In my previous article, How To Prepare A Sales Forecast – Part 1, I explained how to go about preparing a sales forecast. Preparing a sales forecast is mainly educated guess work so you can’t expect it to be perfect or accurate. But you can make a reasonable assessment of what you think will happen, based on your market research, understanding of your industry and historical information.
In this article, I’m going to look at the three main factors that could affect your sales forecasting. When you’re putting together your sales forecast for the coming 12 months, you’ll want to consider whether your business is affected by any, or a combination of these factors.
1. Growth Rate
All new businesses grow at different rates, depending on the resources they have to invest in their marketing activities as well as their particular business growth strategy. One of the best ways to forecast growth is to set a growth rate percentage on the number of units sold by product. e.g. the sale of products will grow at a rate of 5% per month. Here, you’re leveraging the compound effect.
To achieve the growth rate percentage you set is dependent on you having the right marketing strategy and resources necessary to deliver this level of growth.
I like to look at a variety of scenarios, to consider how my financial plan would be affected if I did not hit my target growth rate. It’s important to stress test your assumptions, and consider what might now go according to plan as well as what works well.
2. Seasonal Variations
Even if you think you aren’t subject to seasonal variations, there are trends that will have an effect on almost every business. One of these is the reduction of sales for both retail and commercial businesses immediately after Christmas and again in August. Don’t forget that the building trade often shuts down for two weeks or more over Christmas and the New Year, and this has an effect on many other businesses.
A big mistake I’ve seen business owners make is to rely on their ‘busy periods’ to bring in enough cash to carry them through the whole of the year. It could just take one unforeseen event to damage income e.g. an unexpected weather disaster like a flood. This is why it’s important that you forecast to exceed your breakeven point every single month, in low season as well as in high season.
3. Product or Service Lifecycle
Products and services have a definite lifespan, passing through each of these four phases:
In the fast moving technology industry, products move quickly through these different phases meaning its essential you have a robust R&D function. Likewise fashion moves quickly and products can quickly become obsolete. How quickly does your industry move? Where do your products and services fit into this cycle? If you’re starting a business with products or services that are reaching maturity or are in decline, you should make contingency plans for when the market for your business starts to diminish.
When you’re putting together your sales forecast, you will want to show a month on month increase in sales. But if your business is highly seasonal, or if you have products coming to the end of their natural lifecycle, this may not be achievable. When you’re putting together your sales forecast, think carefully about which factors could affect your business and plan accordingly.
Join The Conversation
Question: Reflecting on this article, do any of these factors affect your sales forecasting? I love reading your feedback so please do reply using the comments box below.
Explore These Additional Resources
Did you miss?
- Understanding Business Growth Strategy
- How To Prepare A Sales Forecast – Part 1
- The Secret To Cash Flow Success
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I’m Denyse Whillier, a London based business coach and consultant. I guide entrepreneurs from across the globe to achieve profitable, scaleable growth and create businesses that are Built To Succeed™. Built To Succeed™ is my proven success system, developed during my 8 years in the trenches as a CEO, 25 years’ experience at senior leadership and managerial level and training at Cranfield School of Management, the UK’s leading business school. It’s this background that sets me apart and helps my clients to get BIG results.
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