Business forecasting

How to create a sales forecast for your small business

July 25, 2023 | 7 minute read

What you know about tomorrow can help you make better decisions about running your small business today. A sales forecast can be a helpful tool in estimating future sales, so you can take that information into account in your planning. Simply put, a sales forecast estimates the quantity of goods and services you can reasonably expect to sell over a specified period, the cost of those goods and services and the potential profit. It’s based on your sales in the past, industry benchmarks and market conditions.

A sales forecast is an invaluable tool for better managing your cash flow , spending, staffing and more. Once you complete your forecast, you’ll have a better sense of what’s driving your revenues and profits, know where to put your time and resources and be able to identify efforts that are not fueling growth so you can consider eliminating them.

Why sales forecasting is important

A sales forecast helps you understand your financial position. It can be a good starting point for setting goals and provides guidance in many areas of your business, such as planning for new hires, purchasing inventory and equipment, knowing when to preserve cash, increasing your marketing budget or alerting you that you need to find new ways to make more money . It can also help you illustrate your business’s potential to investors.

What factors impact a sales forecast?

A forecast is really an educated guess. There are any number of conditions that might shake up your projections, such as new laws and regulations. A downturn in the economy could mean a change in business conditions, making it harder to get credit. A dip in consumer confidence could lead to less spending on your company’s goods and services. New competition in your market, a drop in customer satisfaction or extreme weather (a major storm that essentially shuts down a city for a few days, for example) could all make a difference in what you thought was going to happen. Something like seasonality can also impact your forecast. Internal factors like new production processes and procedures can also keep you from hitting your target.

Sales forecasting methods

There are several methods to creating a sales forecast. Here are three that many small businesses use:

Historical forecasts

This method is based on your business’s past performance. If you’ve been in business for a year or more, you can look back at data by the week, month, quarter or year. If you’ve launched your business recently, this option won’t work well because you won’t have enough data available.

Bottom-up forecasts

To come up with these forecasts, you must project the number of units you will sell, then multiply that figure by the average cost per unit. If you run a larger small business, you can also include metrics like the number of locations, sales representatives or online interactions. The rationale behind a bottom-up sales forecast is to begin with the smallest components of the forecast and build up from there. The advantage of this type of forecast is that if any variables change (like cost per item or number of reps), the forecast is easy to adjust.

Top-down sales forecasts

Start with the total size of the market and estimate what percentage of the market the business can capture. If the size of a market is $20 million, for example, a company may estimate it can win 10% of that market, making its sales forecast $2 million for the year. If you’re a natural optimist, it’s a good idea to ask an advisor to provide a reality check on the percentage of customers in your market that you can reasonably expect to attract and serve so that your projections are more accurate.

How to create a sales forecast

Once you’ve selected a sales forecasting method, you’ll want to take several steps.

1. List the goods and services you sell

In a sales forecast, you’ll want to account for each product or service that you are selling so your forecast is accurate.

2. Quantify your sales

Each sales forecasting method has its own way of estimating future sales:

  • In historical forecasting , you will need to project the quantity of each product or service you will sell and multiply the unit price by that number. In this type of forecasting, you can base your estimate on the sales figure you brought in last month as long as nothing major has changed in the marketplace. So, if you sold $50,000 worth of your product in July, you might estimate selling $50,000 worth in August.
  • In bottom-up forecasts , you must first estimate the total number of orders that customers will place for your products or services through your website, social media channels and other places you make sales. Then you estimate the average price minus any discounts you offer. Finally, you must multiply the estimated number of orders for each item by the average price to get estimated revenue.
  • In top-down forecasts , you start by estimating the total market for each item you sell. For example, if you were lucky enough to capture 100% of the sales, how much would you have sold? Then project how much of that market you can realistically capture. So, for instance, if the total addressable market for what you sell is $1 million, and you capture 7% of that with your product, your estimated sales will be $70,000.

3. Make adjustments

Some owners adjust their forecasts to reflect projected market conditions, regulatory changes, new marketing efforts and other variables.

