Forecasting sales is essential, from the very beginning of your business venture. You will need to forecast sales at the stages of when you are putting together your business plan. Any potential investors will need to see the sales forecasts to see how well a business is predicted to perform.
For the first year of your forecast sales, you will need to give a breakdown of each month including unit prices, directs costs and gross margin. It is recommended that you also forecast sales for the following two years however these can be brief and just be annual forecasts rather than monthly. Aim to be conservative with the costs that you are putting down, that way it gives room for error.
You don’t have to be an accountant or a mathematician to forecast your sales, if you have researched and/or have previous experience in running a business, then this will be sufficient enough for you to make a good, educated guess. Forecasting sales will likely not be fully accurate. The idea of having sales forecasts is to give you an idea of actually running the business and incomings and outgoings of your money.
Here are some of the things you need to consider when you are putting together your forecast sales.
Use existing data
There are couple of difference sources of data that may be available to you. If you have been running your business for a couple of years, then you will have the data from previous years to direct you. Also the data based on actual previous sales will make for a more accurate forecast. Another source of data is from your previous experience as an entrepreneur. If you have worked on a similar business previously, then this knowledge will also help you and guide you whilst making your sales forecast. Lastly, if you are just starting up your business and have no previous experience then you need to carry out your due diligence. You need to complete full market research, from talking to industry experts to getting prices from manufacturers and suppliers. Having a good sales forecast in your business plan will give you more funding options to start your new venture. You need to show that you are prepared and have the right knowledge through research.
Before you are able to forecast your sales, you need to set prices (or an estimation of prices). Try to put a price on all the individual products and services that you will be selling. In order to set the prices, you will need to carry out comprehensive market research. Your market research should include; the industry prices, the competitors prices as well as, talking to suppliers and manufacturers to get an idea of the value of the products/services. Collating the three sources of research should give you a good enough idea to put a price on your products and services.
Project unit sales
In order to project your unit sales, you will need to work out what units your business operates in. For example, if you sell products then they are obviously units however if you offer a service it may be difficult to work out the units. If you are a hair salon, then a customer getting a haircut will be one unit. Or if you are a restaurant then a meal will be one unit. Then you need to work out the sales of each unit per month. Estimate how many meals you are going to sell or how many bookings you are going to get at your hair salon.
Highs and low tides
When working out your projected unit sales, you also need to make sure that you are working out a good and accurate average unit sale. For example if you are a mechanic running a car garage, you could be performing full car services, but you will also perform simple tyre changes which will cost a lot less. So you will need to find out what your average unit sale is. You also need to consider that you may be busier at the weekends than you are on week days, or your business may be quieter over the Christmas period. These seasonal and any other particular highs and lows of sales need to be considered in your projected unit sales.
You will also need to work out your direct costs in order to get a gross margin and work out the revenue.
Essentially: Sales – Direct costs = Gross Margin.
Direct costs are the costs that you will have to pay to your manufacturers/suppliers. This is the original price of the product that you will be paying to the source. To work out the direct costs you will need again need to carry out market research as well as contacting manufacturers and suppliers directly in order to get those prices. You will need to research the industry gross margin, this will help you see how your business is performing compared to competitors and others in the industry.
Working out these different costs as well as setting prices of your products and services will enable you to create a reasonably good forecast of sales. You must remember that a sales forecast is just that, a forecast. You must also take into considerations that there may be external factors that could affect the sales of your business.
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