2.1 Sales Forecast
Sales Forecast
Sales forecasting is the process of estimating future revenue by predicting the amount of product or services a sales unit will sell in the next week, month, quarter, or year.
- Sales are the lifeblood of a business. It is what helps you pay employees, cover operating expenses, buy more inventory (stock), market new products and attract more investors. Sales forecasting is a crucial part of the financial planning of a business’s future. It is a self-assessment tool that uses past and current sales statistics to intelligently predict future performance. (How Stuff Works Website)
- A sales forecast is an essential tool for managing a business of any size. It is a month-by-month prediction of the level of sales you expect to achieve. Armed with this information you can rapidly identify problems and opportunities – and do something about them.
- As your business grows, sales forecasts continue to be an important measurement of your company’s health. When attracting new investors to a private company, sales forecasts can be used to predict the potential return on investment. Return on investment is the amount an investor gets back for the investment s/he has made.
- The overall effect of accurate sales forecasting is a business that runs more efficiently, saving money on excess (extra) inventory, increasing profit and serving its customers better.
Without sales forecasts, it is very difficult for you to steer the company in the right direction.
- – The market you sell into will grow by 2 %.
- – Your market share will shrink by 2 %, due to the success of a competitor.
- – You will double your sales force from three people to six people, halfway through the year.
- – You will spend 50 % less on advertising, which will reduce the number of enquiries from potential customers.
- – You are moving to a better location, which will lead to 30 % more customers buying next year.
- – You are raising prices by 10 %, which will reduce the volume of products sold by 5 % but result in a 4.5 % increase in overall revenue.
- – You are launching a range of new products. Sales will be small this year and costs will outweigh profits, but in future years you will reap the benefits.
- – You have new products that have the potential to increase sales rapidly.
- – You have established products that enjoy steady sales but have little growth potential.
- – You have products that face declining (decreasing) sales, perhaps because of a competitor’s superior product.
Tasks
Work through the example that follows and then using the same methodology and procedure, work out the sales forecast of your own business.
Take a hypothetical example of a Mr. Mohammed who sells shoes near a township. For the first day of each week he expects to sell only 2 pairs of shoes as business is usually slow on a Monday.
From Tuesday until Thursday he expects to sell 5 pairs of shoes, due to the fact that business in the midweek is slow but not as slow as that on a Monday.
On Friday and Saturday he expects to be very busy as most of his potential customers are ordinary labourers who receive their wages at the end of the week; thus he expects to sell between 20 and 30 pairs of shoes for each of these days.
Thus Mr. Mohammed would normally sell 57 pairs of shoes for the week and for a month that would mean he expects to sell 228 pairs of shoes.
Case Studies
Watch the following video to gain some insight into how to predict a sales forecast:
