Guide to Sales Forecasting as a business start up
Sales forecasting can be extremely beneficial to your company’s performance. Salespeople and corporate management may make better judgments when it comes to setting targets, hiring, budgeting, prospecting, and other revenue-generating aspects by using accurate sales predictions.
Despite the fact that most businesses devote many hours each week to sales forecasting, their estimates are frequently not that accurate.
Over the years we have helped many business starters put budget forecasts together. Through the experience, we have developed a little roadmap that can help you draft a sales forecast for your new startup.
Sales forecast roadmap
- What is a sales forecast?
A sales forecast is a detailed report that forecasts how much a salesperson, team, or organisation will sell each week, month, quarter, or year. In most cases, sales estimates are based on historical performance data.
2. Why it is important? especially to business startups.
Sales predictions assist you to identify possible problems early enough to avert or manage them. For example, if you see your team is failing to convert new leads, you may figure out why and remedy the situation. Perhaps a competitor has launched a new aggressive discounting campaign, or your new sales idea wasn’t the best idea after all.
Finding these issues immediately, rather than at the end of the month or quarter, has a significant impact. For startups, it’s a matter of life or death. The sales forecast is also handy, for operational reasons such as hiring, cutting back on staff or new investment and budget plannings. For example, if your business growing steadily you may want to plan your operational expansion accordingly to keep up with the demand.
While sales forecasting is a good idea, it needs to be done systematically through a proven method. You need to use accurate data and stay as realistic as possible in your forecast with a dash of optimism. Optimistic planning helps to keep you motivated and driven to achieve your goal.
3. Where to start?
starting a sales forecast template is a lot easier for an operating business. It can be a little more tricky for business start-ups since there are no historical figures to offer any trends or direction.
Start with simple market research – Market research helps you understand your industry benchmarks. You need to know the value of your good and product in the market and understand your competitors. One of the best ways to understand these benchmarks is to research and analyse public companies’ financial reports that offer the same products or services on a large scale. The information you get from these reports may not be so relevant to a start-up but it will give you a good idea of how expandable your business is and how far you can go with it if you follow the big boys.
Government websites do publish business benchmarks for different industries as well. The government benchmarks are a good place to start for planning your sales forecast when you start a business.
You will also need to do a quick competitive analysis to understand your local competitors in your domain. If you are going to offer a service/product locally, then search for local service providers and request a quote. Then get an average cost per service/product and that should give you an idea of how much you can sell your product/service for. If you are planning to sell a product nationwide then do internet research, find your major competitors and look at their financial reports, products and offerings. The goal of this practice is to find the perceived value for your service/product and its demand in your target market.
So by this stage, you should know the value of your product and the annual demand of your target market for your product. This should simply give you a very rough idea of achievable annual sales.
Time to set up a method to achieve your target
Generally speaking, 90% of companies use the historical forecasting method. Historical forecasting is a method where companies look at their figures on annual basis for 3 years and assume that they would have similar turnover in the same period of time in the current year, provided the market stays stable.
Another great way to use historical figures is to get reliable averages on your conversion rates and find out how quickly you can turn your new leads into sales. Putting that figures together with your lead generation growth rate would give a clear vision on how quickly your business is expanding and the sales you can expect in the months to come, shall things stay the way they are (which is usually a common assumption when it comes to general sales forecasts). Remember, the sales forecast is a predictive tool and should be used as a benchmark to achieve goals. This is not an accounting document based on the actual figures.
Some companies even use Intuitive forecasting which is basically asking sales teams to come up with a sale figure intuitively. It works well for experienced sales teams in established businesses but we do not recommend it for business starters.
Tools that Helps your forecast process,
There are tons of analytical sheets and tools that claim to give you accurate sale analytics but the truth is that a good reliable sales forecast can only be achieved through in-depth research, a good understanding of your product and market, and over time through Historical figures.
But there are digital tools that can help, making the process a little less confusing and more manageable,
CRM – Customer Relationship Management software would be a good place to start. You can use CRM to stay in touch with your customers, monitor their behaviour over time and evaluate your conversion rate. Most good CRM software in the market offer sales features such as a sales pipeline that is a great tool to follow through with leads from entry to conversion.
Over time, when you have a number of leads through your sales pipeline, the Pipeline Forecasting method can be applied which is a method of analysing the leads converted through the pipeline. This process offers great information such as conversion rates, conversion time by different sales members, conversion rates of goods and services and many more which are instrumental to achieve a good reliable sale forecast in the long run for small businesses.
Brissy Studio helped many small and medium-sized businesses around Australia to set up their sales forecasting tools through system digitalisation and implementation. We are specialised in Small businesses and love to help you, set up yours today. Our consultation is free so please do not hesitate to ask your questions.