Sales forecasting is important for predicting future earnings and sales levels. Historical analysis and market research are common techniques used to forecast sales. Established companies can rely on historical data, while new businesses may need to consider external factors like competitor analysis. It’s important to avoid forecasting sales in a vacuum and consider external factors that can influence sales.
Sales forecasting can give companies a good idea of future earnings and sales levels. Many companies use different types of sales forecasting to predict the future of a new product, determine expansion or sales strategies, or simply analyze projected levels of sales on a monthly or yearly basis. There are many different types of sales forecasting techniques, including historical analysis, market research and forecasting based on reviews of similar companies. Forecasts can be short-, medium-, or long-range, although short-range forecasts tend to be more accurate.
For an established company, one of the easiest methods of forecasting sales relies on historical data. Companies that have survived the tough first few years are often able to make accurate predictions for the future based on the previous year’s data. To perform a monthly forecast using historical data, the analyst will need to look at past sales records for that particular month and see what percentage of annual sales that month represented. Understanding how the month fits into annual sales levels can be very important, as different companies may have different peak earnings during the year.
A new business, of course, will be unable to rely on historical data. To come up with a sales forecast for the first few years, a newer company will need to account for external factors. One sales forecasting method that can be useful for new businesses is competitor analysis. If a person opens a shoe store, he or she may want to look at historical sales from other shoe stores that are roughly the same size and target the same demographic. It can be helpful to look at similar stores in similar communities rather than looking directly at regional competition, as adding the new shoe store to an existing market will often change the market.
It is important to avoid forecasting sales in a vacuum, since consumption habits and demand trends depend on dozens of external factors. Using market research in sales forecasting can help provide a clearer picture of sales potential, including factors such as economic and demand trends. If, for example, a small town has just gained a major new source of employment, such as a factory, spending may increase as a result of higher employment. Similarly, if a store’s flagship product has just been deemed “out of style” by a major fashion magazine, sales may drop. Paying attention to external factors that can influence sales can create a more comprehensive forecast.
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