The Advantages of Sales Forecasting
Sales is the lifeblood of every company. The advantages of forecasting your company's sales lie mainly in giving you a firm idea of what to expect in the coming months. A standard sales forecast looks at conditions present in your business during previous months, and then applies assumptions regarding customer acquisition, the economy and your product and service offerings. Forecasting sales identifies weaknesses and strengths before you set your budget and marketing plans for the next year, allowing you to optimize your purchasing and expansion plans.
Knowing whether your revenues are likely to grow or shrink in coming months keeps you from spending at a time when you should be conserving cash to survive a recession. It also allows you to take advantage of special deals or expansion opportunities that come along, knowing you will have enough cash to support your business.
Buying too much or too little inventory can be a business disaster. By forecasting your sales, you will have a better idea of how much to buy and whether it will be advisable to add additional investment in marketing to take advantage of improving economic conditions. Sales forecasting and budgeting tend to be a mutually dependent balancing act. A good sales forecast anticipates changes in the economy and, therefore, changes in the buying habits of your customers. Knowing your customers' likely buying needs makes it easier to know how much inventory to purchase and how many sales reps to hire.
Having a good idea of future revenues and where they will be generated in your business allows you to plan the best way to take advantage of future changes in the economy. Uncertainty is a roadblock to besting your competition by expanding at just the right moment. Detailed and deep research into the economy, customer buying trends, new products and your company's past revenue production experience creates a reliable sales forecast that provides a strong basis for your future planning.
Having a tradition of forecasting sales on a quarterly, semi-annual or annual basis not only helps you plan your business, it also increases your corporate knowledge base. When changes in the economy arise, you can always go back to your previous forecasts for hints on what has and has not worked in the past. This can present a significant advantage over any of your competitors who use the "seat-of-the-pants" method of planning and operating their businesses.