How to Create a Sales Forecast
A sales forecast is a projection of expected sales over a specific period of time. Includes a link for a free sales forecast template.
What is a Sales Forecast, and Why do you Need One?
A sales forecast estimates future sales revenue based on past performance and current market trends. Forecasting sales for a small business can be complex, as many factors can affect sales levels. However, a sales forecast is an essential tool for businesses of all sizes, as it can help to make informed marketing and sales strategies.
A sales forecast can also help to track sales performance over time, allowing businesses to identify trends and adjust their marketing strategies accordingly. Ultimately, a sales forecast is a valuable tool for any small business owner who wants to grow their business and stay ahead of the competition.
A sales forecast predicts the sales a small business expects. To help you with the process, we have created a free Excel sales forecast template to download.
Why is Sales Forecasting Important?
There are several reasons why sales forecasting is essential for small businesses. Firstly, as mentioned above, a sales forecast can help to inform marketing and sales strategies. Knowing how much revenue you will likely generate in the future, you can make more informed decisions about where to allocate your resources.
Secondly, a sales forecast can help you track your sales performance and identify trends. The business can use this information to change its sales budget.
Finally, forecasting can also help you to manage cash flow more effectively. Knowing how much sales revenue you will likely generate in the future, you can plan your expenditure more accurately and avoid financial difficulties.
How to Create a Sales Forecast
There are several different methods you can use to create a sales forecast. The most important thing is to choose a method that is right for your business and that you are comfortable using.
In this article, we look at sales forecasting software developed primarily to assist in running a sales team, creating an Excel spreadsheet and an Excel sales forecast template we have created for small businesses to download and use for free.
Sales Forecasting Software
One option is to use sales forecasting software. It can be more accurate in predicting future sales, as the software considers various factors, such as market trends and historical data. However, it is essential to choose a reputable product that is suitable for your business.
There are lots of options for a sales forecasting tool; we have looked at reviews from the Software Advice website and picked out some of the best for you, including:
Monday Sales CRM
Monday Sales CRM is a sales forecasting software designed to help small businesses predict sales levels. The software considers data that the sales team expects to provide a more accurate forecast. It is available as a cloud-based solution to be accessed from anywhere.
It is part of a complete sales platform, including tracking projects and client communication, all in one place; it integrates with their other tools, including Gmail, Outlook, calender and dropbox.
Monday Sales CRM has received positive user reviews, with an overall rating of 4.7 stars on the Software Advice website. Customers have praised the software for its accuracy and ease of use.
Pipedrive
Pipedrive is a web-based sales forecasting software to help small businesses predict sales levels. The software helps to plan the sales revenue activities as well as monitor deals.
Pipedrive is part of a complete stand-alone sales tool that includes revenue forecasting, an easy-to-use dashboard allowing you to see the entire sales process, reminders and reporting.
Pipedrive has received positive user reviews, with an overall rating of 4.7 stars with 2443 reviews on the Software Advice website. Customers have praised the software for its accuracy and ease of use.
Zoho CRM
The final product we are looking at is Zoho CRM. One of the reasons we like Zoho is that it offers over 50 different apps, including Zoho books accounting software. Zoho grows with your business as it develops.
Zoho CRM helps you to forecast future revenue using the deals in the sales pipeline and quotas achieved during the last financial year, and it identifies progress towards the goals of sales reps.
Zoho CRM has received positive user reviews, with an overall rating of 4.3 stars with 5777 reviews.
Excel Spreadsheet
Many small businesses choose to create a sales forecast using an Excel spreadsheet. This is a simple method that can be tailored to suit the needs of the business.
To create a sales forecast in Excel, you first need to gather historical sales data. This data can be collected from sales reports or invoices.
You can also use an Excel template for your sales forecast. The business can use an Excel template to track future sales predictions, budgeted sales, and actual sales. The advantage of using a template is that the spreadsheet is already set up, saving you time.
We have created a sales forecasting template to help you get started. It is free to download, and there is a link at the end of the article with full instructions.
8 Tips for Making Accurate Sales Forecasts
1. Make sure you have a good understanding of your market and your customer base.
It’s crucial to have a strong understanding of your market and customer base before making predictions for sales forecasts. Who are your customers? What do they need? Understanding your customer base enables you to make informed decisions about what to include in your forecast.