4. Subtract costs

Business owners will typically subtract the costs of creating each good or service they sell from their estimated sales forecast to understand how much profit would be generated from sales. Let’s say you sell a backyard game you invented by outsourcing the manufacturing to a local factory. You might subtract overhead expenses , such as paying the factory and buying materials, from your projected revenue to anticipate how much money would be left over as profit. Or if you run a social media agency that has taken on new clients who’ve hired you on retainer, you might subtract costs, such as paying freelancers to write social media posts and subscribing to a website that provides stock photos, to get a clearer picture of future profits.

Tools for sales forecasting

If you haven’t done so already, you might want to consider software to help with sales forecasting.

Sales forecasting software

Sales forecasting software can use historical business data and trends to create a report of expected sales revenue. Forecast reports can compare sales targets with actual sales.

Ideally, sales software can help you answer questions like:

  • What is your expected revenue?
  • Which forecasting method produces the most accurate forecast for your business?
  • How did actual sales compare to expected sales?

Sales pipeline forecasting software

With sales pipeline forecasting software, you’ll get an analysis of existing opportunities and a calculation of your success rate in pursuing them, helping you prioritize your efforts. This method focuses on pipeline management and calculates a historical win-rate percentage based on the value and age of the opportunity and the sales representative working on it. Some software programs include features that will give you the ability to view pipeline activity and internal sales data or save you time, letting you integrate information from third-party sales software, for instance. You can create sales forecasts using software such as QuickBooks, Salesforce Sales Cloud, Zoho CRM and Pipedrive.

Historical sales forecasting software

Historical sales forecasting software analyzes previous company performance to calculate a mean (or average) sales level you can expect for the following month, quarter or year. It emphasizes historical trends and seasonality of products and services sold, but it does not consider the opportunities in your pipeline. This software is ideal for small businesses that don’t have big swings in their monthly sales.

Bottom line

Your sales forecast can be a vital tool as you make plans to grow your business or adjust to challenges. By comparing your actual performance to your forecasts, you’ll be able to get a clear handle on your success and failures, fine-tune your strategies and capitalize on what is working for you so you can keep your business moving to the next level.

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How to write a sales forecast for a business plan

Table of Contents

What is a sales forecast?

Why do you need a sales forecast, how do you write a sales forecast, top-down or bottom-up, writing your sales forecast, calculating a sales forecast, how can countingup help manage your forecasting.

Sales forecasts are an important part of your business plan . If done correctly, they can give accurate projections of your business’ cash flow, and let you better prepare for the year ahead. They can also make it easier to find the right investors . While it’s easier for existing businesses with plenty of data, you can still calculate a sales forecast for a new business .

In this guide, we’ll explore:

  • How can you manage your forecasting?

A sales forecast is a prediction of your business’ future revenue. In order to be an accurate prediction, the forecast is based on previous sales, current economic trends, and industry performance. Having a sales forecast is a useful tool, because it gives you a better idea of how to manage your business. 

Having a sales forecast is like using the past to have a peek into the future of your company. It might not be 100% accurate, but it can help you plan any future spending, or prevent any cash flow issues from occurring. 

You can also use your sales forecast to monitor your business’ progress. For instance, if your business regularly performs better than your forecast, it could be a sign that your business is continuing to grow. On the other hand, if your actual sales are frequently less than expected, this could be a sign that your business is struggling and needs adjustment. 

It’s important to remember that any projections you make aren’t guaranteed, there can be advantages and disadvantages of financial forecasting . 

Now we’ve run through why having a sales forecast can help you run your business, let’s look at how to write one. 

While there are two types of sales forecasting (top-down and bottom-up), one is a lot more accurate for small businesses than the other. A top-down forecast looks at the market as a whole and attributes a portion of the market to your business. 

A top-down approach may work for large businesses that already own a significant chunk of the market. When forecasting for a small business, it’s easy to overestimate your market share. For example, a 1% market share may not seem like a lot, but a small restaurant owning 1% of the £89.5 billion UK market is extremely unrealistic.

The alternative to top-down is bottom-up. A bottom-up sales forecast starts with existing company data (like customer or product information) and works up to revenue. Since this starts with the company, it’s easier to 

Your sales forecast is ultimately a prediction of your revenue over a set period. It considers the amount you think you’ll sell, and the cost of those sales. We’ve included how to calculate a sales forecast below.

