How to forecast sales - Making sales assumptions
Preparing a sales forecast is all about estimating future sales. This forecast forms a key part of any business plan and helps you to make informed decisions about your business. It won’t be 100% accurate unless you have a crystal ball, but it will provide a useful guide to help you budget and manage your business.
If you’re a new business, you will be relying on your market research to assist you in forecasting sales. An established business will be able to use past performance to predict future sales.
Sales Assumptions
These will form the basis of your forecast and will usually include:
- Seasonal Demands - Is your product or service sales likely to be affected by the seasons? Or are you a parent who will spend less time running your business during the school holidays? These are the type of questions that you will need to ask yourself when starting your forecast.
- Marketing Activity - It’s important to be aware of the relationship between your marketing activities and your sales. If you’ve planned your marketing, then it will be a fair assumption to make that you would see an increase in sales after a campaign or exhibition. Alternatively, if you need to cut your marketing spend during the year then you will expect this to have a negative impact on sales.
- Resources - If you plan to grow your team and employ someone or buy a new piece of machinery then you might make the assumption that sales will start to increase in the months that follow.
- Market Conditions – Uncertainty around economic issues such as Brexit may be something you believe will have an impact on your sales. A new competitor opening soon might also lead to you making conservative forecasts. The research you have carried out into your market will help you to address this aspect.
- Capacity – you will need to factor in your own/the business’s ability to be able to provide the products or services at the level at which you are forecasting.
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