Writing a Sales Forecast

Sales forecasting is important for any company’s planning purposes, it is key to budgeting, staff and resource planning, and management of all aspects of the business. Forecasts should be reviewed and revised regularly, in the light of actual sales figures, competitor activity and other market factors.

sales-funnelA sales forecast is a projection of the performance of sales for the organization for a defined period. This is usually a year, broken down into months and quarters.

The one thing you can be certain of with a sales forecast is that it will be wrong. But a business must have planning built into it, and a professionally organised sales forecast will be less wrong than a wild guess!

Forecasting is about assumptions and statistics. There are sophisticated forecasting models available, and consultants who will produce forecasts for you, but the people best placed to estimate sales are the sales management team. They know the business, competitors and markets, (ideally!), and if they produce the forecasts, they own and manage them. Forecasting in great detail is tricky, it is probably best to look at the overall figures rather than product by product, but this will depend on the individual company and your business needs.

Points to consider

It is good to have your forecasting and accounting integrated, so that actual sales can be taken from the accounts department figures. And the forecasts can feed into the company forecast.

Consider a rolling 12 month forecast, with individual months (or even weeks) having their own forecast figure.

It is usually best to forecast units multiplied by selling price, to show a forecast cash figure. This way you can track changes in selling price in the actual figures

You can also forecast and track direct costs, allowing you to forecast margin too

What do you base your forecast on?

If you are an existing business, you can take past data (look at a couple of recent years to smooth out anomalies) and project forward , making assumptions based on your knowledge of the market ,your sales team , competition, new market entrants.

If you are a new business, this is much more difficult, but will be required as part of a business plan. You have to consider your sales drivers and make some assumptions, use your judgement. Your sales drivers are the factors that influence the likelihood of a sale. For a hotel, the predicted number of guests; for a store, it will be predicted visitors.

Sales Funnel or Sales Pipeline

A sale is only a sale when it is closed, but one way of forecasting is track the potential business in the “sales funnel “ or pipeline . That is to say, is at various stages in the pre-sales process, various stages in the opportunity process.

The stages might be;-

  • Quote requested and sent
  • Sample sent or trial begun
  • Price in negotiation
  • Business closed

The sales person allocates a probability of sales closure to each opportunity, and the forecast sales are multiplied by that percentage

Each opportunity is itemised and moves through the funnel, with the probability of closure often increasing as it does, this will vary by opportunity obviously, as if this is repeat business the probability might be high even early on in the process. Equally if there are many companies negotiating for a product the probability at that stage might be lower than suggested in the table below.

With experience, it then becomes possible to estimate what percentage of the business in the “funnel “or process will complete

For example