Sales Forecasting for a New Business
These
steps for developing a sales forecast can be applied to most kinds of businesses:
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 to $2,000,000
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 area.
Estimating the number of
individuals or households can be done with little difficulty using Statistics Canada
census data. Statistics Canada's Survey of Family Expenditures can identify what the
average household spends on goods and services.
Neighbourhood 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
yearıs 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 15%.
Prepare sales estimates month
by month. Be sure to assess how seasonal your business is and consider your start up
months.
go
to top
Sales
Forecasting for an Existing Business
Sales
revenues from the same month in the previous year make a good base for predicting sales
for that month in the succeeding year. For example, if the trend forecasters in the
economy and the industry predict a general growth of 4% for the next year, it will be
entirely acceptable for you to show each monthıs projected sales at 4% higher than your
actual sales the previous year.
Credible forecasts can come
from those who have the actual customer contact. Get the salespersons most closely
associated with a particular product line, service, market or territory to give their best
estimates. Experience has proven the grass roots forecasts can be surprisingly accurate.
go
to top
Sales Forecasting
and the Business Plan
Summarize
the data after it has been reviewed and revised. The summary will form a part of your
business plan. The sales forecast for the first year should be monthly, while the forecast
for the next two years could be expressed as a quarterly figure. Get a second opinion.
Have the forecast checked by someone else familiar with your line of business. Show them
the factors you have considered and explain why you think the figures are realistic.
Your skills at forecasting
will improve with experience particularly if you treat it as a "live" forecast.
Review your forecast monthly, insert your actuals, and revise the forecast if you see any
significant discrepancy that cannot be explained in terms of a one-time only situation. In
this manner, your forecasting technique will rapidly improve and your forecast will become
increasingly accurate.
