If you sell more
than one type of product or service, prepare a separate sales
forecast for each service or product group.
There are many
sources of information to assist with your sales forecast. Some key
Factors that can
- Special Events
- Competition, direct
- Competition, indirect
- External labour events
- Productivity changes
- Family formations
- Births and deaths
- Fashions or styles
- Population changes
- Service changes, type,quality
- Promotional effort
- Sales Motivation plans
- Price changes
- Shortages, inventory
- Shortages/working capital
- Distribution methods used
- Consumer earnings
- Political events
- Product changes, style,quality
- Credit policy changes
- Labour Problems
Forecasting for a New
steps for developing a sales forecast can be applied to most kinds
1: Develop a customer profile and determine the trends in
Make some basic
assumptions about the customers in your target market. Experienced
business people will tell you that a good rule of thumb is that 20%
of your customers account for 80% of your sales. If you can identify
this 20% you can begin to develop a profile of your principal
- Male, ages
20-34, professional, middle income, fitness conscious.
families, parents 25 to 39, middle income, home owners
- Small to
medium sized magazine and book publishers with sales from $500,000
by talking to trade suppliers about what is selling well and what is
not. Check out recent copies of your industry's trade magazines.
Search the Business Periodicals Index (found in larger libraries)
for articles related to your type of business.
2: Establish the approximate size and location of your
planned trading area.
statistics to determine the general characteristics of this
sources to determine unique characteristics about your trading
How far will
your average customer travel to buy from your shop? Where do you
intend to distribute or promote your product? This is your trading
Estimating the number of individuals or households can be
done with little difficulty using government census data. Statistics can identify
what the average household spends on goods and services.
Information on planned construction is available from a variety of sources.
Neighbourhood business owners, the local Chamber of Commerce, the
Government and the community newspaper are some sources that can give you
insight into unique characteristics of your area.
3: List and profile competitors selling in your trading
Get out on the
street and study your competitors. Visit their stores or the
locations where their product is offered. Analyze the location,
customer volumes, traffic patterns, hours of operation, busy
periods, prices, quality of their goods and services, product lines
carried, promotional techniques, positioning, product catalogues and
other handouts. If feasible, talk to customers and sales staff.
4: Use your research to estimate your sales on a monthly
basis for your first year.
The basis for
your sales forecast can be the average monthly sales of a
similar-sized competitor's operations who is operating in a similar
market. It is recommended that you make adjustments for this year's
predicted trend for the industry. Be sure to reduce your figures by
a start-up year factor of about 50% a month for the start-up months.
well your competition satisfies the needs of potential customers in
your trading area. Determine how you fit into this picture and what
niche you plan to fill. Will you offer a better location,
convenience, a better price, later hours, better quality, better
population and economic growth in your trading area. Using your
research, make an educated guess at your market share. If possible,
express this as the number of customers you can hope to attract. You
may want to keep it conservative and reduce your figure by
estimates month by month. Be sure to assess how seasonal your
business is and consider your start up months.
Forecasting for an Existing
revenues from the same month in the previous year make a good base
for predicting sales for that month in the succeeding year. For
example, if the trend forecasters in the economy and the industry
predict a general growth of 4% for the next year, it will be
entirely acceptable for you to show each month's projected sales at 4%
higher than your actual sales the previous year.
forecasts can come from those who have the actual customer contact.
Get the salespersons most closely associated with a particular
product line, service, market or territory to give their best
estimates. Experience has proven the grass roots forecasts can be
Forecasting and the Business
the data after it has been reviewed and revised. The summary will
form a part of your business plan. The sales forecast for the first
year should be monthly, while the forecast for the next two years
could be expressed as a quarterly figure. Get a second opinion. Have
the forecast checked by someone else familiar with your line of
business. Show them the factors you have considered and explain why
you think the figures are realistic.
Your skills at
forecasting will improve with experience particularly if you treat
it as a "live" forecast. Review your forecast monthly, insert your
actuals, and revise the forecast if you see any significant
discrepancy that cannot be explained in terms of a one-time only
situation. In this manner, your forecasting technique will rapidly
improve and your forecast will become increasingly accurate.