How to Forecast Sales

If you intend to forecast sales, it might get a little difficult if you lack any previous sales history to guide you. This article will provide detailed information on how to forecast sales and better your business opportunities. Let’s check out some of the methods to forecast sales:

  • The first method would need you to calculate, for your type of location, that how many consumers needing your goods stay within, say one mile or two? Compared to your competitors, how much are these consumers ready to pay for these items annually and what part of their total spending will you get? Calculate the same way for within five miles. Remember, always use distances that make sense for your location and you should always maintain a lower sales forecast figures
  • Now for your type of business, you must adhere to the second method. You need to calculate the average sales volume per square foot for identical stores in identical sizes and locations. This won’t be the final figure for the sales forecasting, for a new business is not expected to hit the target for at least a year. However, this approach is far more credible, authentic and scientific than  a general two percent figure that is based on household incomes method
  • For the third method, you need to estimate revenues for each of the five service or product lines, if you plan to offer, say something like three kinds of goods plus two types of extra cost products. Make a rational assumption of where you think you will stand in the next six months. For example, decide like we will sell four of these items per day, and two of these, and three of the other. Once decided, go ahead and calculate the gross sales per day and multiply by 30 for the month. Furthermore, you need to scale proportionately from month number one to month number six. To be precise, build up from few sales or no sales from the first month to your month six sales level. Now calculate the same way from month six to month 12 to obtain the complete annual sales forecast figure

These were the three methods that would enable you to know how to forecast sales. However, there are some other things that you also need to consider. Let’s find them out.

Do More than one Sales Forecast

It is always advisable to use one or two of the aforementioned methods and generate three figures instead of one, namely, realistic, pessimistic and optimistic. Once done, put the figures in, depending on your business, month wise. Remember, there is a possibility that there could be huge variations by month.

Include Expenses in Your Sales Forecasting

Now put in your expenses by month, including big purchases by season or in whichever way you buy your goods and materials. Remember, you may buy materials in the month of September for Christmas, but not get all of your receipts until 40 days after Christmas. There are chances of big cash flow implications. Will you be buying capital equipment or vehicles? Always be sure to show depreciation expense. When it comes to expenses, keep aside an allowance for bad debts. Calculate how much of your sales are by credit card, how much by cash, or how much of your sales by your extending credit. If it is by credit card, then it is advisable to deduct for that part sold by credit say five percent or more for credit card expense. For payroll expenses, figure the estimated tax withholding payments to be paid to the government quarterly. If you are planning to approach a bank for financing, be prepared to answer questions like, have you kept any allowance for a reserve cash account, or for your slow months, or for a situation when you have to buy a vehicle or replace any equipment immediately? The bank can also ask that although you have fixed a price say ‘x’ for your product, but what happens when your competitor lowers the price of their product by almost 30 percent and still generates profit? What is your plan for future growth – are you planning to sell more to the existing customers, or sell new improved products to existing customers, or make new customers by selling your existing products, or attract new customers with your new products? Banks will judge how serious you are about your business, and if you have got any solid business plan or not.

So, these are the ways by which you can learn how to forecast sales. Remember, it is always smart to make realistic monthly calculations of income and expense rather than coming up with one big sales figure for the entire year. This will help you to make rational decision in the future help earn more profits and better your business prospects in the future. Be patient and calm and always hope for the best and slowly your business will touch greater heights and make greater sales.

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