What is sales forecasting? Sales forecasting predicts the future sales of your business. These reports can be done monthly, quarterly, semi-annual and annual periods. This process helps you manage the future of your business more efficiently by dictating budgets, influence investors, and more.
There are two types of sales forecasting: bottom-up forecasts and top-down forecasts. With bottom-up forecasts, you start with the projected number of units that will sell and multiply that number by the cost per unit. A top-down forecast starts with the total addressable market. From there, you estimate the percentage of the market that your business can land.
The best method is to create both forecasts and establish how the predictions line up with each other. Doing this, and adjusting each until they match, is the best way to get an accurate forecast.
How to create a sales forecast
There are several factors to consider when creating a forecast. First, you need to determine the numbers that will go into your forecasting equation. Start by assessing the current economy and your company’s history. Include company changes such as pricing and promotions and external changes like laws and regulations.
Take into consideration products or services with declining sales and new products or services that may increase sales. Finally, include any new business plans such as hiring projections or upcoming marketing campaigns.
With these facts and estimates, you can establish the numbers needed for either a bottom-up or top-down sales forecast. Whether your business is new or established, your sales forecast can help guide it through future periods. If creating a sales forecast feels intimidating, you can find templates online.
Ways sales forecasting can help your business
- Inventory management
- Goal setting
- Plan for growing your cash flow
- Helps predict staffing needs
- Encourages allocating funds more efficiently