A sales forecast consists of three separate values: revenue, cost of goods sold, and gross profit. For estimating values in the calculations below, it’s best to use any existing business data to be as accurate as possible. 

To calculate your predicted revenue:

  • Make a list of your available goods and services
  • Note the price of each of your goods and services
  • Estimate the expected sales of each good or service
  • Multiply the price by the estimated sales to get your estimated revenue
  • Add them all together to get your total revenue

For example, if your food truck business sold pizzas at £10 and burgers at £5, you would multiply these values by how much you expected to sell. For calculating a weekly sales forecast, you might estimate selling 60 pizzas and 80 burgers. Your predicted revenue for that week would be £600 for pizzas and £400 for burgers — giving £1,000 total.

In order to figure out how much profit you’ll make, you also need to calculate your costs for those predicted sales. To calculate your predicted costs:

  • Figure out how much each good or service will cost per unit
  • Multiply each cost by the projected sales

Using the same example as above, assume a single pizza cost £3.50 to make and a burger cost £2. Using the estimated sales, the total cost for your pizzas (3.5 x 60) would be £210, and £160 for your burgers (2 x 80). Combining these two figures gives you a total cost of £370.

The last step is to work out your gross profit , and it’s a relatively simple calculation.

  • Subtract the total predicted cost from your total predicted revenue

Continuing with the example above, your revenue (£1,000) minus your costs (£370), leaves you with a projected gross profit of £630 for the week. Using this estimate, you can then plan how much working capital your business should have access to. It’s important to remember that these are only estimates, and your actual values can be higher or lower than your forecast.

If you want your forecasts to be as accurate as possible, you need to refer to all of your business’ financial data. Since collecting and collating this data can be challenging, you may want to use financial management software like the Countingup app. 

When trying to calculate your sales forecasts, having an up-to-date log of your current sales can be hugely beneficial. By combining a business current account with accounting software, Countingup is the only software that provides real-time cash flow tracking. 

The Countingup app also provides business owners with access to automatically generated profit and loss statements. These can prove invaluable when trying to stay aware of all your business’ costs.

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How to Create a Sales Forecast Business Plan

how to do a sales forecast for business plan

Sales forecasting is a powerful way to improve decision-making and make smarter choices as a business. But the reality is, many organisations don’t get it right.

Accurate sales forecasts rely on astute insights driven from robust, holistic data. If your business has struggled to accurately predict future sales revenue in the past, our guide could help you get it right in the future.

Ready to get started? Use the links below to navigate or read on for our full guide to accurate sales forecasting.

Quick Links

What is a Sales Forecast?

Why is sales forecasting important, what factors can affect sales forecasting, how to create a sales forecast, tools to help with sales forecasting.

A sales forecast is an estimate of what a company will sell in a week, month, quarter or year. It’s used to predict future revenue, accounting for the number of units an individual, team or company is likely to sell over a set period.

Sales forecasting offers many benefits when leveraged as part of a broader business strategy. At all levels and across all functions within a business, forecasting can facilitate shrewd decision-making, whether that’s setting goals and budgets, prospecting for new leads, deciding on the best time to hire new staff, or effective stock management to help maximise cashflow.

Accurate sales forecasting is a projection of where a company will stand in the future. And that’s important, not only for business continuity and growth, but for cultivating credibility, trust and advocacy with key stakeholders – be it partners, investors, clients or customers.

sales team having a discussion

Let’s take a look at some of the reasons why sales forecasting matters:

