Why should you create a sales forecast?
Creating a comprehensive sales forecast is a very important task to plan your revenue in advance as well as tracking the success of your business by comparing your actual sales with what you had planned for. If you don’t plan ahead, you don’t have clear sales goals to met and to measure your success or failure against. If you don’t even plan to make sales, how do you think you will actually do it and make your startup successful?
And sales forecasting is not about trying to predict the future. It is not about predicting exactly what will happen because you can never exactly predict the future.
There will always be influences out of your control. But that’s exactly why you need to think about your sales forecast thoroughly. It’s not about setting up your dream sales numbers but about thinking through different business scenarios, managing expectations and translating your overall business strategy into actual sales numbers.
Once, you have written down your sales assumptions and expectations explicitly, it will be much easier to see if your business is heading in the right directions and whether you’re taking the right set of measures to stear your startup business to achieve those sales numbers you’re forecasting. And then afterwards, you can track your performance, measure the results you will have achieved and adjust your business strategy accordingly.
How often should you update your sales forecast?
A sales forecast should be done on a monthly basis for at least the next 6 months. For later periods and months it might not be necessary to plan monthly as it will be increasingly difficult to forecast sales years in advance. Switching to a quarterly and even yearly perspective makes sense starting with the 2nd year of future business. If you create a concise business plan to attract investors you will usually have to create at least 3 years, often 5 years, of financial projections.
How to actually create a sales forecast for your startup?
So now that you know why you need to create a sales forecast I will show you how to do it in 5 simple steps. This is is not as difficult as you think and once you’ve created your first sales forecast it will only take 30-60 minutes a month to revise and update it as well as see if you have achieved your goals.
Step 1: Choose a software for your sales forecast
First of all you need to decide which software you use to set up your sales forecast. There’s different ways. Depending on the complexity of your business you can start by simply writing down your sales goals for the upcoming month. And build on that by adding more future months and even the next years to create a longer term vision for your business.
While this is not very hard to do, you should make sure to save all of your data, optimally in one file that you can update and modify when you like. You can use a text file like provided by Microsoft Word or other text editing software. But sales forecasting is very number heavy, the best way to create your sales forecast is by using a spreadsheet software like Google sheets or optimally, Microsoft Excel.
When using Microsoft Excel you have the most powerful and by far the best spreadsheet software at your fingertips. There are also many business plan software tools out there where you can forecast your sales but I wouldn’t recommend using any of them.
It is very important that you fully understand your sales forecast and that it fits exactly to your specific startup business. Once you have done your sales forecast for the first time you will want to add more detail and modify your sales forecast template on an ongoing basis.
With a cookie-cutter approach that business planning tools and software use, you always create sales forecasts that don’t quite fit your business perfectly and that are usually too complicated and not user-friendly that you will most likely abandon doing your sales forecasts on a regular basis. So to sum up, Microsoft Excel is the best software to create your sales forecast.
Step 2: How detailed should your sales forecast be?
There’s different levels of detail that are useful at different stages of your startup business. You can simply project your whole companies sales in total in one line. You can add another dimension by forecasting your sales per product / service and you can even add a 3rd dimension by determining each marketing and sales channel for each product and predict the sales per product by marketing / sales channel.
Then you can add other dimensions like the type of customer, the region etc. when you want to make things very detailed. Now, don’t get overwhelmed! If you have never done a sales forecast before, you should start as simple as possible and then drill down deeper. Just ask yourself how many sales you want / expect to make next month.
If you think this isn’t detailed enough drill down deeper and ask yourself how many sales you are going to make per product / service and so on. Then once you have the level of detail you are satisfied with, add the 2nd future month and the 3rd etc. until your projection period is long enough for our needs. Again start easy, plan the upcoming month first, then add to it.
Of course, the stage of your business is crucial, too. If you are an established business with many products and stable sales numbers over the preceding months or even years, you should get very detailed. Small things, like marketing a specific region and type of customer might lead to great benefits. Whereas if your a startup trying to make your first couple of sales or you just have an idea and no customers yet you should focus on getting a top-level overview of where you want to go with your business and not get caught up in over complexity.
Step 3: How to make sure your sales forecast is realistic?
So now you now how to build you’re sales forecast. But how do you make sure that the sales you forecast have anything to do with reality. Well, that’s a good point. If you are an established business there is always the possibility to look at the past sales and analyze what has happened there you get a good grasp of what will happen in the future.
Usually, if you don’t do much different in your business and you have an established customer base, your sales will be very stable. Only if you plan to change major parts of your business and marketing / sales strategy the results may vary with respect to the past.
But in any case when you have a major change in your sales forecast from one month to the next, make sure there is good reasoning behind it.
If you’re startup company or you’re just developing your idea you have to mainly think about what you’re marketing budget will look like, how big your target market will be and what sales your direct competitors achieve.
Depending on those variables you will be able to predict what kind of sales you will achieve because they will most likely be very proportionate to the amount of money you put into marketing and sales. As a startup you don’t have a big reputation and there will come little to no sales from word-of-mouth. But if you buy say facebook ads, you know how much you can spend on those ads then you can look at general click-through and conversion rates that apply in your industry. That will give you a good estimate for your sales forecast.
So there you have an overview of how to create a sales forecast for your business. If you have any questions just write a comment below or get in touch with us.