Sales forecasting for startups explained
Sales forecasting is essential in order for businesses to manage their stock, workforce, cash flow, to make important business decisions and to grow.
But you don’t need a maths degree or accounting software to master it. Just know your business and your market so that your predictions are accurate.
Let’s explore this further
What is sales forecasting?
Sales forecasting, in its most simplest, is predicting the sales your business is likely to make over a set period of time, the costs it will incur in doing so, and the leftover profit at the end. It is an evolving document which requires constant tracking and updating to ensure its accuracy.
You can forecast monthly, quarterly, bi-annually or annually, but the shorter the period of time, the more accurate your updates will be as opposed to a data-dump of a longer period. As a new business you won’t have the benefit of having historic data to establish a baseline and therefore it is even more important to consider every aspect that goes into the financial part of your business and adapt regularly.
You could also try a soft launch of your product or service, often referred to as a test-market analysis forecast and explained in this article by Close, which will allow you to build data from the release of a small number of your products in order to analyse what future sales may look like.
As a startup, a sales forecast will help you decipher how many sales you need in order to breakeven and begin making profit, and / or whether you need investment in order to get your business off the ground. Without this educated prediction, you would be unable to make informed decisions on even the simplest of business moves.
How to create your sales forecast
In order to create your sales forecast, you will need to:
- Make a comprehensive list of the goods or services your business sells; categorise if you need to.
- Estimate how many of each you are likely to sell, usually by month or by quarter, over a year – this should be based on your knowledge and sales / marketing activity.
- Multiply the selling price of each product or service by your sales estimate (monthly or quarterly).
- Identify the unit cost of making / delivering each product or service.
- Subtract the total cost from the total sales to establish your profit.
It is beneficial to have multiple forecasts – your best estimate, as well as optimistic and pessimistic versions. Your estimates may be based on variable assumptions, and therefore having best and worst case scenarios will assist you in business planning accurately should things change.
It will also show investors or incubator programmes, such as our own, that you understand what it will take to get your business making money, and how your sales may fluctuate.
Important things to consider
Sales forecasting is essential to business growth. Predictions of significant increases in sales may spur you to increase your team in preparation, or look for larger premises. Whereas shortfalls can be addressed by adapting to turn around those negative numbers before fruition.
But there are many things to consider, both internally and externally, that can affect your predictions.
Your forecast will take into account your sales trends, competitors, the economy, and how you anticipate your customers’ changing needs, therefore dedicating time to stay up to date in these areas will lead to accurate results. Another important, yet less frequent thing to consider is any changes in legislation that may affect your industry as these legally must be acted upon.
Internally, you must understand your processes, for example individual and business goals as well as the complexity of your sales process, and how these things will impact on money coming in. This goes for existing, evolving and new products.
Likewise, understand your costs and how fluctuations in the above could affect your forecast, including if you have to invest in your marketing efforts in order to launch a product or attract more customers.
As you can see, sales forecasting is a calculation to predict the future of your sales by using all of the variables around your business, and it fast becomes second nature to new entrepreneurs. However, if you’re interested in a helping hand this and more, you can apply for our next enrolment on our Apply Now page. In the meantime, grow your knowledge through the varied library of blogs we have, or contact us with any questions.