Your sales forecast is the backbone of your business plan.
People measure a business and its growth by sales, and your sales
forecast sets the standard for expenses, profits and growth.
When it comes to forecasting sales, don't fall for the trap that
says forecasting takes training, mathematics or advanced degrees.
Forecasting is mainly educated guessing. So don't expect to get it
perfect; just make it reasonable. There's no business owner who
isn't qualified to forecast sales--you don't need a business degree
or accountant's certification. What you need is common sense,
research of the factors, and motivation to make an educated
guess.
Your sales forecast in a business plan should show sales by
month for the next 12 months--at least--and then by year for the
following two to five years. Three years, total, is generally
enough for most business plans.
If you have more than one line of sales, show each line of sales
separately and add them up. If you have more than 10 or so lines of
sales, summarize them and consolidate. Remember, this is business
planning, not accounting, so it has to be reasonable, but it
doesn't need too much detail. Here are some tips to get you
started:
- Develop a unit sales projection. Where you
can, start by forecasting unit sales per month. Not all businesses
sell by units, but most do, and it's easier to forecast by breaking
things down into their component parts. Product-oriented businesses
obviously sell in units, but so do a lot of service businesses. For
example, accountants and attorneys sell hours, taxis sell rides,
and restaurants sell meals.
- Use past data if you have it. Whenever you
have past sales data, your best forecasting aid is the most recent
past. There are some statistical analysis techniques that take past
data and project it forward into the future. You can get just about
the same results by projecting your two most recent years of sales
by month on a line chart and then visually tracking it forward
along the same line. Statistical tools are a nice addition, but
they're rarely as valuable in a business plan as human common
sense, particularly if it's guided by analysis.
- Use factors for a new product. Having a new
product is no excuse for not having a sales forecast. Of course you
don't know what's going to happen, but that's no excuse for not
drafting a sales projection. Nobody who plans a new product knows
the future--you simply make educated guesses. So break it down by
finding important decision factors or components of sales. If you
have a completely new product with no history, find an existing
product to use as a guide. For example, if you have the next great
computer game, base your forecast on sales of a similar computer
game. If you have a new auto accessory, look at sales of other auto
accessories. Analysts projected sales of fax machines before they
were released to the market by looking at typewriters and
copiers.
- Break the purchase down into factors.For
example, you can forecast sales in a restaurant by looking at a
reasonable number of tables occupied at different hours of the day
and then multiplying the percent of tables occupied by the average
estimated revenue per table. Some people project sales in certain
kinds of retail businesses by investigating the average sales per
square foot in similar businesses.
- Be sure to project prices. The next step is
prices. You've projected unit sales monthly for 12 months and then
annually, so you must also project your prices. Think of this as a
simple spreadsheet that adds the units of different sales items in
one section, then sets the estimated prices in a second section. A
third section then multiplies units times price to calculate sales.
The math is simple--the hard part is making that estimated guess of
unit sales.
-
A fourth section of your projected prices will set the average
costs per unit. You want to set costs because a lot of financial
analysis focuses on gross margin, which is sales less cost of
sales. For financial reasons, cost of sales, also known as costs of
goods sold and direct costs, are different from the other expenses
that come out of profits.
The cost of sales isn't what you pay salespeople or for
advertising. It's the amount you pay to buy what you sell. This is
usually easy to understand. In any retail store, for example, the
cost of goods sold is what the store pays for the products it
sells. In service businesses, the costs of sales can be less
obvious, but it can still be