What are the Benefits of Sales Forecasting? (+free forecasting model)

Forecasting your sales is an art and a science.

While your sales forecast might be a best guess, with using some basic tools and strategies you can get a very good idea of your future sales.

The biggest benefit of sales forecasting is you get a projection of what your sales can become. By forecasting sales you can set sales goals, expectations, develop your marketing budget, have better inventory management and allocate supporting staff needs, among other benefits.

Sales forecasting is primarily a data hybrid between business analytics, marketing metrics and sales numbers. 

Often, the roadblock to increasing sales is not always the sales and marketing team. A common block to optimizing sales is in inventory management, the actual production of the product or service and even the supporting staff being able to handle the workflow. These are called constraints and will be discussed in future forecasting tutorials.

There are many many ways to forecast your sales. In this tutorial we are going to review and give you a sample sales forecasting method that almost anyone can do without expensive software. All you will need for this example is Google Sheets or excel and some basic skills you can learn from YouTube  videos or supporting docs.

The sales forecasting method we are going to review today is simply called our Sales & Marketing Forecasting model and you can use it for a new product or an existing product.

Before we dig into this forecasting model, let first briefly discuss some benefits of and methods of sales forecasting.

What is Sales Forecasting best used for?

Have you ever asked yourself? … 

  • What is your ideal revenue target for the year? 
  • Do you need to increase your sales team members to hit sales targets? 
  • How much inventory should I order?
  • How much will a new product bring in profits? 

These, and similar questions, are the ones CEOs, sales managers, and sales teams ponder daily. 

The sales sector is your business’ lifeline, so having at least a general idea of what lies in the future helps you make better decisions. The answer to the questions on what to expect in future sales lies in sales forecasting.

Sales forecasting entails an estimation of the sales your company can expect over a specified period in the future. 

Depending upon the business, sales forecasting can be quarterly, annually, half-yearly or weekly. Sales forecasting is often based on current economic trends, industry-wide comparisons, and past sales. 

9 Benefits of Sales Forecasting

The following are some of the major benefits of sales forecasting for your products and services.

  1. Sales forecasting helps companies plan and get the most effective approach for achieving their forecasted sales.
  2. Sales forecasting can help you generate numbers that can be used to allocate your resources to different departments.
  3. Sales forecasting will influence the compensation and sales quotas of your sales team.
  4. You can use your sales forecasting numbers to maintain a balance between supply and demand for your brand on the market.
  5. Sales forecasting can help you determine an optimal pricing policy.
  6. Sales forecasting can become your basis for opening new industrial or shopping establishments.
  7. Sales forecast data will help you identify problems as they arise so they can be dealt with promptly.
  8. Sales forecasting numbers will help drive performance because you set goals, targets and expectations.
  9. Sales forecasting helps you know the needs of your target market so you can tailor the features and benefits of your product to satisfy clients.

What Is The Best Method To Forecast Sales?

The ideal technique for forecasting sales depends on your service or product and your available sales data. 

Sales forecasting methods are categorized according to their data input types into quantitative and qualitative methods. 

  • Qualitative sales forecasting techniques are based on the judgment of experts and the key decision-makers in your industry. They are often used in situations that have little to no historical data on the demand for a service or product, primarily a new one. 
  • Quantitative sales forecasting techniques are based on sales data. Here is a diagram summarizing the types of quantitative and qualitative sales forecasting methods.

Here is a brief summary of some of the common sales forecasting techniques:

  • The expert’s opinion method is the simplest and includes experts in your field estimating your sales. For example, if you are a franchisor and sold 20 franchises last year, a franchise industry expert may be able to look at the environment and review your current metrics in order to forecast your sales. This is a qualitative sales forecasting method.
  • Consumer survey techniques entail collecting views from buyers on what they expect your product or service to deliver so you know how best to package your brand for the highest returns.
  • In a moving average, a review of the average of your past sales numbers is used to estimate your future sales. Exponential smoothing works similarly but places more emphasis on recent past sales than earlier past sales.
  • In time series analysis, relevant past data patterns are used to predict your sales. This technique works best in a stable market where there is minimal erratic consumer behavior.
  • Regression analysis entails using equations that explain sales fluctuations caused by casual and related variables to forecast sales.
  • Econometric models are used for predicting sales of durable products like machines. They present real-world issues and use formulas to solve them, then estimate expected sales or predict how they will affect sales.

How Do You Forecast the Sales of a New Product? (Free model)

Forecasting future sales of a new product is difficult.

One effective method is to test small and roll out bigger.

For example, if you have a customer list, you could sell your new product to a well defined number in your list. Let’s say you have identified 1,000 customers.

Once you determine a conversion rate, let’s say you sell 100 products to this segment of your list, now you have a 10% conversion rate to your house list. Now you have something to work with.

For this simple example, if you have a list of 100,000 customers, you can forecast that 10% of your list will purchase your new product and you will sell 10,000 products. 

But most new product forecasting isn’t so straightforward. In fact, most sales forecasting is much more “muddy”.

There is no method from the above touted as the best for forecasting the sales of your new product or service. Below are the basic steps of sales forecasting for a new product, irrespective of the method you choose.

When considering what will work best for your brand, here are some tidbits to keep in mind:

  • Make small, focused predictions because market segments will react differently to new products.
  • Be flexible with your time because sales will differ at different times of a week or month when you introduce a new product.
  • Run multiple forecasts altering as many variables as possible to generate a range of results.
  • Reforecast frequently when your product is on the market.

Now let’s continue with our previous example of targeting our customer list of 100,000 and assuming a 10% conversion rate. Here’s an example model that you can use to forecast your sales. Notice for this example, this product is just a 1 time per year purchase. 

Now, let’s change the model to assume your product may be a monthly purchase, or 12 times per year. Based on your business, you can change the expected market share based on your data and or your experience.

Here’s what this sales forecast looks like:

Go here to access the Google Sheets version of this Sales & Marketing Forecasting Model

 It is free for your use. Go to File > Download > Microsoft Excel (or whatever you want) to save it for yourself.

Sales forecasting is an art and science that will significantly affect your success in business. 

The time and money you spend on this crucial aspect will thus not go to waste. 

Though you have gleaned a general idea of what to expect from sales forecasting from the information above, it is not as straightforward as you might assume. Some challenges you might face include unpredictable markets, seasonality, and insufficient data. 

Get an experienced and trusted Strategic Marketing Partner help you achieve the highest possible benefits.

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