What is a Sales Forecast?
In this edition of the Startup Series, we are going to delve into a crucial skill that all entrepreneurs must develop if they are to succeed—sales forecasting. While it sounds rather technical, anybody can learn to forecast sales. You don’t need a business degree or to have passed your CPA, but you do need to do some disciplined, independent study. Understanding the best sales forecasting methods could be what ultimately gives your business a chance to survive in the competitive market.
So—what exactly is a sales forecast? A sales forecast, otherwise called a sales projection, is simply an estimate of what your company’s sales will be in the future. Sales forecasts are typically made in intervals of one month, quarter, half-year or full year.
Sales Forecast Template for Startup Business
Technically speaking, making a sales forecast for a business plan is simple—you just need Microsoft Excel or Google Sheets. The hard part comes in projecting how much of each of your items/services you are going to sell.
When you sit down to fill out your sales forecast template, you need to know:
A). the time interval for which you would like to make the projection,
B). the unit price of each item you are selling,
C). and the unit cost of production that you incur for each item.
The rest is a matter of simple arithmetic. Calculate your total sales, your total costs of production and then solve for the difference to check out your projected profits. Below is a simplified example of a completed sales forecast for the first quarter of a fiscal year. Check out this sample sales forecast:
|# of Units Sold|
As you can see, the sales forecast template, itself, is simple. The hard part, though, is making accurate conjectures as to how much you will sell.
How to Project Sales
How does one make an accurate sales projection? How can anybody possibly guess how well their business is going to do over the next month, quarter, or year?
In truth, there is no exact science to forecasting sales. Your ability to sell to clients can be impacted by external, economic factors over which you have no control. Nonetheless, there are ways to make an educated guess as to how your company will fare over a business cycle:
- Group your inventory into units. While this is a no-brainer for those that sell products, those that provide services should also adopt the practice. It makes the math and the projections far easier.
- Make sure that your prices congruent with industry standards. Take a look at the consumer price index and at your competitors to make sure that you are pricing your products correctly, and that the prices that you have should remain appropriate for the next couple of months.
- Use your previous sales data (if you have any). Nothing can accurately predict how your business is going to do better than its own history. As a startup, you may not have any data to work with, but again—any past data is useful data. Even if you have only been in business for a month or two, the sales history from that time could help.
- Find data on your product or service. Just because you don’t have sales data for your insipient business doesn’t mean that others’ histories can’t help you. Pay special attention to how your product is selling throughout the year as you complete your market research.
Sales forecasting is a skill that can be learned by any entrepreneur. It does, however, mandate a certain dedication and research savvy. Know where to research your product or service in order to best project how you will do with your sales. For more startup advice, be sure to check out the other installments of the Factor Finders Startup Series.