Predicting is an essential part of every business. In order to make it simple and be prepared for every situation, you will need patience, research and time.
Five Tips for Developing a Sales Forecast
Predicting is a complicated process which involves various specialists. Today many companies are using artificial intelligence to create the most exact models. There are models which sales managers can use in specialized software or Excel. If you are running a small business and are new in the industry, then there are several basics which you should know.
Learn All the Options
There is no universal sales forecast formula which will resolve all your problems. Learn all the basic methods and decide which one is working for you. There are two types of forecasting approaches: quantitative and qualitative. The quantitative approach uses historical data from time-series or correlation information. The qualitative approach includes opinions from experts, decision-makers, or customers. The combination of both is a winning solution. However, in some cases, one approach is enough for a fair sales prediction.
- Naive Approach
- Moving Averages
- Exponential Smoothing
- Trend Projection
The naive approach means you look in the past and suppose that it will repeat in the future. Moving averages is the same method, but here you should analyze three different time periods and find the average number of sales. This number is your supposed prediction for the next period. The method is more robust than a naive approach; the number of periods can vary in accordance to your needs. You can treat different periods differently because all of them show different results. Exponential smoothing is a little more sophisticated. It is a matter of taking a weighted average approach when we are looking at moving averages. The method implies weighting periods differently because they may appear more relevant to the forecast. Trend projection builds a trajectory of what is happening. It is fairly visual, and you can see where you had good and bad periods. The methods help to analyze increasing trends and not only make a prediction but also find new business strategies.
- Executive Opinion
- Delphi Method
- Salesforce Estimates
- Consumer Surveys
Executive opinion includes a group of executives whom are going to make a decision or an opinion about what is going to happen in the next period. The Delphi method involves trusted advisors, compilers and decision-makers who give their opinion about what they think is going to happen. They can predict how many widgets are going to be sold in different markets and give other advice on running a business efficiently. Another group compiles all this data and interprets it. Decision-makers give a reasonable decision which includes sales predictions. A Salesforce estimate involves individual sales managers who make their own sales forecasting estimates. These estimates help business leaders determine what is going to happen in the upcoming periods. Consumer surveys are based on the opinions of the clients and the potential target audience.
Which Method Fits Your Business Plan?
A general overview of sales forecasting tools will help you to decide on what you need in accordance with your business. Start with the simplest naive approach or moving averages. They will help you to take a look at what stage you are in now and which forecast you will need. Before hiring sales managers, decision-makers, and survey specialists, research yourself. Controlling the situation will help you better understand what is going on with your product or service. If you are not satisfied with a simple method, you can always make an Excel table or use special software.
Simple Tips on Choosing and Developing Predictive Methods
If you still don’t know how to forecast sales, follow these simple tips which will help you move from considerations to actions.
1. Make It Simple
Don’t start with learning tutorials of special sales software unless you are assured that you are investing your time properly. Keep it simple and make reasonable decisions. Dedicate more time consulting with a few specialists rather than trying to learn all the forecast methods alone. No matter how much you try, there will always be a professional who will do it faster and more efficiently. You don’t have to be right all the time.
2. Start Now
Start immediately. Don’t wait until better times come. A forecast is the initial element of any business. For example, if you want to run a service with custom essays help or translate languages for international companies, then you don’t have to wait until the high period starts. You can start planning and forecasting in February when the number of orders is low and you have plenty of time for organizational issues. The sooner you do it the sooner you are going to be able to avoid obstacles. Being prepared means being ready to deal with any issues.
3. The Numbers Are Not Certain Accountings
These numbers belong to the players. Accountings are the scorekeepers in this proverbial game. It also includes forecasting. Despite the latest AI forecasting models, which use the latest self-learning and analytical methods to make the most accurate predictions, the numbers are not a guarantee. You have to keep this information in mind and always have a backup plan. Keep the score and don’t be disappointed if something goes out of plan.
4. Don’t Be Afraid to Make Mistakes
Make sure your culture is conducive to forecasting. Your objective is to find the truth but not to be right all the time. Sales forecasting is a long and complex process which requires common sense and the motivation to make educated guesses. You are going to make mistakes which is only a question of time. You are going to make them eventually. Having fear won’t help but will paralyze you from making reasonable decisions and moving forward. It is better to be prepared for everything and have a backup plan. You have to adopt a culture which doesn’t punish mistakes because people will quit telling you the truth.
5. Do It at the Frequency Your Company Needs It
Depending on your growth level and industry you are going to need it more or less. A material event is a good reason for a forecast. For example, if you are a startup and you are going to run the business eventually, there is a risk of you not having sales for a first few months. The initial prediction is an absolute must. The next one should take place after three months. Spend a year in such a rhythm and think about how often you are going to need it in the future. You can redefine your business’s sales if need be and keep testing out different strategies in accordance to what your forecasts show.
6. Meaningful Groupings
Break revenue and costs of sales into meaningful groupings. You can’t have one big revenue stream that you are predicting. Understand it according to customers. Here it is reasonable to understand your target audience. Try to find the criteria which will help you in classifying the groups. There is no universal grouping. You have to play with different groups and watch which numbers make sense. Understanding your customer will always lead you to success not only in sales predicting but in your business as a whole.
7. Acknowledge Your Cost
It is important to understand what in your product or service is fixed and what is variable. Most accounting does not really break numbers out this way so it may change your entire accounting system. Think about the consequences. Always consider the fixed and variable prices in your predictions. It can change the general picture entirely and can open your eyes to things you have never noticed before.