What is Forecast sales? Here’s the full discussion
What is Forecast sales?
Forecast sales or sales estimates are the process of estimating future income by predicting the number of products or services to be sold by the sales unit (which can be individual salespeople, sales teams, or companies) on Sunday, month, quarter, or the following year.
Simply put, sales forecasts are a projected size on how the market will respond to efforts to enter the company’s market.
Why is the sale forecast important?
Estimates are about the future. It is difficult to exaggerate how important it is for companies to produce accurate sales estimates.
Private companies get trust in their business when leaders can trust estimates. For public companies, accurate forecasts provide credibility on the market.
Finance, for example, depends on forecasts to develop a budget for capacity and recruitment plans. Production uses sales forecasts to plan the cycle. Forecasts help sales operations with regional planning and quotas, supply chains with material purchases and production capacity, and sales strategies with channel strategies and partners. These are just a few examples.
Unfortunately, in many companies, this process remains disconnected, which can produce a detrimental business. If information from sales forecast is not shared, for example, product marketing can make a request plan that is not in line with the sales quota or sales achievement rate.
This makes the company have too much inventory, or too little inventory, or an inaccurate sales target – all errors that harm profits in your business. Committed to the estimated quality and regular sales can help avoid expensive mistakes.
What are the benefits of having an accurate sales estimate?
- Accurate sales forecast process provides many benefits. These include:
- Better decision making about the future
- Reduction of sales lines and risk estimates
- Alignment of sales quotas and income expectations
- Time reduction spent planning regional coverage and setting quota determination
- Benchmarks that can be used to assess trends in the future
- The ability to focus on sales teams on opportunities for high-income sales lines and high profits, which produce a better level of victory
How to do sales forecast accurately
To make an accurate sales estimate, follow the following five steps:
1. Assess the historical trend
Check sales from the previous year. Break the number based on prices, products, representatives, sales periods, and other relevant variables.
For all it becomes a “sales level”, which is the number of sales projected per sales period. This forms the basis of your sales estimate.
2. Combine change
This is where estimates become interesting. After you have a basic sales level that is run, you want to change it according to a number of changes you see will come. As an example:
Do you change the price of a product? Are there competitors who might force you to change your price scheme?
How many new customers do you anticipate to land this year? How much do you land the previous year? Have you hired a new representative, getting a measured brand exposure, or increasing the possibility of getting new customers?
Will you run a new promotion this year? How many ROI on previous promotions, and how do you expect a comparison with a new promotion?
Do you open a new channel? New location? New region?
Do you introduce new products? Change your product circuit? How long does the previous product need to get an attraction on the market? Do you expect new products to act similar?
3. Anticipating market trends
Now is the time to project all market events that you have tracked. Are you or your competitors will go public? Do you anticipate the acquisition? Will there be a law that changes the way your product is accepted?
4. Monitor competitors
You are most likely to have done this, but consider competitor products and campaigns, especially the main players in the field. Also check to see if new competitors may enter your market.
5. Include a Business Plan
Add on all your business strategic plans. Are you in growth mode? What is the recruitment projection for this year? Is there a new market that you are targeting or a new marketing campaign? How does all this affect estimates?
After you count all these things, stack it into your estimate. You want everything to be detailed, so you can understand the approximate as much as possible.
Different stakeholders in the company are likely to understand the various aspects of the estimate, so you must be able to zoom in or zoom out as far as needed.
Should you do the estimated bottom-up sales or top-down sales estimates?
In general, there are two types of sales estimates: Bottom-up estimates and top-down estimates.
The bottom-up estimate begins by projecting the number of units that the company will sell, then multiply the number at an average cost per unit. You can also build a number of locations, the number of sales representatives, the number of online interactions, and other metrics.
The idea behind the estimated sales bottom-up is to start with the smallest component of estimates, and build from there.
The advantage of the bottom-up estimate is if there are changing variables (such as cost per item, or number of representatives), forecasts are easy to change. It also provides detailed information. Top-down sales estimates begin with the total size of the market, then estimate the percentage of the market that can be won by the business.
If the market size is $ 500 million, for example, a company can estimate that they can win 10 percent of the market, making their sales forecast $ 50 million for that year. When making sales estimates, it’s important to use these two methods.
Start with the top-down method, then use the bottom-up approach to see if your first estimate is possible. Or do both separately and see how well the suitability is. To produce the most accurate estimates, the company must carry out both types of estimates, then adjust the two to produce the same amount.
The key to success in doing sales forecasting
Increase the accuracy of your sales forecast and the efficiency of the forecast process depends on many factors, including coordination of strong organizations, automation, reliable data, and analytical based methodologies. Ideally, sales estimates must:
Leaders must combine input from various sales roles, business units, and regions. The frontline sales team can be very useful here, providing an overview of the market that you have never considered before.
Based on data
Predictive analysis can reduce the impact of subjectivity, which is often more looking back than looking forward. Using the definition of general data and basic lines will encourage harmony and save time.
Produced in real time
Investing in real time capabilities to correct or respect allows sales leaders to get insight quickly so that they can make more appropriate decisions. This allows them to quickly and accurately renew the forecast on demand or market change.
Single sourced, with many views
Produce estimates as a data source gives you good visibility about the reputation, region, and company performance, and helps harmonize various business functions throughout the organization.
Better than time to time
Use data provided by an enhanced sales forecast process to make future estimates that are more filtered with increased accuracy from time to time against a set of targets accuracy.
Companies with better processes and forecasting tools perform better than similar companies because they better understand their business drivers and have the ability to form results from the sales period before the period is closed.
What are the main challenges in sales forecast?
It may be difficult to produce an accurate estimate of sales consistently. Some of the keys to success in sales forecasting:
Accuracy and distrust
When companies use spreadsheets for sales forecasts, they can experience accuracy problems, which ultimately make less reliable estimates. This accuracy problem can be exacerbated by:
- The application of poor CRM throughout the company, and employees do not enter data at the right time
- Data is inconsistent in all teams or sales staff do not enter complete data.
- Stakeholders throughout the company use different methodologies to produce their estimates
- Inadequate collaboration throughout the product, sales and financial teams. This lack of collaboration can be increased when the company makes sales forecast manually or use a spreadsheet.
Although it produces quality sales estimates depending on the forecasters that make good decisions on how to use data, in general, companies rely more on assessment and less credible predictive analytics than they should.
Companies that predict the weighting of simple arithmetic pipes, for example, may lose the real nuances of driving accuracy, which may be in the form of a number of employees, price decisions, or point-to-market emphasis points.
When sales forecasts are not made in a way that makes it useful for stakeholders throughout the company, it becomes much less effective than it should be. A good estimate must produce data relevant to many teams, and can be understood by them.
Forecast sales can be very difficult to make when inefficiencies are included in the estimated process. For example, if estimates have many owners, or the estimated process is not clearly described by a set of standard rules, there may be disputes about how estimates will be produced.
Similarly, if the input into the forecast is not reconciled before the forecasts are produced, the forecast itself may experience many revisions, which can reduce trust in forecasts if the version is launched and then revised.
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