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Sales - Forecasting and planning

Building a sales plan will help you accurately forcast your sales and
help you to avoid unforeseen cashflow problems and manage your
production, staff and financing needs more effectively.
You sohould use your sales forecast as an essential tool for
managing your business of any size. It is a month-by-month
forecast of the level of sales you expect to achieve. Most businesses
draw up a sales forecast once a year.
rmed with this information you can rapidly identify problems and
opportunities - and do something about them before it is too late.
!hile it"s always wise to expect the unexpected, a well-constructed
sales plan, combined with accurate sales forecasting, can allow you
to spend more time developing your business rather than
responding to day-to-day developments in sales and mar#eting.
A basis for sales forecasts
$ales forecasts enable you to manage your business more
effectively. Before you begin, there are a few %uestions that may
help clarify your position&
'ow many new customers do you gain each year(
'ow many customers do you lose each year(
!hat is the average level of sales you ma#e to each
re there particular months where you ac%uire or lose more
customers than usual(
New businesses
)ew businesses have to ma#e assumptions based on mar#et
research and good *udgement.
Existing businesses
+he starting point for your sales forecast is last year"s sales.
Before you factor in a new product launch, or an economic trend,
loo# at the level of sales for each customer last year. ,o you #now
of any customers who are going to buy more - or less - from you
next year(
In the case of customers who account for a significant value of
sales, you may want to as# them if they plan to change their
purchase level in the foreseeable future.
Every business can also add in the new customers that it expects
to attract without actually #nowing who they are, or what they will
buy. $imply enter -new customer- on your forecast.
,epending on your type of business, you may want to specify the
volume of sales in the forecast - for example, how many five-litre
cans of paint you sell - as well as the value of sales. By #nowing the
volume, you can plan the necessary resources in areas such as
production, storage and transport.
Your sales assumptions
.very year is different so you need to list any changing
circumstances that could significantly affect your sales. +hese
factors - #nown as the sales forecast assumptions - form the basis
of your forecast.
!herever possible, put a figure against the change - as shown in
the examples below. You can then get a feel for the impact it will
have on your business. lso, give the reasoning behind each figure,
so that other people can comment on whether it"s realistic.
'ere are some typical examples of assumptions&
Your resources
You will double your sales force from three people to six
people, halfway through the year.
You will spend /0 per cent less on advertising, which will
reduce the number of en%uiries from potential customers.
The maret
+he mar#et you sell into will grow by 1 per cent.
Your mar#et share will shrin# by 1 per cent, due to the
success of a competitor.
Your products
You are launching a range of new products. $ales will be small
this year and costs will outweigh profits, but in future years, you
will reap the benefits.
You have products that are newly established and that have
the potential to increase sales rapidly.
You have established products that en*oy steady sales but
have little growth potential.
You have products that face declining sales, perhaps because
of a competitor"s superior product.
!vercoming barriers to sale
You are moving to a better location, will this lead to an
increase in customers( - percentage
You are raising prices by 2per cent, will this will reduce the
volume of products sold or per cent increase in overall revenue.
"eveloping your forecast
$tart by writing down your sales assumptions.
You can then create your sales forecast.
re individual customers important enough to your
business to warrant their own individual sales forecast(
3an you brea# down your sales by product, mar#et, or
geographic region(
3an you estimate the conversion rate(
You may want to include details of which product each customer is
li#ely to buy. +hen you can spot potential problems. 4ne product
could sell out, while another might not shift at all.
$elling more of your product to an existing customer is far easier
than ma#ing a first sale to a new customer. $o the conversion rates
for existing customers are much higher than those for new
By predicting actual sales, you"re forecasting what you thin# will be
sold. +his is generally far more accurate than forecasting from a
target figure and then trying to wor# out how to achieve it.
+he completed sales forecast isn"t *ust used to plan and monitor
your sales efforts. It"s also a vital part of the cashflow.
+here is a wide range of sales forecasting software available that
can ma#e the whole process much simpler and more accurate. +his
software generates forecasts based on historical data. If you are
considering buying software, get advice from an I+ expert, your
trade association, your business advisers and businesses of a
similar size and in similar mar#ets.
Fre#uent forecasting mistaes
5ive common forecasting pitfalls are&
$ishful thining
It"s all too easy to be over-optimistic. It"s a good idea to loo# bac#
at the previous year"s forecast to see if your figures were realistic.
)ew businesses should avoid the mista#e of wor#ing out the level of
sales they need for the business to be viable, then putting this
figure in as the forecast.
You also need to consider if it is physically possible to achieve the
sales levels you"re forecasting. 5or example&
one taxi can only ma#e a certain number of airport trips each
a machine can only produce a given number of components
on each shift
a sales team can only visit a certain number of customers
each wee#
%gnoring your own assumptions
Ma#e sure your sales assumptions are lin#ed to the detailed sales
forecast, otherwise you can end up with completely contradictory
information. 5or instance, if you assume a declining mar#et and
declining mar#et share, it"s illogical to then forecast increased sales.
5or more information, see the page in this guide on your sales
&oving goalposts
Ma#e sure the forecast is finalised and agreed within a set
timescale. If you"re spending a lot of time refining the forecast, it
can distract you from focusing on your targets. void ma#ing
excessive ad*ustments to the forecast, even if you discover it"s too
optimistic or pessimistic.
No consultation
Your sales people probably have the best #nowledge of your
customers" buying intentions, therefore&
as# for their opinions
give them time to as# their customers about this
get the sales team"s agreement to any targets they will be set
No feedbac
'aving built your sales forecast, you need someone to challenge it.
6et an experienced person - your accountant or a senior sales
person - to review the whole document.
'reating a sales plan
+he %uestions you should answer in your sales plan are&
!hat are you going to focus on(
!hat are you going to change(
In practical terms, what steps are involved(
!hat territories and targets are you going to give each
salesperson or team(
+he sales plan will start with some strategic ob(ectives. 'ere are
some examples&
brea# into the local authority mar#et by adapting your product
for this mar#et
open a shop in an area that you believe has the potential
for generating lots of sales
boost the average sale per customer
You can then explain the stepping stones that will allow you to
achieve these ob*ectives. 7se ob*ectives which are S&A)T -
$pecific, Measurable, chievable, 8ealistic, +ime-bound.
7sing the example of brea#ing into the local authority mar#et, the
stepping stones might be to&
hire a sales person with experience of the local authority
mar#et on a salary of 91:,000 by the beginning of 5ebruary
fully train the sales person by mid pril
ensure that any changes the product development team has
agreed to ma#e are ready to pilot by the beginning of pril
s well as planning for new products and new mar#ets, explain how
you"re going to improve sales and profit margins for your existing
products and mar#ets.
It is often helpful to identify how you will remove barriers to sales&
3an you increase the activity levels of the sales team - more
telephone calls per day, or more customer visits per wee#(
3an you increase the conversion rate of calls into sales -
through better sales training, better sales support materials or
improved sales incentives(