  • Bolsters decision-making – accurate predictions about future revenue can facilitate improved decision-making across all business functions, from hiring managers tasked with recruiting new talent, to procurement teams discerning when and how much stock to source.
  • Adds value to all business functions – sales forecasting defines the value brought by different departments across the business. It highlights how different functions and channels contribute to revenue generation, helping businesses manage their resources.
  • Accurate sales and buying for reduced costs – a sales forecast simplifies inventory management, with accurate stock predictions reducing costs and freeing up valuable resources, like warehouse space.
  • Allocation of sales and marketing budget – Forecasting helps account for peaks and troughs in sales, so you can assign marketing budgets and determine which products and services need attention.
  • Guarantees timely recruitment and outsourcing to drive business growth – understanding the areas of your business that drive the most revenue can make for seamless recruitment. Reinvesting revenue in personnel is a seismic driver of business growth, and sales forecasting can help you decide where to make hires and when. Not only that, but it can help companies decide whether they should look at outsourcing or whether to bring outsourced activities back in-house, e.g., the use of courier companies versus investing in your own delivery fleet.
  • Provides valuable revenue expectations to outside stakeholders, like investors – sales forecasting quantifies your revenue predictions, making it easier and less risky to attain outside support from investors and stakeholders.
  • Allows for simple company benchmarking against competitors – where your business ranks against competitors is important, and sales forecasting highlights how your trajectory compares to your closest rivals.
  • Offers a powerful means of motivating sales personnel – a sales forecast is the best way of benchmarking the performance of salespeople within your business. It’s also a great motivator, particularly for staff incentivised by the promise of commission.

bussinesswoman looking at notes

Many internal and external factors can impact the accuracy of your sales forecasts. You’ll need to account for all sorts of influences when predicting sales activity, including:

  • Economic uncertainty and conditions
  • Competitor changes
  • Market trends and seasonality
  • Product changes and future innovations
  • Internal pricing or policy changes
  • Available marketing spend and budgets
  • Staff levels (more or fewer sales personnel will affect figures, for example)
  • Future business plans e.g., expansion or diversification plans

This isn’t an exhaustive list of factors that can affect sales forecasting, but it does provide a steer for the types of influences that you’ll need to factor into your predictions.

Sales forecasting isn’t rocket science, but it does require a methodical approach to guarantee accuracy. Here, we’ll demonstrate how to make accurate sales predictions in five easy-to-follow steps.

Step 1: Consider Sales History

The first step to accurate sales forecasting is to look not to the future, but the past. By examining sales data over the past 12 months, you’ll glean insights that you can use as the basis of your future sales predictions, noting things like volumes, trends, and seasonality changes that caused peaks and troughs in demand.

When exploring historic sales data, be mindful of your ‘sales run rate’ – the number of projected sales for a particular period. For example, sales data may reveal a large disparity between quarterly sales figures, affecting the overall run rate; you’ll need to factor this into your forecasts for the future.

hand holding stylus over tablet

Step 2: Anticipate Changes and External Influences

While historic sales data provides a clear view of when and where sales typically happen over a year, it doesn’t guarantee the same sales figures for the future. Depending on a plethora of external and internal influences, next year’s sales could be up or down – so how do you accurately predict future revenue?

Start by taking each influence in turn and assess how such a force would have impacted last year’s sales figures. For example, do you plan to increase prices over the next 12 months? If so, how might this affect sales in relation to previous figures?

Here are some of the factors you should consider when predicting future sales performance:

  • Pricing changes – will your prices change? How might this affect custom?
  • Customer changes and trends – are consumer trends turning in your favour, or going the other way? Market awareness is crucial for accurate sales forecasting.
  • Promotions – do you have any sales or promotions lined up to increase demand? How might these affect sales targets?
  • Product alterations – are you improving your products and services?
  • Sales channels – do you plan to expand into additional sales channels in the near future or acquire new branches?

Step 3: Lean on the Right Systems for Accurate Data Capture and Analysis

Sales forecasting becomes much simpler and more accurate when the right tools are used to capture and analyse data. Integrated ERP software, for example, collates sales data from every channel of your business – including trade counter or EPOS sales, telesales, sales rep orders, ecommerce etc. – so you can make data-backed predictions with confidence.

A great example of the types of tools you can use for accurate sales forecasting is predictive stock management. Automating the forecasting process, it presents the user with a forecast prediction aligned to their stock preferences, e.g., how much buffer stock you want to carry, as well as stock lead times.

warehouse worker and manager smiling at laptop

Presented with this data, the procurement team can then use their insight and knowledge to tweak this forecast where necessary. It’s a great example of the marriage of automation to reduce manual work, whilst still allowing people to have input on the end result.

