Although accurate sales forecasts are essential to achieve long-term growth and profitability goals, many small-business owners struggle with forecasting tasks. Sales forecasting does involve crunching numbers, and you do need to base it on reliable information. It also involves some other factors, such as getting all of the responsible employees to buy into the importance of the report.
Approach and Attitude
David Pearson, vice-president of sales operations at the sales performance company Miller Heiman, says how a company views and approaches forecasting affects both the quality and accuracy of sales forecast results. The approach includes the expectations, criteria, systems and the people involved in creating forecasts. In addition, individual team member attitudes, such as whether there is a total buy-in from everyone involved about the importance of accurate forecasting and its connection to long-term business success, also affects sales forecasts.
Flexibility and Process Controls
Unexpected fluctuations in the economy, customer preferences and consumer demand can throw even the most well-developed sales forecast into complete disarray. Because of this, the number, quality and flexibility of built-in controls affect both your approach to sales forecasting and the results. For example, internal controls such as access to real-time data, ongoing consumer research and regularly monitoring an annual sales forecast can uncover developing trends.
Market position influences the size and quality of a business’s target customer base, which in turn affects sales forecast predictions. This is one reason why businesses without strong brand awareness and a loyal customer base, such as start-ups and new businesses, often struggle with to create accurate sales forecasts. However, because market position links closely to a business’s ability to differentiate itself from competitors and shape customer perceptions, positioning can affect sale forecasts even in established businesses.
Product Life Cycle Trends
Any product at or near the end of its life cycle is going to have a poor sales forecast. This is why including dying products in an annual sales forecast can lead to inaccuracies -- unless the manufacturer intends to revitalize the product to extend its life cycle. Some will exclude the dying product from the forecast. Others will prorate sales forecast numbers for a revitalized product from its release date to the end of the year.
- altrendo images/Stockbyte/Getty Images