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The crucial role of sales forecasting

October 5, 2023

As an owner of a small to medium-sized enterprise (SME), juggling numerous responsibilities comes with the territory. Overseeing operations and growing your client base are vital tasks, but the key role of sales forecasting can sometimes be overlooked.

However, adept sales forecasting is crucial for the long-term prosperity and sustainability of your business.

What is sales forecasting?

Sales forecasting is the act of predicting upcoming sales by analysing historical data, market research and other variables.

The process empowers you to make well-informed decisions about financial planning, operational activities and marketing strategies.

It gives a comprehensive projection of your likely sales within a specific time frame, ranging from the forthcoming quarter to multiple years ahead.

Forecasting sales allows businesses to make choices about production levels, budget allocation, workforce planning and risk assessment.

Why does sales forecasting matter for SMEs?

Sales forecasting grants a glimpse into your expected revenue, helping to identify new prospects. It offers several key benefits:

  • Financial planning – Sales forecasts are fundamental to all financial planning, including budgeting and cash flow management. Accurate sales predictions guide sound decisions on growth investments, resource distribution, or cost-cutting measures, especially crucial for SMEs where funds are typically constrained.
  • Staff planning – Forecasting sales can inform you if there’s a need to hire new employees, provide additional training or adjust working hours, which is particularly relevant for SMEs with seasonal business swings.
  • Goal establishment and performance review – Creating achievable sales targets based on reliable forecasts can energise your team and set a definitive course for your business. Comparing real-world outcomes with your forecasts also aids in assessing performance, pinpointing improvement areas and recalibrating strategies.
  • Stock management – Reliable sales forecasts help avoid stock shortages and excess inventory, which can lead to missed sales opportunities, dissatisfied clients and depreciation of goods. Accurate demand predictions can optimise stock levels, minimise waste and ensure products are available as needed.

Methods for sales forecasting

There are diverse approaches to sales forecasting, and the most apt choice for your SME will hinge on the nature of your business and available data. Here are three key methods:

  • Market research – This approach relies on external data such as industry trends, competitive performance, and economic markets to project future sales. This can be particularly useful for SMEs entering new markets or introducing new products.
  • Sale funnel review – Focus on your sales pipelines, evaluating each stage and estimating conversion rates. Understanding how prospects navigate through your sales funnel allows for a more exact sales forecast and identifies opportunities for improvement.
  • Historical data examination – Delve into previous sales records to identify recurring patterns and trends. Adjusting for variables like seasonal changes, new product launches, or market shifts enables a sales forecast grounded in past performance.

Sales forecasting is an integral component of effectively managing and growing a successful SME. By grasping the importance of sales forecasting and employing robust methods, you can improve your financial planning and goal-setting capabilities.

Are you looking for sales forecasting advice for your business? Please get in touch today.

Further reading

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