Elsewhere, utilising customised dashboards or control desks, instead of static reports, to differentiate pipeline value by rep, branch, prospect customer etc., can give businesses dynamic information to adjust their forecasts and be agile around expectations and demand.

What’s more, clever use of the CRM in conjunction with opportunity probability management enables you to allocate an estimated percentage chance that you think you will win a sales deal. By giving each sales opportunity/quotation a probability, you can produce a sales weighting forecast that will give you a fairly accurate idea of what your sales will be.

This will give you a better chance of forecasting the revenue and stock position of months and years ahead.

Step 4: Align Sales Predictions with Your Business Strategy

Many businesses have a five-year plan, a strategy that looks to drive business growth and profitability. But remember, such a plan will impact sales in one way or another, so it’s important that you align your sales forecasts with your short and long-term business objectives.

Say, for example, your business plan sets out a period of growth in the form of new hires or the creation of a whole new department. How will this affect sales? And to what extent should it be factored into your revenue forecasts?

Aligning your business strategy and sales forecasts is a crucial step. It helps prioritise business activity, ensuring that the right decisions are made to drive the business forward.

warehouse workers scanning boxes

Step 5: Set Out Your Sales Forecasts in the Right Way

Charts, graphs and annotations can all be used to set out your sales forecasts for the year ahead. These should be included in your business plan, providing an accessible means of sharing forecasts with key stakeholders, personnel and investors.

As well as charting forecasts in number terms, you should set out your sales strategy, including how you arrived at the quoted figures. This not only quantifies your reasoning, but serves as a reminder of the market position at the time of writing – something that could prove useful if you need to refer back to where the figures came from at a later date.

Sales forecasting can be a laborious process, particularly if you want to guarantee accuracy. There are, however, a range of tools and software which can be leveraged to automate some elements of the process, removing some of the legwork associated with sales forecasting.

At Intact, we’re well aware of the importance of sales forecasting – and the arduous nature of it. That’s why we offer specialist expertise and solutions to help automate and simplify the process, from ERP software and predictive stock management to data analytics tools designed to improve data-driven decision-making.

We hope this guide helps you take stock of sales forecasting. If you’d like to optimise this area of your business, the Intact team can help. For more information or to speak to a member of our specialist team, visit the homepage . Alternatively, for more help and advice on ways to manage your inventory, take a look at our free guide to effective stock management .


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How to Do a Sales Forecast for Your Business the Right Way

Posted june 8, 2021 by noah parsons.

how to do a sales forecast for business plan

New entrepreneurs frequently ask me for advice about forecasting their sales . These entrepreneurs are always optimistic about the future of their new company. However, when it comes to the details, most aren’t sure how to predict future sales and how much money they’re going to make.

It’s an intimidating task, looking into the future. The good thing is, none of us are fortune tellers and none of us know any more about your new business than you do. (If you do happen to be able to see into the future, please just skip the whole startup thing and go play the stock market. It’ll be much easier and make you richer!)

So, my advice is always to just take a deep breath and relax. You’re as well equipped as everyone else to put together a credible, reasonably accurate forecast. Let’s dive right in and figure it out.

What is sales forecasting?

Sales forecasting is the process of estimating future sales with the goal of better informing your decisions. A forecast is typically based on any combination of past sales data, industry benchmarks, or economic trends. It’s a method designed to help you better manage your workforce, ash flow, and any other resources that may affect revenue and sales

It’s typically easier for established businesses to create more accurate sales forecasts based on previous sales data. Newer businesses, on the other hand, will have to rely on market research, competitive benchmarks, and other forms of interest to establish a baseline for sales numbers. 

Why is sales forecasting important?

Your sales forecast is the foundation of the financial story that you are creating for your business. Once you have your sales forecast complete, you’ll be able to easily create your profit and loss statement , c ash flow statement, and balance sheet.

Sales forecasts help you set goals

But beyond just setting the stage for a complete financial forecast, your sales forecast is really all about setting goals for your company . You’re looking to answer questions like:

  • What do you hope to achieve in the next month? Year? 5-years? 
  • How many customers do you hope to have next month and next year?
  • How much will each customer hopefully spend with your company?

