Painting Better Sales Forecasts
Some people may regard sales forecasting as futile because it is so difficult to make predictions about the future. It may be tempting to regard it as a work of art and this is true in large measure. However, the notion of futility arises out of the problem of accuracy and, indeed, if forecasts have a large degree of inaccuracy, it is probably right to regard it as a meaningless process. It is also true that the process can be messy and it has to be accepted that inaccuracy is an essential part of the process itself.
Why you Should Bother
You have to make some effort to determine what the future holds for your business because you need to estimate what resources you are going to need and compare it with what’s available. Forecasting future demand is essential because it directly effects incoming cash flow, staffing requirements, the ability to meet your financial obligations as well as a multitude of other items critical in running a business. Clearly, it would be preferable to make some attempt at forecasting however imperfect rather than just throw up your hands and not make any attempt at all.
The Art of Sales Forecasting
Creating accurate sales forecasts requires considering multiple factors including your overall corporate strategy, changes in the market and past performance. Following the principles below can help you with the art of sales forecasting.
Incorporate Sales & Corporate Strategy
It is important to start with a sound sales strategy which will help you identify the steps that you need to take in order to grow revenue and profit. These will almost certainly include identifying the needs of your customers and determining what you need to do to differentiate yourself from your competition. A SWOT analysis is often an excellent method of helping you to determine exactly where you stand. If your corporation overall has a goal of focusing on new products or segments, this should also be incorporated into your sales forecasts. Growing business in existing markets is usually easier and less risky than branching out into new ones.
Incorporate Sales History
Sales history should not be the sole factor to base your forecasts on but it is nevertheless a valuable element in your analysis. You can learn important lessons from your sales history and determine the most effective methods for setting up your sales efforts for future success. Incorporating sales history can either be done via a bottom up method (forecasting sales on an account by account basis) or via a top down method (using sales averages by customer type, region and then applying this to future growth plans).
Revise Over Time
Every effective sales forecast must be flexible enough to be readily updated as and when circumstances change. Because all businesses operate in a dynamic environment, your sales forecast must be adapted to suit inputs such as changing market conditions and other key inputs that drive your business growth.
There is no one size fits all solution when it comes to creating sales forecasts. You will need to do the appropriate research about internal strategies and external changes happening in your market. You will then need to incorporate the necessary inputs and use appropriate techniques in creating your forecasts. And remember forecasting is usually an art as well as a science so don't be hesitant in updating when necessary.