Let’s suppose that your business experiences a 10% increase in customer orders in the upcoming three months. To take advantage of this opportunity, you might need to order more supplies, introduce changes to your work schedule or even hire someone to help out with the added workload.
If you don’t have enough time to adjust, you might struggle to meet demand and lose out on potential business as a result. That’s why it’s so important to have a forecast in place — it helps you have a better view of how your sales will most likely move in the near future, giving you the strategic opportunity to prepare.
To help you confidently approach this task, we’ve put together five small steps that will guide you through the process.
1) Look to the past
Making a realistic prediction actually depends on having a good understanding of what happened in the past. In terms of sales projections, you need to collect all of your sales from the previous months or years, and closely examine them.
The aim is to understand how your numbers are changing across the board — are there any noticeable upward or downward trends? Any repetitive seasonal ups and downs? This is invaluable information that can give you a better understanding of times when your business has done better or worse.
2) Discover influential factors
The important part of this step is to understand what might have influenced your sales. One example is discovering external factors that lead to seasonal rises in demand — Christmas and retail, for example. These events will differ depending on the type of business you run. While you have little control over the external factor itself, identifying it and building your schedule around it can help you make the most of the increase in customer interest.
There could also be influences that came internally — perhaps you introduced a small adjustment to your product or service in order to solve an internal problem, but the change also happened to trigger either a positive or negative response from your customers. If you make the connection between the result and the possible cause, you can find ways to improve your future performance.
3) Make things visual
Making things visual certainly helps, especially if you’re working with a lot of numbers. The good news is that businesses don’t necessarily need to buy expensive software to do it. There are several methods, including free Excel sheets, which can make all of the calculations for you and paint you a picture you can work with. Here are some helpful questions that can help you extract useful information from graphs and charts:
- How is the line changing overall – are my sales growing / decreasing / fluctuating / staying the same?
- Are there any particularly noticeable periods of time that show higher / lower numbers?
- Do these changes repeat across the years and what might be causing them?
In addition, based on your previous figures, Excel formulas can give you a rough estimate of what your future sales numbers should look like. While these calculations will rarely be 100% correct, they can still help you determine whether it’s reasonable to expect that you will be growing or maintaining the same level of business.
4) Consider upcoming opportunities
Now that you’ve done the first half of the equation, it’s time to look forward. Are there any promising leads or negotiations you’ve been working on that could impact how you do business in the future?
While it would be unreasonable to rely 100% on deals that haven’t been set in stone yet, you shouldn’t entirely ignore them either. Keeping these details in mind when you make plans adds that extra layer of strategic information when you approach major financial decisions.
5) Be prepared to make adjustments
Let’s go back to our example in the beginning with the 10% sales increase. If you notice a consistent upward trend in your numbers, or that the next few months tend to bring higher customer demand based on what you’ve seen from the last few years, it would be best to prepare.
But what if down the line you’re expecting high sales numbers, and they don’t happen? You can turn this to your advantage too. It could be a signal to stop and asses what might be disrupting the performance of your business.
While investigating, you might discover that a competitor has launched a bold new marketing campaign and is diverting customer attention. Or an event has kickstarted a new trend that is influencing customer behavior and you’re not offering the product or service they’re interested in (but you could!). A forecast can act as the baseline for you to discover these signals and respond.
Overall, having a sales forecast can assist you in a variety of ways. Give yourself enough time to carefully analyze your past figures and future opportunities, and the numbers will naturally start to guide you to better business decisions.