the forecast, it could prevent you from focusing on your targets. Avoid making excessive adjustments to the forecast, even if you find it to be too optimistic or too pessimistic.

3) Lack of consultation

Your salespeople probably have the best knowledge of what your customers intend to buy, so:

  • ask them their opinion
  • give them time to ask their customers about it
  • obtain agreement from the sales team on the targets that will be set

4) Lack of feedback

Once you’ve developed your sales forecast, you’ll need someone to discuss it with. Choose an experienced person, your accountant or a senior salesperson, to review the entire document.

Creating a sales plan

The questions you need to answer in your sales plan are:

  • What are you going to focus on?
  • What are you going to change?
  • In practical terms, which steps are involved?
  • What territories and targets will you assign to each salesperson or team?

The sales plan will start with some strategic objectives. Here are some examples :

  • penetrate the municipal market by adapting your product to this market
  • open a store in an area that you believe has the potential to generate a lot of sales
  • increase average sales per customer

You can then explain the steps that will allow you to achieve these objectives. Use goals that are SMART : strategic, measurable, achievable, realistic, time-bound.

Using the example of entering the municipal market, the steps could be:

  1. hire a salesperson with experience in the municipal market with a salary of $48,000.00 by the beginning of February
  2. complete vendor training by mid-April
  3. ensure that any changes the product development team has agreed to make are ready to pilot by early April
  4. In addition to planning new products and new markets, explain how you will improve sales and profit margins for your existing products and markets.

It is often useful to identify how you will break down sales barriers:

Can you increase sales team activity levels; more phone calls per day, or more customer visits per week?
Can you increase call-to-sales conversion rate through better sales training, better sales support materials, or improved sales incentives?

Eleanore Frinqois

Eleanore Frinqois, Lead Editor at is a business leader with over 30 years in both start-up and enterprise level organisations. Previously Operations Directer at a £1.8BN media group, alongside setting-up and later selling 3 digital brands - Eleanore has expertise across all aspects of business growth.

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