Forecasting Sales

Sales forecasting is the practice of analyzing so that you can estimate what your sales will be. Key steps that you need to undertake are:

• Understand trends in your industry
• Determine the size of your market
• List your competitors
• Refer to last year’s figures

Understanding trends in your industry

Experience may have taught you that about 20% of your customers account for 80% of your sales. You should identify the 20% and then develop a profile of your market. An example of this would be: 20% of my customers are medium businesses from large cities in the U.S. They are purchasing agents in the Finance industry. While their pockets are deep, they tend to go with the lowest bidder.
Learn about the trends that drive this market by doing research with trade magazines and online sites where this demographic may reside.

Determine the size of your market

Know how big your trading area is and gather as many available statistics of this area that you can. If you’re a retailer, for example, you will want to know how far people tend to travel in order to shop. How much does the average household spend?
Establish the approximate size and location of your planned trading area. Use available statistics to determine the general characteristics of this area. Use local sources to determine unique characteristics about your trading area. You can get detailed information from the Chamber of Commerce or even use your local directory to determine the size and characteristics of your market.

List your competition

Who are the companies that you tend to hear about often? Are you in a crowded space or does your company stand out as being one of the few offering your product or service? You should estimate what percentage of overall sales you will get when compared to your competitors. If you’re a market leader, there is no reason that you should get a nice sized slice of the pie. Determining where you stand against your competitors will help you figure out how to forecast incoming revenue.

Refer to Last Year

You should look at sales revenues from the same months in previous years to use a base to determine incoming sales for the upcoming year. You can adjust these figures with the rate of general growth in your industry. So, if your industry expects a 10% growth in sales, you can use last year’s figures and increase them by 10%. Other factors that can impact last year’s figures can include the economy, different sales size, new products and or/services.

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