Sales forecasting, what it is and how to do it right

Every new business wants to know what their sales forecast is. We cannot ignore that there are many factors that are not always taken into account and that can directly impact the most optimistic forecasts.This is an intimidating task, because no one is a fortune teller or foresees what circumstances may influence the market, user behavior and ultimately, sales. The good news is no one is better equipped to make a sales forecast than you, who knows your company and its products and services best. Contents hide a Sales Forecast: What is it and how to do it? 2 What is a sales forecast and what is it for? 2.1 Sales forecasts help you set goals2.2 It helps you keep your investors at ease. 2.3 Use your sales forecast to budget 3 Types of sales forecasts3.1 Short-term forecast3.2 Long term forecast4 How to make a sales forecast? 4.1 Data about your industry4.2 Data about your competitorsSales forecast: What is it and how to do it? A sales forecast is the process of estimating future sales with the goal of making better informed decisions. As a rule, it is based on a combination of previous sales data, relevant aspects of the industry and market trends. It will help you to more effectively manage your sales force, your investments and, in general, to be able to make cash forecasts. Of course, for those companies that have historical sales data, it is easier than for those that are newly created. If you don't have previous data, you should look for similar data that we will see later in this same article. In short, it's about creating a financial database, the more extensive, the better because it will allow you to make profit and loss balances, the cash flow statement and a forecast of the company's balance sheet. Although we will see in more detail what exactly a sales forecast consists of, keep in mind that you should have at hand data related to the manufacture of your products or the cost of your services, data about the market and data about competing companies, as well as the growth rate and historical data that allow you to forecast sales. What is a sales forecast and what is it for? It is a projection of the company's marketing data that allows you to make informed decisions. Specifically, it serves the following purposes:Sales forecasts help you set goals. Let's say that a sales forecast helps you to calculate backwards. That is, if you want to enter X money next year, or close the year with a certain cash flow, it helps you set goals in the short, medium and long term. Consider things like the following: What do you hope to achieve in the next month? And a year from now? And in 5 years? How many customers do you expect to have next month and next year? How much will each customer spend on your products or services? A sales forecast will help you answer all these questions and make projections about the future of your business. It helps you to keep your investors calm. You can keep all your investors informed who, of course, want to know if their money will generate the expected return. They will want to know what your plans are to achieve the objectives set and confirm with you that these measures will have the desired effect. Use your sales forecast to budget. Your sales forecast is also a guide to how much you should spend. Assuming that you want a profitable business, this forecast can guide you on what you should spend on marketing, operations or administration. You can make reliable predictions about whether your budget is out of control and whether you are going to spend more than you plan to earn. You can determine a fundamental aspect in any business: the profit margin. The higher the margin, the more profits. You can only calculate margins if you make a good sales forecast. In this sense, there is nothing that provides a sales forecast more than software like Mobilvendor, where you will have a real picture of what is happening in your company thanks to its modular system to view, record and store that valuable information about products, inventories, invoices, orders and other information. Plan, analyze and manage your company from the web platform or app in a simple and effective way. Thanks to its different modules, you can easily make forecasts, since you have the key information of your business.Types of sales forecastsThere are two fundamental types of sales forecasts, short term and long term forecast.Short-term forecastIt can be defined as a forecast made for a relatively short period, from one month to a year, depending on the nature of the product. Generally, this type of forecast is made after one year, but if market demand fluctuates, it can be made for a shorter period. Long forecast TermCovers a longer period of time, such as 5, 10, or 20 years. Again, it depends on the nature of the business or the type of product the company manufactures. In many industries, such as steel plants, oil refineries or paper mills, where total investment is quite high, long-term forecasts are needed. How to make a sales forecast? Now that you are clear about the importance of forecasting your sales, it's time to follow the steps that will lead you to the information you are looking for. These are the steps you must follow to create a sales forecast:Make a list of the goods and services you sell.Estimate how much you expect to sell of each one.Define the unit price of each good or service sold.Multiply the number sold by the price.Determine how much each good or service will cost to produce and sell. Multiply this cost by the estimated sales volume.Subtract the cost total of total sales. And voila! , you already have a first approach to a sales forecast that will allow you to make the first decisions. But you are far from finished. You may have been very optimistic or you may not have taken into account important factors, so be sure to take into account your industry and your competitors.Facts about your industryRestrictive regulation or drastic changes in consumer trends are factors to consider. Do you remember the Kodak case? The company didn't take into account the impact of digital photography and smartphones and ended up leaving the market. Even a giant like this can lose sight of changes in habits among consumers.Analyze trends, consumption patterns and disruptive elements. Data about your competitors What if there is a strong competitor that works as a natural monopoly? Creating a new railway line may be a good idea, but it won't be easy at all if, despite being allowed by law, you must build new lines, with what that means in terms of investment. Analyze all your competitors using matrices such as Gartner's: market leaders in terms of sales and investment, disruptors, niche players and established players. All of them will give you an accurate idea of how the market evolves and what market share you can cover. Have you already made a sales forecast? What data are you handling? We are waiting for you in the comments.