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What is a Sales Forecast
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Sales Forecast

What is a Sales Forecast

Definition of Sales Forecast

Sales forecasting refers to a company’s estimation of future product sales, based on a number of factors, such as historical sales data, economic trends, and other brands’ performance. 

A sales forecast empowers businesses to make effective decisions with regards to allocating budgets, organizing workforces, managing resources, and more. 

Businesses with years of experience behind them may find sales forecasting easier than startups. After all, they’ll have access to historical sales data and audience insights, while newcomers have to rely on more generic market research and competitor analysis to estimate their own prospective sales. 

How to forecast sales

Businesses can leverage the following techniques to build an effective sales forecast:

Define your revenue streams

Companies have to understand which revenue streams they have, and segment products based on key factors (type, demographic, etc.). Ideally, break your revenue streams down so that they align with your accounting set-up — this makes it quicker and easier to analyze the difference between the forecasted sales and real sales down the line.

Rely on past data

As already mentioned, historical sales data is an invaluable resource when a business starts to put together a sales forecast. Try to keep past figures in context, to take economic conditions and trends into account. 

But remember, just because a particular line of products performed well two years ago doesn’t mean a similar one will — they may be launched into a totally different environment.

Match the product to others 

Sales forecasting for a brand-new product can be a challenge, which is where analyzing the performance of a similar product comes into play, including those released by competitors. 

The resulting sales forecast may not be as accurate as it should be, but can still help businesses make effective decisions.

General FAQ

What is the sales forecast formula?
There’s no single sales forecast formula to rely on. Instead, you can try multiple approaches in sales forecasting. One is to use historical sales data to forecast performance. For example, if you want to estimate how many units of a particular product you’ll sell in December, you could look at sales in October and November and assume that demand will be higher for Christmas. Alternatively, you may pull sales data from previous Decembers to gauge potential performance. Of course, this isn’t particularly accurate and variables (such as shopping trends or reduction in marketing output) can lead to big differences.
What is the forecast sales growth rate?
The forecast sales growth rate is the level of increase a company expects to see in its sales figures over a specific period. This may be based on various factors, such as market growth, market share, and pricing, all of which could fluctuate within the target time frame.
How can an accurate sales forecast help companies?
An accurate sales forecast can help businesses to identify potential problems before they make a negative impact, such as if a sales team is on track to miss targets or marketing is failing to generate leads. The sooner these are identified, the sooner they can be addressed. Another benefit of sales forecasting is that it shows whether a company is well-equipped to take advantage of sales opportunities expected to rise in coming months. Hiring or investment decisions may be made on the basis of forecasting. A sales forecast serves as a motivational aid, too. Sales teams may be made aware of the targets they’re expected to hit as early as possible, to allow them the time to perform as required and reach their goals.
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