Don’t make the mistake of assuming that sales forecasting is something only big businesses with huge data teams, complex software and hundreds of customers do, as that’s not the case. It’s actually a lot simpler than it sounds, which means it’s something that small businesses need to be paying attention to.
A sales forecast doesn’t have to be complicated to be useful, not if you know how to build one that drives decisions. For small business owners, simple sales forecasts are often best, as they’re clear, realistic and directly related to making decisions.
Why Every Business Needs a Sales Forecast
A sales forecast is more than just a list of numbers, it’s a way to make decisions. If you don’t have a sales forecast, you’re basing your decisions and planning on guesswork, which doesn’t always work in your favour. When you have a sales forecast, you benefit from:
Making Better Financial Decisions
Knowing how much money is likely to come into your business helps you to make decisions. You’ll know how much you can afford to spend on marketing, how much money you have as a safety net and if you can afford to expand your team by hiring.
Avoiding Surprise Cash Flow Challenges
A lot of small businesses fail not because they aren’t making money, but because they spend too much and run out of cash. A forecast can help you to see slow months coming, giving you time to adjust your spending and plan for the possible slump.
Knowing Your Goals Are Realistic
With a sales forecast guiding you, you can set clear goals instead of vague ones. Rather than simply deciding you want to capture more monthly sales, you can look at what your sales forecast says is realistic, and work from there.
Focusing on Where Sales Really Come From
A sales forecast makes you think about where sales really come from, and you can use that information to your advantage. You’ll know where to focus your attention, rather than dedicating your time and resources to channels that might not bring much to the table.
A Simple Framework for Sales Forecasting
Forecast for Different Time Periods
Split your sales forecast into smaller, easier to handle parts. For most businesses, this means monthly, but once a week also works if you have a lot of sales or a short sales cycle.
Identify What Makes You Money
You know you have sales, but do you know where they come from? Get to grips with how many customers you have, the total number of transactions, the average value of an order, lead times and conversion rates. Once you know how many customers you have, and how much people are spending on average, you can predict future sales.
Make a Simple Formula
Your sales forecast should, at its most basic level, centre around a simple formula. You can calculate sales by multiplying the average value of orders by the average number of orders. For example, if you have 500 orders and each is worth £30, that’s a total of £15,000.
Use Data to Your Advantage
Start with what you already know, such as your past sales, seasonal trends and everything you know about existing customers. You can then add in assumptions, such as growth rate, marketing impact and launching new products. This will give you a good idea of what your future sales could look like, but be conservative. It’s better to underestimate sales than to overestimate them.
Use Predictions to Take Action
There’s no point building a simple sales forecast if you’re not going to do anything with it.Instead, look at your predictions and determine what has to happen for you to reach those numbers. Think about the type of leads you need and how many, and how marketing could help you get there. Link your sales forecast to impactful action by using what it tells you to make plans for marketing, sales and hiring.
Review Regularly and Make Changes
A sales forecast isn’t something you do once, forget about and then never repeat. It’s a constant, evolving part of running a business. Review your sales forecast regularly and do so once a month at least, or after big changes like a new product or price change. Look at what was predicted and what actually happened, and make changes accordingly. Over time, you’ll learn more about your sales and improve your sales forecast, setting you up for success.
How to Spot a Good Sales Forecast
For a sales forecast to be beneficial, it needs to be:
Easy to understand quickly
Based on reasonable guesses
Regularly updated
Used to help make better, more accurate decisions
It’s unlikely to tick those boxes if it’s stagnant and rarely updated, if there’s too much detail, or if the information is too complicated for you to make sense of. Your sales forecast doesn’t have to be perfect, it just needs to work for your business. A simple sales forecast gives you control, direction and confidence, all of which helps you to make the right decisions.
You can swap from being a reactive business owner who’s hoping for the best, to a business owner that’s proactive, organised and in control of sales. It’s a lot easier to make growth, hiring and investment decisions when you know exactly what you plan to sell, why and how much for.
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Don’t make the mistake of assuming that sales forecasting is something only big businesses with huge data teams, complex software and hundreds of customers do, as that’s not the case. It’s actually a lot simpler than it sounds, which means it’s something that small businesses need to be paying attention to.
A sales forecast doesn’t have to be complicated to be useful, not if you know how to build one that drives decisions. For small business owners, simple sales forecasts are often best, as they’re clear, realistic and directly related to making decisions.
