In order to create and execute effective strategies, businesses need to predict future sales. This is where sales forecasting comes in. It ensures businesses can make informed decisions that shape their growth trajectory.
What is Sales Forecasting?
Sales forecasting is the practice of estimating future sales over a specified period. These estimates are based on historical data, market trends, and other influencing factors.
Sales forecasting can be applied to products, services, or even entire business divisions. Estimates are also categorized by time, namely monthly, quarterly, or annually.
Why is Sales Forecasting Important?
Sales forecasting is the foundation of business decisions. An accurate forecast supports the effective allocation of resources. From inventory to team responsibilities, forecasting ensures every aspect of a business aligns with anticipated sales.
Forecasting also facilitates budgetary decisions. It allows organizations to allocate funds efficiently and in line with potential revenue. It helps us find an acceptable level of overhead, COGS (Cost of Goods Sold), etc to match our forecasts.
Risk management is another benefit of sales forecasting. Along with anticipating possible downturns, accurate data helps in setting and monitoring performance benchmarks. This keeps teams aligned and driven throughout the year.
Who Executes Sales Forecasts?
Sales forecasting responsibilities mainly depend on the structure of an organization.
Anyone in the sales department who is responsible for optimizing sales processes can take the lead when it comes to forecasting. However, it’s usually individual salespeople and managers who create forecasts for their territories or client accounts.
In larger businesses, the finance department may incorporate forecasts into broader financial planning. Business analysts may also drive this process. This is because they work so closely with company data.
How Can I Increase the Accuracy of Sales Forecasts?
Achieving accurate sales forecasts isn't a once-off task. Consistent effort and evaluation are necessary.
Historical data should always be your starting point. This is because it offers access to valuable patterns. It’s also essential to stay aware of market shifts, economic updates, and industry changes. These are all factors that can impact sales.
To help refine the sales forecasting process, tools and software are available. Utilizing advanced algorithms and machine learning can increase the accuracy of insights.
It should also be noted that forecasts aren’t stagnant. Regular reviews and adjustments should be factored in. This ensures your forecast is always a true reflection of changing market patterns and customer behaviors.
Common Factors That Impact Sales Forecasting
- Economic Fluctuations. Recessions or economic booms can significantly influence purchasing behaviors. A sudden financial pinch can decrease revenue levels.
- Seasonality. The sale of certain products and services will increase or decrease at certain times of the year. For this reason, seasonality should always be factored into forecasting processes.
- Product Lifecycle. New product launches or a decrease in product interest can influence sales numbers.
- External Disruptions. Events like natural disasters, political instability, or a global health crisis can make forecasts less predictable.
- Competitor Activity. Competitor product launches, price changes, and marketing campaigns are other factors that can impact your sales forecasts.
