As long as companies are in the business of making money, the sales forecast will be a driving force behind many business decisions.
It works exactly the way it sounds. Sales forecasting is the process through which businesses estimate future sales of services or products for a week, a month, a year, or a quarter – giving you a target for units sold and revenue coming into the business.
These projections are guiding winds for how businesses budget resources, set goals, hire, plan supply chain logistics, prepare for high or low seasons, and chart a course for success.
Who needs sales forecasting?
The short answer? Everyone. When properly leveraged, sales forecasting sets businesses up for successful growth and resource management – whether you’re a budding startup, business giant, or anything in between.
Beyond internal operations, sales forecasting impacts business development with external partners. For example, startups can use forecasting to attract investors. A sales forecast details for investors a business’ projected revenue, ability to meet demand, and the potential for growth so they know what they’re getting into from the get-go.
If sales projects look healthy (and convincing), you’re more likely to land seed funding or other partners. Large, public companies need sales forecasts for earnings calls and quarterly reporting to keep shareholders.
How sales forecasts are used in a company
A sales forecast is much more than a target for the sales department. Whether you are an established giant or a small fry, sales forecasting gives you the power of prediction – telling you what to do, how to do it, and when. C-suite leadership, management, and associates across organizations all look to sales forecasts to set goals and measure success within their respective departments.
- Marketing will base its campaigns and budget based on supporting sales goals.
- Manufacturing will scale production up or down to meet projected demand.
- Customer support and service teams should adjust to the growing customer base.
- Finance uses a sales forecast to manage the company budget, capital investments, and operational expenses.
- Supply chain and logistics managers will plan inbound and outbound material flow and build transportation partnerships based on sales projections.
- Even human resources may look at the sales forecast when planning recruitment (or layoffs).
But it is not all about numbers, charts, and revenue goals. One other thing sales forecasting excels at is hyping people up. It’s a barometer showing teams when they’re excelling. And if your team falls behind, the numbers and insights behind a sales forecast help departments adjust and create learnings for the next forecast.
The data behind sales forecasts
So how do companies know how much they’ll sell in a given period? It’s impossible to predict with 100% accuracy as there’s always the chance of market disruptions (i.e., a pandemic) or unpredictable consumer trends (e.g., Beanie Babies) throwing wrenches in the status quo. But, every business needs to take its absolute best swing at a sales forecast to get all departments moving in the same direction.
It is as much art as it is a science, as it takes a little creative ingenuity to combine quantitative and qualitative information into a solid plan. You’ll need to factor:
- Historical sales data
Learn from your prior successes and challenges. Trends are usually in the data, if you have the eye for it. - Conversion rates
If you can break down conversion rates for leads / potential customers to actual customers, this is a great metric to determine future sales based on marketing, sales efforts, and other revenue-generating activity. - Market and economy shifts
Is it a tight or loose economy? Is unemployment up or down? Understanding these macro trends gives you a feel for the floor and ceiling of sales opportunities. - Market share and opportunity
Take a look at if there are more or less opportunities based on competitor moves as well as your position in your market. Can you gain more or less share based on these changes? How does this impact sales? - Seasonality
How do holidays and weather changes impact sales? Staying ahead of seasonality will keep manufacturing and carriers equal to demand. - Product development
Do you have a new whizbang product on the horizon, overhauls to problematic product, or other developments? These will likely impact sales and market opportunity. - Sales cycles
Whether transactions occur in a single day or take a year, you’ll need to factor these cycles into forecasts to set expectations for potential delays to completed sales. - Organization changes
Were there acquisitions, technology upgrades, sustainability commitments, or other changes? Consider how these shifts impact your sales opportunities. - Regulations and compliance
A big change to safety or compliance standards could completely change your operations and sales. - Staff changes
Where staff go – be it sales, marketing, manufacturing, or other teams – the capacity to sell follows.
Newer businesses entering the market shouldn’t guess at a sales forecast. With research and maybe even a consultant at their back, these companies can build a sales forecast until they can look into historical data of their own. Market research, surveys, and competitor stats can go a long way.
Keeping sales forecasts solid and flexible
Even as complexity rises in the sales process and consumer habits, sales forecasts will never go out of style. Yet with so many things impacting sales, businesses would do themselves a favor by building solid forecasts with flexibility to account for the inevitable curveballs.
It doesn’t hurt to have a math whiz on hand to build and adjust forecasts, but you can get pretty far with the right modeling and forecasting tools.
That’s where Causal comes in. Without the need for Excel or CSV files, you can track and manage all your critical data points and visualize them from easy-to-use dashboards.
This makes it easier to share data across the organization, find the trends, and make adjustments to keep the business aligned to growth goals year-round.