Sales Forecasting : Definition, Benefits, and How to Do It

Sales Forecasting : Definition, Benefits, and How to Do It

Sales forecasting is a crucial process for businesses that enables them to predict future sales. This helps businesses prepare the necessary products and prevent stock shortages as well as lost revenue opportunities. Sales forecasting also helps businesses avoid overproduction, which can result in excess inventory and the unnecessary use of warehouse space, as well as the risk of unsold products. In this article, you will learn more about what sales forecasting is, its benefits for businesses, and how it is done.

   

What is Sales Forecasting?

Sales forecasting is projecting a company’s sales revenue for a period, such as every month, quarter, or year. Simply put, sales forecasting estimates the amount of products or services a company will sell in the future.

In conducting sales forecasting, businesses analyze economic conditions, consumer trends, purchase history, and competition to make accurate predictions. This approach helps businesses plan, allocate resources, and identify opportunities and risks.

Benefits of Sales Forecasting for Businesses

Sales forecasting is a critical aspect of business as it helps in estimating the number of products that need to be produced. It is essential to understand why sales forecasting is important and the benefits it offers.

Making Better Business Decisions

Sales forecasting provides businesses with a bigger picture of the direction they should take, considering factors such as product launches, market expansion, potential mergers and acquisitions, and more. With this understanding, businesses can make informed decisions that align with the long-term goals of the company.

Resource Allocation

Sales forecasting helps businesses ensure that their resources, such as manpower, capital, or technology, are allocated correctly and efficiently. Proper allocation prevents waste in unprofitable areas, while areas with high potential receive the appropriate attention and investment.

Better Budget Planning

Sales forecasting enables businesses to project the revenue to be achieved and the costs needed in the future accurately. This can be done based on the business’s ability to predict performance in both the short and long term.

How to Do Sales Forecasting

Sales forecasting can be done using various methods, such as:

Sales Forecasting Using Historical Data

Businesses can use historical data such as financial reports and client billing documents to forecast sales. 

However, it’s essential to note that historical data can also include macroeconomic data such as consumer confidence indices, interest rates, or other economic variables that impact the business.

Sales Forecasting with Regression Analysis

Regression analysis is a method that identifies the relationship between independent variables and dependent variables. For instance, the dependent variable could represent sales made by the company, while the independent variable could signify the prevailing interest rate at that time.

Another instance of sales forecasting using regression analysis involves identifying the correlation between changes in advertising spending and sales figures. This helps businesses get a handle on what’s happening in the market.

Sales Forecasting Using Funnel Approach

A sales funnel is a marketing strategy that depicts the journey of prospective customers, from the initial discovery of an offer or product to the purchasing stage. By monitoring consumer progress in each stage of the sales funnel, businesses can use this information for sales forecast analysis.

Sales Forecasting Based on Multiple Variables

Businesses can use data analysis to predict sales cycles by incorporating more values. The more variables used, the more accurate and reliable the results will be.

Sales Forecasting Using Lead Value

Lead value is a method of measuring the worth of a lead based on its revenue potential and likelihood of converting it into a sale. To calculate it, businesses need to determine the sales value and conversion rate of specific leads. Utilizing the value assigned to each lead, businesses can predict revenue in the current pipeline and identify adjustments needed to meet sales goals.

Sales Forecasting Based on Sales Cycle Length

This approach utilizes information about the time it takes for a potential customer to convert into a paying client. For instance, if the typical sales cycle lasts for 6 months and the sales team has been engaging with a prospect for 3 months, there’s a 50% chance of successfully converting them into a customer.

This method is particularly effective for predicting sales because it relies on objective data rather than subjective factors like employees’ instincts or personal opinions.

Factors Influencing Sales Forecasting

Once you understand what sales forecasting is, its benefits, and how to do it, now let’s move to discuss the factors that influence it. Below are the main factors that can impact sales forecasting.

Economic Situation and Conditions

The first factor that can influence sales forecasting is the economic situation and conditions. The state of the economy can have a significant impact on various aspects, including businesses and markets. If the economy is in a recession, many people may not have the means to buy products or services, which can lead to decreased sales. Conversely, when the economy is strong, people are more likely to invest or buy products and services.

Policy Changes

Policy changes can have both positive and negative impacts on your business. For example, the recent closure of TikTok Shop could cause thousands of merchants to incur losses, while others may profit from the policy. Therefore, when making sales predictions for the next period, it’s crucial to consider any policy changes that could affect your business.

Industry Changes

Changes in the industry, such as new technological advancements, new campaigns launched by competitors, or the entry of new businesses into the same market, can significantly affect sales predictions. It’s essential to keep an eye on any industry changes that could affect your business and adjust your sales forecasting accordingly.

Product Changes

The factor that influences the next sales prediction is changes to the product. Examples include launching a new feature due to high demand, removing less effective features, or fixing bugs.

Forecast Your Business’s Sales with LOKASI Intelligence

The purpose of sales forecasting is not only to estimate future sales but also to provide businesses with the information they need to make informed decisions and facilitate future business growth.

To conduct sales forecasting, businesses can begin by utilizing LOKASI Intelligence.

LOKASI is an analytics and geospatial data platform integrated with location intelligence. It simplifies the process for businesses to perform sales forecasting and predict sales for a specific period.

Learn more about how LOKASI Intelligence can help businesses by contacting via email: sales@bvarta.com or WhatsApp: 087779077750

FAQ

Why is sales forecasting important?

Sales forecasting is important because it helps businesses make better business decisions, allocate resources effectively, and plan budgets more accurately.

How to perform sales forecasting?

Ways to perform sales forecasting include using historical data, regression analysis, funnel-based forecasting, forecasting based on multiple variables, lead value forecasting, and forecasting based on sales cycle length.

What does forecast mean?

Forecast means estimating or predicting something in the future, while sales forecasting is the process of projecting a company’s sales revenue for a period.

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