Your sales forecast will help you answer all of these questions and potentially any others that involve the future of your business.

Sales forecasts inform investors

Having a solid sales forecast also provides a picture of your performance and performance milestones for potential investors. Like you, they want to be sure you have established goals and a firm trajectory for your business laid out. The more detailed, organized, and up-to-date your forecast is, the better you explain the position of your business to third parties and even employees.

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How to use your sales forecast for budgeting

Your sales forecast is also your guide to how much you should be spending. Assuming you want to run a profitable business , you’ll use your sales forecast to guide what you should be spending on marketing to acquire new customers and how much you should be spending on operations and administration. 

Now, you don’t always need to be profitable, especially if you are trying to expand aggressively. But, you’ll eventually need your expenses to be less than your sales in order to turn a profit.

How detailed should your forecast be?

When you’re forecasting your sales , the first thing you should do is figure out what you should create a forecast for. You don’t want want to be too generic and just forecast sales for your entire company. On the other hand, you don’t want to create a forecast for every individual product or service that you sell.

For example, if you’re starting a restaurant, you don’t want to create forecasts for each item on the menu. Instead, you should focus on broader categories like lunch, dinner, and drinks. If you’re starting a clothing shop, forecast the key categories of clothing that you sell, like outerwear, casual wear, and so on.

You’ll probably want between three to ten categories covering the types of sales that you do. More than ten is going to be a lot of work to forecast and fewer than three probably means that you haven’t divided things up quite enough.

You really can’t get this wrong. After all, it’s just forecasting and you can always come back and adjust your categories later. Just pick a few to get started and move on.

Keep your business healthy with accurate and easy cash flow forecasting. Get LivePlan

Which forecasting model is best? Top-down or bottom-up?

Before they have much historical sales data, lots of startups make this mistake—and it’s a big one. They forecast “from the top down.” What that means is that they figure out the total size of the market ( TAM, or total addressable market ) and then decide that they will capture a small percentage of that total market.

For example, in 2015, more than 1.4 billion smartphones were sold worldwide. It’s pretty tempting for a startup to say that they’re going to get 1 percent of that total market. After all, 1 percent is such a tiny little number, it’s got to be believable, right?

The problem is that this kind of guessing is not based on any kind of reality. Sure, it looks like it might be credible on the surface, but you have to dig deeper. What’s driving those sales? How are people finding out about this new smartphone company? Of the people that find out about the new company, how many are going to buy?

So, instead of forecasting “from the top-down,” do a “bottom-up” forecast. Just like the name suggests, bottom-up forecasting is more of an educated guess, starting at the bottom and working up to a forecast.

Start by thinking about how many potential customers you might be able to make contact with; this could be through advertising, sales calls, or other marketing methods. This is your SOM (your “share of the market”), the subset of your 1 percent of the market that you will realistically reach—particularly in the first few years of your business. This is your target market .

Of the people you can reach, how many do you think you’ll be able to bring in the door or get onto your website? And finally, of the people that come in the door, get on the phone, or visit your site, how many will buy?

Here’s an example:

  • 10,000 people see my company’s ad online
  • 1,000 people click from the ad to my website
  • 100 people end up making a purchase

Obviously, these are all nice round numbers, but it should give you an idea of how bottom-up forecasting works.

The last step of the bottom-up forecasting method is to think about the average amount that each of those 100 people in our example ends up spending. On average, do they spend $20? $100? It’s O.K. to guess here, and the best way to refine your guess is to go out and talk to your potential customers and interview them. You’ll be surprised how accurate a number you can get with a few simple interviews.

How to create a sales forecast

Keep in mind that your sales forecast is an estimate of the number of goods and services you believe you can sell over a period of time. This will also include the cost to produce and sell those goods and services, as well as the estimated profit you’ll come away with.

