Future events can often be unpredicted. It is possible for the world to suddenly experience unexpected global events, as the past two years has shown. You can still improve your understanding of how the company’s future will look in the business world. To help make forecasts and make action plans, you can use a sales forecasting software. In this article, we’ll delve further into the topic of sales forecasts and why they are so essential to a successful business. The right information can make it possible for a company to survive any economic storm it might face.
Why Sales Forecasts are Important
Sales forecasts are primarily based on predictions of the quantity of a product that a business estimates they’re likely to sell. They can then:
- Determine the expected profit or loss. This forecast is vital to help you make a profit prediction. Profit is the ultimate goal of most companies.
- Prepare cash flow forecasts. It is an important part of business planning. By looking at sales forecasts in terms of the income, that’s going to be the biggest cash inflow for any business. This information will help them build all their cash flow forecasts.
- Plan for staffing. Sales businesses expect to hire more people to achieve that output.
- You should plan the production level you require. There is no benefit in having demand for a product if that can’t be met with supply. By making projections of how much they can sell, businesses can plan production levels to fulfill that demand.
Factors that Affect Sales Forecasts
A wide range of factors can affect a business’s sales forecast. All these variables can affect how accurate the forecast may be. A successful company must also be flexible and adaptable in order to take advantage of the changing circumstances. Some examples of such factors are:
- Consumer trends. The broad definition of consumer trends covers many different areas, including demographics and buying patterns, changing tastes and fashions and shifting trends. As well as changes in consumers’ needs, there will be changes in smaller areas like taste and fashion. A shift in food trends, for example has resulted in a surge in sales of plant-based foods. The 2021 sales of vegan foods grew 2.5 times faster than those in previous years. This year’s expected growth in the market for plant-based products is 18.9%. This would lead to a rise in vegan product supplier sales, and a decrease in meat vendor sales.
- The economic factors. For example, a sudden spike inflation can lead to a big rise in uncertainty which would in turn lower consumer spending as buyers are not confident about what’s happening in the future. Alternately, falling interest rates would mean that consumers will have to pay less for their mortgages. This might lead to them spending more on other products and resulting in higher sales than expected.
- Concurrent actions. This will increase their visibility significantly if a competitor launches an enormous promotional campaign or sponsors a highly publicised event. In this case you’re going to find that some consumers that you would have expected to buy from you are going to move across to competitors. Similarly, if your competitors cut their prices and start offering better deals, then you’re going to lose out on consumers and your sales are going to be lower than what you might have forecast originally.
Problems in Sales Forecasting
The way data is collected can cause problems in sales forecasting. Extrapolation refers to the use of past trends and data in order to forecast what will happen in the future. This process is used as the foundation for most sales forecasts however, just because something happened before doesn’t necessarily mean it will happen again or continue to happen in the future. Extrapolation can be a quick and easy method to forecast, but it is not reliable due to historical fluctuations. It is often a fast and inexpensive option to forecast sales, but it assumes that the same trends as in the past will continue. It is extremely unlikely that this will happen in most competitive business environment, as previously mentioned. The method does not account for qualitative elements such as trends and changes in fashion, which are factors that can’t be accurately incorporated into sales forecasting.
Software that Saves the Day
The software handles all of the calculations for you. Software can generate a detailed report about expected sales by analysing historical data. Forecast analysis shows the sales targets against actual sales and highlights potential sales. Sales forecasting software often includes templates. These templates perform analysis using the data available and produce forecast reports. You can usually program templates so they include market and sales conditions simulations.
Forecasting, in essence, is an evaluation process. This includes self-assessment and market assessments, as well as self-reflection. You will need both financial and market information to make an accurate forecast.
Although sales forecasting results may not always be perfect, they can help to eliminate some guesswork from making business decisions. Knowing the future is key to making powerful business decisions. Knowledge is power. You will be able to chart the course for your company with all of the data in the sales forecast report.
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