Steps in Sales Forecasting

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Whether your business is large or small you cannot expect to operate profitably without reasonably accurate sales forecasting. It is the blueprint for what you have sold in the past and what you anticipate selling in the future. Your sales forecast is subject to the potential dynamic market variables that affect your business such as weather, seasons, trends and competitive activity. A properly conceived forecast will help you plan future sales and adjust to variable economic conditions.

Understand the Business

What is the nature of your business?
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You must have a clear understanding of your business to apply even basic sales forecasting to your operations. Are you manufacturing a product? Are you in retail operations that rely on suppliers. Do you operate a service business that depends upon customers in certain seasons? Each of these questions applies a modifying affect on your sales forecast. You must understand your own business and how the activities of others affect your sales.

Analyze Past Performance

Create a simple graph of past performance
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If you have completed at least one business cycle you can use it to begin the task of sales forecasting. If you have some computer skills this can be done with software. If not you can tackle the job manually with graph paper from your local office supply store. With sales data from more than one cycle you might create your graphs on clear plastic and overlay the cycles to analyze them. This allows you to see seasonal changes that affect sales from year to year.

Understand the Variables

Understand the variables
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Sales forecasting is subject to the dynamic variables at work in your market sector. You must gather and analyze market intelligence from every source available to you. Rely on word of mouth, industry newsletters, competitive activity and economic trends to guide your sales forecast. Your sales force should be trained to look for and report customer variables that will have a possible affect on your future sales.

Calculate Costs

Weigh the costs
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You build a sales forecast based on the anticipation of business growth. Your optimistic outlook is driving you to incremental improvements year after year, season after season, cycle after cycle. Sales forecasts must be prepared to account for those times when the line on the sales graph turns downward. Effective sales forecasting for the down periods will serve you in managing costs, reducing inventories and adjusting manpower requirements.

Create Your Sales Forecast

A positive sales forecast
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As a rational business owner or sales manager it is best to forecast with some degree of flexibility. Unforeseen contingencies may arise that force a new sales forecast upon your operations. It is difficult to predict when a supplier will not meet your requirements or an economic change will have a negative affect on your business and overall sales. It is best to plan your work and work your plan but don't let your plan work you.

References

Resources

About the Author

Ned Millis has been published in "Tennis Industry Magazine," "Golf Industry Magazine," "Sales Management Magazine" and other trade publications. He is a graduate of Claremont Men's College.

Photo Credits

  • business graphs image by Chad McDermott from Fotolia.com