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Tips to Create Sales Forecasts

Your sales forecast is the backbone of your business plan. It is a valuable tool that enables businesses to anticipate their future revenue, providing a benchmark for evaluating their financial performance against established goals.

Sales forecasting is the basis for determining future growth, expenses, profits, and staffing and also predicts the units of goods and services that can be sold over a period of time.

Here are some tips on ensuring that your sales forecast is robust:

Define the goals of your forecast

Right before creating a sales forecast, it’s crucial to define the goal of your organization. The goals can vary from annual recurring revenue (ARR) goals to estimated product and service sales and renewals. Regular review and adjustment of your sales forecast goals in the business environment are critical to ensure your goals remain relevant and achievable.

Understand the average sales cycle

If you know your average sales cycle, it becomes easier to forecast your current sales cycle because it gives insight into how long it would take for potential customers to become actual customers. The sales forecast could be either weekly, monthly, or quarterly as it develops a comprehensive view through every stage of the business and makes better-informed decisions.

Segment your revenue streams on a unit wise basis

Break your revenue stream into units and start forecasting unit sales per month. Analyzing unit-wise distribution helps businesses identify which products or services are popular and in demand, enabling them to adjust their strategies accordingly to meet customer needs and maximize revenue potential. If your company has multiple streams, find out units for each of the businesses and determine which stream is the best to get effective results.

Understand past data to identify trends

The best forecasting aid is from the recent past. Businesses can identify seasonal fluctuations, cyclic trends, and other factors that could influence future sales. For instance, you can project your two most recent years of sales by month on a line chart and then visually track it forward along the same line. Do add a growth percentage for specific periods if it is supported by additional marketing and sales strategy.

New product use decision factors

The next step is to find out important decision factors in case of new revenue streams, products, or services.

One critical factor is to conduct a comparative analysis of similar products or services that are already existing in the market to identify gaps in the market that your new product or service can address.

Another important factor is to consider the trends and behaviours of your target customer segment. By studying them, businesses can gain insights into potential demand for new products or services and make informed decisions about pricing, marketing, and distribution strategies.

Project unit prices

It is important to review and project your pricing for future periods as it helps businesses estimate revenue potential for individual projects or products.

There are several factors that need to be considered:

  • Competitive pressure

  • New product arrivals

  • Volume increase while forecasting future pricing, and

  • Inflationary increases in certain areas

Factor in seasonality

Seasonality plays a vital role in forecasting accurate sales figures especially when your business operates in a cyclical industry. This is nothing but an anticipated positive or negative impact on sales performance due to the occurrence of certain industry events. It helps businesses optimize potential growth strategies or diversification and can impact production, inventory, and sales strategies.

Improve the accuracy of your sales forecast with the help of Predictive Analytics

There is a wide range of applications and software available in the market which can help in improving the accuracy of your sales forecast. Platforms like Clari, Salesforce, and Zoho CRM can help you with the same. Moreover, you can also take the help of a CFO partner for the creation of an accurate sales forecast.

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