First, take some time to research your industry and understand the trends that are affecting sales.
Then, use surveys and customer data to get a clear picture of your target customers and what motivates them to purchase. With this information in hand, you’ll be able to create a sales forecast based on reliable data that gives you a realistic picture of what to expect in the coming months.
2. Use historical sales data to help you create your sales forecast.
One of the most useful is to examine past sales data. This data can give you insights into seasonal trends, customer buying habits, and more. You can also use this data to identify gaps in your product offering.
Historical data is one of the most accurate ways of creating a forecast, especially if you have several years. However, even with historical data, you will still have to make sales forecast assumptions.
3. Look at trends in your industry and how they might impact your business.
Sales forecasts are often more accurate if you look at the trends within the industry that you are in. These trends can be helpful in two ways: first, they can give you an idea of where the industry is going and how that might impact your business. Second, they can help you identify any new opportunities you might be able to take advantage of.
When looking at industry trends, it’s important to remember that not all trends will directly impact your business. However, by understanding the trends, you can make informed decisions about how to adjust your sales strategy.
4. Use market analysis tools to help you understand what other businesses are doing in your space.
There are several different market analysis tools that you can use to help you understand your industry and the trends that are affecting it. This information can be helpful in a number of ways, including:
– Identifying new opportunities that you might be able to take advantage of
– Benchmarking your performance against other businesses in your space
– Understanding how changes in the market might impact your business
5. Factor in seasonal variations when creating your forecast.
If your business is affected by seasonal variations, you will need to consider this when creating your sales forecasts. For example, if you sell popular products during the holiday season, you will need to factor in the increased demand during this time.
You can use historical data to identify patterns in seasonal sales. You can then use this information to adjust your forecast accordingly.
6. Monitor any changes that could impact your sales numbers, such as legislation or economic conditions.
Several external factors can impact your sales, such as changes in legislation or economic conditions. It’s essential to keep track of these changes and factor them into your forecast. One big impact you may have to consider for estimating future sales is how much money consumers have. When writing this, the cost of living is increasing, leaving many families with very little money to spend on luxury items.
By keeping an eye on these changes, you can ensure that your forecast is accurate and that you are prepared for any potential impacts on your business.
7. Anticipate changes in customer demand and adjust your forecast accordingly.
Your customer base is constantly changing, so their demand for your products and services will also change. It’s essential to stay on top of these changes and adjust your forecast.
One way to do this is to use surveys and customer data to understand what motivates your customers to make a purchase. It will help the business to collect customer reviews.
8. Use statistical models to help you make more accurate predictions about future sales volumes
Statistical models can be helpful in a number of ways, including:
– Identifying relationships between different factors that can impact sales
– Predicting sales volumes based on past data
– Helping you understand how changes in the market might impact your business
9. Make sure to review and update your forecast regularly
Your sales forecast is a living document that should be reviewed and updated regularly. As your business changes, so will your forecast. By keeping it up-to-date, you can ensure that it remains accurate and relevant.
Sales Forecasting Process
The Sales forecasting process is essential for any business that wants to stay afloat. By predicting future sales, companies can ensure they have the inventory to meet customer demand and avoid overbuying, which can lead to lost revenue. The forecasting process typically has four stages: initial estimation, data collection, model building, and accuracy assessment.
In the first stage, businesses come up with a rough sales estimate based on past performance and current trends. In the second stage, they collect data on factors that could affect future sales, such as economic indicators and changes in consumer behaviour. In the third stage, they build mathematical models to generate more accurate forecasts. Finally, in the fourth stage, they assess the accuracy of their projections and make adjustments as needed.
By following this process, businesses can always have a finger on the market’s pulse.
Talk to the Sales Managers and Team
It is essential to talk to the sales team when producing sales forecasts. Sales teams are those out in the field, talking to customers and closing deals. They have their finger on the market’s pulse, and they can give you insights that you would not be able to get from data alone.
The sales leaders will also be able to tell you about any changes they see in customer behaviour. This information can be invaluable in forecasting future sales.
