Sales forecasts are used to predict future earnings and sales levels. Different techniques include history-based analysis, market research, and analysis of similar businesses. Established companies can use historical data, while new businesses can use competitor analysis. It’s important to consider external factors such as demand and economic trends for a more accurate forecast.
Sales forecasts can give an idea of future earnings and sales levels. Many companies use different types of sales forecasts to forecast the future of a new product, determine expansion or sales strategies, or simply analyze projected sales levels on a monthly or yearly basis. There are many different types of sales forecasting techniques, including history-based analysis, market research, and forecasting based on the analysis of similar businesses. Forecasts can be short-, medium-, or long-range, although short-range forecasts tend to be more accurate.
For an established company, one of the simplest methods of forecasting sales is based on historical data. Companies that have survived the first few difficult years are often able to make accurate predictions for the future based on last year’s data. To run a monthly forecast using historical data, an 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 yearly sales levels can be very important, since different companies can have different peak revenue months during the year.
A new business, of course, will not be able to rely on historical data. To come up with a sales forecast for the first few years, a new business will have to rely on external factors. One sales forecasting method that can be useful for new businesses is competitor analysis. If a person opens a shoe store, he may want to look at the historical sales of other shoe stores that are roughly the same size and targeted at the same demographic. It can be helpful to look at similar stores in similar communities, rather than analyzing regional competition directly, as adding the new shoe store to an existing market will often change the market.
It’s important to avoid sales forecasts in a vacuum, as spending habits and demand trends are based on dozens of external factors. Using market research in your sales forecast can help provide a clearer picture of your sales potential by including factors such as demand and economic trends. For example, if a small town has just gained a major new source of employment, such as a factory, spending may increase due to increased employment. Likewise, if a store’s main product was just deemed “unfashionable” by a major fashion magazine, sales could drop. Paying attention to external factors that can affect sales can create a more complete forecast.
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