The ability to accurately predict your earnings, revenue, unit volume and other important metrics is critical. This understanding is known as sales forecasting. A strong sales forecast is a mix of qualitative and quantitative information that comes together so we can make decisions about the supply chain, employee head count, budgets and other important strategic initiatives.
The ability to accurately predict your sales volume strengthens revenue, improves morale, and grows your company’s reputation. Accurate sales projection data empowers you to approach sudden shifts with confidence and invest in the long term.
What Is Sales Forecasting?
Sales forecasting refers to your ability to predict future sales volume and revenue. Whether you provide a product, service or something in between, you will have a certain number of customers for a certain amount of time, which generates a certain stream of revenue.
This analysis seems obvious at first glance, but the ability to predict when these customers will come to you and how much they are willing to pay is critical for any business.
Quantitative sales forecasting is a type of sales forecasting that is strictly objective and focuses on hard numerical sales data collected over the past months, and even years. This data is used to calculate future sales, revenue, and expenses.
Qualitative sales forecasting is a type of sales forecasting that is entirely subjective and brings human emotion into the equation. With qualitative sales forecasting, business leaders use intuition, experience, and feedback from customers to make predictions about where sales are headed.
Good sales forecasts use a combination of qualitative and quantitative methods to reliably predict sales. Other factors to consider are government regulations, new product launches, economic conditions and the impact of marketing programs, among many others.
Why Is Sales & Revenue Forecasting Important?
Accurate predictions for the future empower your business to run efficiently and ease employee stress, which has been shown to improve business results. If your workers see that you know the path ahead, they will follow your lead.
Even more important are the profit benefits. If you know what to sell and when to sell it, you can better shift volume, minimize excess production and prevent abundances of unsellable supply.
Accurate predictions for future years inform the best ways to invest profits and develop new avenues of business. If you know what people will buy and what they won’t, as well as when they will buy it, you can adjust your marketing and production appropriately to maximize revenue and minimize waste.
How Are Sales Forecasts Used?
Sales forecasts add value through every department of a company. When all employees are working toward shared goals, the goals are more likely to be met. A sales forecast accounts for past monthly, quarterly, or yearly cycles in revenue, identifies the causes, and determines the probable impact those causes will have in the future.
Prior seasonal and quarterly sales predict future sales. Consumers buy more electronics during Black Friday and travel less in the winter. Budget adjustments to match those trends and prepare for the lean months (if you work in an industry or area that has them) are vital and save money in the long run.
Hiring
In addition to providing new avenues for growth and predicting seasonal or yearly cycles in customer purchases, projected sales figures for years to come allow hiring managers to predict the type and number of employees vital to upcoming projects.
For example, if a company intends to sell single-use software, then HR hires programmers. But if you plan on selling software as a service (SaaS), IT experts able to handle unique customer situations and challenges are necessary as well.
Supply Chain
Even with the renaissance in online shopping, the ability to deliver products to the right place at the right time remains critical. Innovations in travel and shipping mean that customers expect their orders promptly, but shipping still takes time.
If you can predict sales volume in particular regions, you can allocate product volume ahead of time to meet their demand promptly and keep users in those regions satisfied.
As shipping delays slow the pace of doing business to customer and company dismay, the ability to move your products to the locations where they’re needed most and minimize the use of the overloaded supply chain has become ever more critical.
Budgeting
Your budget encompasses hiring, cost of goods sold, marketing campaigns, shipping costs, and so much more. In short, if the company can predict its future earnings, then it can better allocate its funds.
Spending more than you earn does the company no good unless guaranteed return on investment compensates for the deficit — at the same time, money earned and not spent collects dust and does little more.
With an accurate sales projection, you can be ready for what’s to come, spend within your means, and grow your company to meet demand with reduced risk.
Sales Forecasting Software
You don’t have to manually gather all sales, service, lead, and marketing information. More enterprise data becomes available every year and often approaches the point where no human being or human-staffed department can keep up.
These programs create forecasts based on data input that updates in real-time as the market grows and changes. They collate data from a variety of departments that would otherwise communicate only in monthly meetings and ensure that everyone has the full picture. In short, software ensures you spend less time on forecast creation and more time on forecast action.
Visit our post on the 11 Best Forecasting Software Tools to learn more about the robust tools.
Sales Forecasting Methods
Ideally, your sales forecasts should take multiple methods into account. There are plenty out there, including the Delphi method, qualitative, quantitative, bottom-up and top-down as the most common.
Bottom-up starts with the number of expected sales multiplied by price, then accounts for variables like location, sales reps and their numbers, and any other metric that changes your volume.
Top-down starts with your expected market share based on prior trends and uses that share to determine how much of the market will generate you a profit.
Other factors to include are customer research, leadership opinions and field research.
Prepare for the Future
Regardless of your chosen method, the times we live in create unexpected shifts in the market. To be successful, companies should make informed decisions about sales forecasts using the data available to them as well as the qualitative opinions from their team and key stakeholders. Using proven methods and effective software tools will synthesize the information and project informed sales and revenue forecasts for short and long-term strategic decision-making. Plan for your company’s future with strong sales forecasts.