Get Feedback from Customers
It is also essential to get feedback from customers. Customers are the people who are buying your products and services, so their feedback can give you a good indication of future sales and where you can improve.
There are several ways to get customer feedback, such as surveys, reviews, customer interviews, and focus groups. By talking to customers, you can better understand their needs and how they make purchasing decisions. This information can be used to improve your sales forecast.
Monthly recurring revenue
Monthly recurring revenue (MRR) is a valuable metric for businesses of all sizes. It refers to the amount of money a business can expect to receive monthly from its existing customers. This revenue is recurring, meaning that it comes in regularly.
MRR is especially valuable for businesses that sell subscription-based products or services. By tracking MRR, businesses can ensure that they are on track to meet their monthly sales targets. They can also use MRR to make pricing, product development, and marketing decisions.
There are several ways to calculate MRR. One standard method is dividing the recurring revenue amount by the number of customers. This will give you the average amount of revenue per customer per month
When forecasting sales, it is important to consider monthly recurring revenue. It will help you ensure that you are on track to meet your targets and that your forecast is accurate.
Sales Forecasts for New Businesses
Estimating sales revenue for a new business is more complicated than forecasting for an established business. This is because there is no past performance to base the forecasts on.
When forecasting sales for a new business, you will need to consider the size of the market, the business’s market share, and the market’s growth rate. You will also need to consider economic indicators and changes in consumer behaviour. By considering all of these factors, you can come up with a more accurate forecast for a new business.
It is also essential to be realistic in your sales forecast. If you overestimate, you could have too much stock and insufficient cash flow to cover your expenses. On the other hand, if you underestimate, you could miss out on opportunities and lose potential customers.
The best way to forecast sales for a new business is to talk to people in a similar line of work. They will be able to give you an idea of what to expect in terms of sales. You can also look at industry trends and track economic indicators. You can develop a realistic forecast for your new business by doing your market research.
Common mistakes people make when forecasting sales
It is important to create accurate sales forecasts, but errors can be made. Here is a list of the top mistakes to avoid.
- Not having a clear understanding of your business model
- Not aligning your sales forecasts with your business goals
- Focusing on the short-term instead of the long-term
- Not reviewing and updating your forecast regularly
- Relying too heavily on one data source
- Using inaccurate or out-of-date data
- Not considering seasonality
- Not using statistical models
- Not talking to the sales team
- Not getting feedback from customers
How to use your sales forecasts to improve your business
While no sales forecasting method is 100% accurate, using a sales forecast can help businesses avoid over or under-stocking their shelves, running out on critical selling periods or cash flow problems.
Sales Forecasting can also help businesses identify trends in customer behaviour, which can be used to make strategic decisions about product development and pricing. By developing an accurate sales forecast, businesses can improve their bottom line and better meet the needs of their customers.
FREE Sales Forecast Template
At Business Accounting Basics, we have created a sales forecasting template that you can use to forecast your sales for free. The template is split into three sections: new sales, reorders, and total sales revenue.
Each section allows you to enter the forecast sales value and the quantity that the sales manager or business owner has predicted. The sales price can be adjusted if needed.
The totals page shows the monthly sales forecast. You can add actual sales for the month, and it will calculate the difference between the sales prediction and the actual figures. This allows a business to see which months its sales have improved and which months they are lower.
Sales forecasting can be a complex task, but using a sales forecast template can simplify the process and ensure that you are making accurate predictions.
You can download the sales forecast template here.
See our full list of Excel bookkeeping templates, including cash book, petty cash, depreciation and sales day book.
Sales Forecasting Conclusion
Sales forecasting is an essential process that all businesses should undertake. By producing accurate sales forecasts, you can ensure that your business is always on track and meeting its goals. There are several things to remember when forecasting sales, such as the data you use and the methods you employ.
To produce accurate forecasts, it is important to talk to the sales reps and get customer feedback. You can also look at industry trends and track economic indicators. You can develop a realistic forecast for your business by doing your market research.
Sales forecasts can improve your business in various ways, such as improving cash flow, making better decisions about production levels, and adjusting prices based on demand. With careful planning and regular updates, your business can benefit significantly from having an accurate sales forecast.
