Sales Forecasting Techniques
Think of your sales forecast as an educated guess. Forecasting
takes good working knowledge of your business, not advanced degrees or
complex mathematics. It's much more art than science.
The research for a good forecast is almost always harder than the final
process of actually making the educated guesses. Your business size can
determine whether your forecast may be simple or detailed. When the research
is already done, the mechanics of sales forecasting are relatively simple.
Forecasting is usually easier when you break your sales down into manageable
parts and then forecast the parts. Estimate your sales by product line,
month by month, and then add the product lines for all months. Typically
you'll need to project monthly sales for the next 12 months and annual
sales for the following three years.
These steps for developing a sales forecast can be applied to most kinds
Step 1: Develop a customer profile and determine the trends in your industry.
Make some basic assumptions about the customers in your target market.
Experienced business people will tell you that a good rule of thumb is
that 20% of your customers account for 80% of your sales. If you can identify
this 20% you can begin to develop a profile of your principal markets.
Sample customer profiles:
male, ages 20-34, professional, middle income, fitness conscious.
Young families, parents 25 to 39, middle income, home owners
Small to medium sized magazine and book publishers with sales from $500,000
Determine trends by talking to trade suppliers about what is selling
well and what is not. Check out recent copies of your industry's trade
magazines. Search the Business Periodicals Index (found in larger libraries)
for articles related to your type of business.
Step 2: Establish the approximate size and location of your planned trading
area. Use available statistics to determine the general characteristics
of this area. Use local sources to determine unique characteristics about
your trading area.
How far will your average customer travel to buy from your shop? Where
do you intend to distribute or promote your product? This is your trading
Estimating the number of individuals or households can be done with little
difficulty using statistics census data. Statistics family expenditure
survey can identify what the average household spends on goods and services.
Information on planned construction is available from a variety of sources.
Directories the Yellow Pages can help identify names of companies located
in your trading area.
Neighborhood business owners, the local Chamber of Commerce, the Government
Agent and the community newspaper are some sources that can give you insight
into unique characteristics of your area.
Step 3: List and profile competitors selling in your trading area.
Get out on the street and study your competitors. Visit their stores
or the locations where their product is offered. Analyze the location,
customer volumes, traffic patterns, hours of operation, busy periods,
prices, quality of their goods and services, product lines carried, promotional
techniques, positioning, product catalogues and other handouts. If feasible,
talk to customers and sales staff.
Step 4: Use your research to estimate your sales on a monthly basis for
your first year.
The basis for your sales forecast can be the average monthly sales of
a similar-sized competitor's operations who is operating in a similar
market It is recommended that you make adjustments for this year’s
predicted trend for the industry. Be sure to reduce your figures by a
start-up year factor of about 50% a month for the start-up months.
Consider how well your competition satisfies the needs of potential customers
in your trading area. Determine how you fit in to this picture and what
niche you plan to fill. Will you offer a better location, convenience,
a better price, later hours, better quality, better service?
Consider population and economic growth in your trading area.
Using your research, make an educated guess at your market share. If
possible, express this as the number of customers you can hope to attract.
You may want to keep it conservative and reduce your figure by approximately
Prepare sales estimates month by month. Be sure to assess how seasonal
your business is and consider your start up months.
Learn more about Sales
of Sales Forecasting
and Belivable Sales Forecasts
Back to Statistical
Forecasting Home Page