If you’re a small business owner, you have a lot of responsibilities to juggle on a daily basis.
Amidst this, it’s all too easy to neglect the pivotal role that sales forecasting plays in the enduring prosperity of your business.
What is sales forecasting?
Sales forecasting involves anticipating future sales, by drawing upon historical data, market trends, and other influential factors.
This process equips business owners with invaluable insights to inform their operational, marketing, and financial decisions.
A sales forecast provides a clear picture of expected revenue, empowering you to identify potential risks and opportunities, allocate resources suitably, and stimulate growth.
Why should SMEs prioritise sales forecasting?
Whilst offering a view into your projected business income and unveiling new opportunities, sales forecasting presents several additional benefits:
- Financial planning: Sales forecasts form the bedrock of all financial planning, encompassing budgeting and cash flow management.
Accurate sales predictions assist you in making decisions about when to expand, allocate resources, or curb expenses. This is particularly vital for SMEs that often operate with limited financial resources.
- Inventory management: An accurate sales forecast enables you to avoid stock shortages and surplus inventory, preventing lost sales, disgruntled customers, and increased costs.
By anticipating demand, you can streamline inventory levels, minimise waste, and ensure timely product availability.
- Workforce planning: Sales forecasts can aid you in determining whether to recruit additional staff, upskill current employees, or adjust work schedules.
This is especially pertinent for SMEs experiencing seasonal demand fluctuations or planning to introduce new products or services.
- Setting goals and performance assessment: Establishing achievable sales targets based on accurate forecasts can galvanise your team and offer clear business direction.
Moreover, comparing actual outcomes with your forecasts can help evaluate performance, identify areas for enhancement, and modify your strategies as necessary.
Approaches to sales forecasting
The best sales forecasting method for your SME depends on the nature of your business and the data at your disposal.
Here are three widespread methods:
- Historical data analysis: This approach scrutinises past sales data to detect patterns and trends. By adjusting for factors like seasonality, new products, or market shifts, you can formulate a sales forecast grounded in historical performance.
- Market research: This strategy employs external data, such as industry trends, competitor performance, and economic indicators, to project future sales. Market research can be immensely beneficial for SMEs venturing into new markets or launching new products.
- Sales funnel analysis: This method focuses on your sales pipeline, examining the different stages of your sales process, and estimating conversion rates.
By understanding how leads progress through your funnel, you can develop a more accurate sales forecast and pinpoint areas for improvement.
Struggling with sales forecasting?
Here are some helpful tips:
- Involve your team: Seek input from sales, marketing, and other relevant departments to ensure your sales forecast embodies a comprehensive understanding of your business.
- Regularly update your forecasts: Revise your sales forecasts routinely to incorporate new information and maintain accuracy.
- Utilise multiple methods: Combining different forecasting techniques can provide a more accurate and well-rounded perspective, enabling you to make better-informed decisions.
- Learn from your mistakes: Monitor the accuracy of your forecasts and analyse any discrepancies to continually refine your forecasting process.
Contact us for support with sales forecasting and your business plan.