3 tips to improve your sales forecasts
The importance of a sales forecast is no longer in doubt. Companies usually use a sales forecast to adapt their offer to the market demand in order to increase their profits and annual turnover. Given the objectives to be achieved, they are required to design an effective sales plan. Thus, the question of developing a sales forecast, adapted to the realities of the companies, is still relevant. There are many avenues that business leaders can explore to design a sales forecast with viable data. When it comes to improving it, there are several parameters to consider.
Determine the expected annual turnover
The forecasted turnover is the total sales of goods or services expected to be made during an accounting period. More precisely, it is what a company expects to earn over the next few years.
To calculate a sales forecast, multiply the number of expected sales by the set unit selling price. Several methods can be used to determine these variables. The ones that guarantee the most efficient results are: the benchmark method, the purchase intention method, the goal and market share method and the test method.
The benchmark method
The idea here is for a company to base itself on the performances achieved by its competitors in order to derive aggregates that will enable it to evaluate its own sales. It is necessary to consult the balance sheets of these structures and to look for the sectorial accounting statistics on the activity in question, in particular the average turnover realized by each salesman. The sales forecast will be calculated on the basis of these various elements and other factors related to seasonality.
The intention method
A company can use the information collected by questionnaire on the intentions or the buying habits of the customers, within the framework of a market research, to carry out its sales forecast. However, an intention does not necessarily mean a purchase. It is therefore useful to weight the information collected.
The objectives and market share method
Before any projection, it is necessary to evaluate the market potential by defining a catchment area and to determine the competition. The principle is simple: determine the potential market share that can be taken from direct or indirect competitors, taking into account the clientele not yet conquered and the evasion of consumers due to lack of choice or unavailability of products and/or services in the catchment area.
The test method
The idea is to test in real size an idea of business creation thanks to the wage portage or by becoming a micro-entrepreneur for example. The advantage of this test method or "operational method" is that the company has real information on the basis of which it can estimate its annual turnover. Thus, predictions will be more reliable.
Anticipate the sales of a new product
To improve its sales forecasting, a company must plan the resources needed to meet actual customer demand. The best way to forecast sales of a product is to make sure that it meets a latent need.To do this, you need to conduct a market study. Another technique is to model consumer behavior based on data (internal and external) collected using self-learning technology. This helps determine what type of product is likely to be sold.
However, depending on whether it is a recent model of an existing product or a completely new product on the market, the methodology will not necessarily be the same. How do you forecast sales when you find yourself in these two types of configurations?
Forecasting sales of a recent model of an existing product
To forecast the sales of a recent model of an existing product, the most logical thing to do is to base it on the past sales of the previous version. This automatically gives an idea of what the next campaign might be.However, for predictions to be realistic, the company must take into account internal and external factors (changes in the economic and competitive environment, increase or decrease in the work force, etc.) that tend to influence a sales forecast.
Forecasting sales of a new product
Before forecasting the sales of its new product, a company must first estimate the size of the market to be conquered. This can be done by gathering information on the sales of existing suppliers. If the market is still new, it will have to refer to a market that provides similar products. It is not always easy to access this information, but the data exists somewhere. Next, the company will need to determine the share of buyers that can be converted by simulating different scenarios using an Excel spreadsheet or CRM software.
Define a monthly sales average
Generally, sales fluctuate on a monthly or quarterly basis. Thus, they cannot be regular over a year. Establishing an annual sales forecast is therefore not a sufficient guarantee that a company will achieve its financial and commercial objectives. To improve its sales forecast, the best thing to do is to also define an average of sales month by month.To calculate monthly sales, the simplest method is to divide the forecasted annual sales by 12. Without reference to the annual sales value, another method is to refer to the previous year's monthly sales, making sure to weight the results to better reflect the current market. Predictive models are generally used to derive interpretable statistics from certain variables (internal and external) to help calculate average monthly sales.
Increase safety margin
Before we discuss why a company needs to build in a comfortable safety margin, it is important to understand the definitional contours of this concept. What is the safety margin? The safety margin represents the potential loss of revenue that a company can afford to bear without incurring an accounting loss. It is in fact the difference between the annual turnover and the break-even point.The safety margin measures the risk borne by a company when it is close to its break-even point. Thus, the lower the margin, the closer the company is to the break-even point and the greater the risk that it will become unprofitable. Conversely, with a high safety margin, the company is able to withstand a greater decrease in sales while continuing to make a profit.
In sales, the magnitude of the safety margin more than compensates for the vagaries of rough prediction of a company's inventory management, promotion and product mix.
In conclusion, sales forecasting is fundamental to developing an effective business strategy. Companies must sufficiently integrate the principle and constantly improve their techniques to make predictions more realistic.
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