We’ll dive into specific methods, assumptions, and questions you’ll need to ask in order to build a viable sales forecast. But to start, here are the general steps you’ll need to take to create a sales forecast:

  • List out the goods and services you sell
  • Estimate how much of each you expect to sell
  • Define the unit price or dollar value of each good or service sold
  • Multiply the number sold by the price
  • Determine how much it will cost to produce and sell each good or service
  • Multiply this cost by the estimated sales volume
  • Subtract the total cost from the total sales

This is a super basic rundown of what is included in your sales forecast to give you an idea of what to expect. For example, you may find the need to aggregate similar items into unified categories, if you sell a large variety of items. And if at all possible, try to keep your forecasted items grouped similarly to how they appear on your accounting statements to make updates easier.

Check out this video for a quick overview of how to forecast sales:

YouTube video

Now let’s dive into some specific elements of your forecast you’ll need to define ahead of time.

Should you forecast in units or dollars?

Let’s start by talking about “unit” sales.

A “unit” is simply a stand-in for whatever it is that you are selling. A single lunch at a restaurant would be a unit. An hour of consulting work is also a unit. The word “unit” is just a generic way to talk about whatever it is that you are selling.

Now that’s out of the way, let’s talk about why you should forecast by units.

Units help you think about the number of products, hours, meals, and so on, that you are selling. It’s easier to think about sales this way rather than to think just in dollars (or yen, or pounds, or rand, etc.).

With a dollar-based forecast, you are only thinking about the total amount of money that you’ll make in a given month, rather than the details of the number of units that you are selling and the average price you are selling each unit for.

To forecast by units, you predict how many units you’re going to sell each month—using the bottom-up method of course. Then, you figure out what the average price is going to be for each unit. Multiply those two numbers together and you have the total sales you plan on making each month.

For example, if you plan on selling 1,000 units at $20 each, you’ll make $20,000.

how to do a sales forecast for business plan

When you forecast by units, you have a couple of different variables to play with: What if I’m able to sell more units? What if I raise or lower my prices?

Also, there’s another benefit: At the end of a month of sales, I can look back at my forecast and see how I did compared to the forecast in greater detail. Did I meet my goals because I sold more units? Or did I sell for a higher price than I thought I would? This level of detail helps you guide your business and grow it moving forward.

Sales forecast assumptions

One thing to remember is that your sales forecast is built on assumptions. You’re not predicting the future, but aggregating information to help define your future outlook. These assumptions are always changing, meaning that you’ll need to have a pulse on the following:  

Market conditions

Having a general understanding of the macro effects on your business can help you better predict overall growth. A growing or shrinking market can either provide a low or high ceiling for potential sales increases. So, you need to understand how your business can react to any changes.

What does the broader market look like? Is the economy slowing or growing? Is the industry you operate in seeing an influx of competition? Maybe there’s a labor or material shortage? Are there new customers you now have access to?

Products and services

You may find yourself making regular changes to your products and services. This can be sales factors that impact the customer, or production factors that impact the overall cost. 

Are you making any changes or updates to current offerings? Are you launching a new product or service that compliments or disrupts your existing sales? Are you adjusting prices or sales channels? Are you able to decrease the cost of production? Or are expenses rising due to material, labor, or other production costs?


Depending on what you’re selling, you may find dips or increases in sales at specific times during the year. This seasonality may have to do with the weather, holidays, product/feature releases, or a number of other predictable factors. 

If you have been operating for a while, you can likely look at your accounting data to identify any trends. If you’re a new business look to your competitors to see how they act during specific times of the year to help you identify these trends earlier on.

Marketing efforts

How much you spend on marketing, and even your messaging may have an impact on your overall sales. Make sure that you connect any performance changes to marketing efforts that may affect your performance.

Are you launching a new marketing campaign? Are you spending more or less on advertising? Are you adjusting your targeting for digital ads? Are you branching out or removing specific marketing channels from your overall strategy?

Regulatory changes

You may find that specific laws or regulations directly impact your industry. It’s difficult to anticipate what legislation will provide a negative or positive impact, and just how often this type of regulatory change may occur. The best thing you can do is keep your ear to the ground, and be ready to adjust expenses or sales when any changes appear to make traction.

How far forward should you forecast?

I recommend that you forecast monthly for 12 months into the future and then just develop an annual sales forecast for another three to five years.

The further your forecast into the future, the less you’re going to know and the less benefit it’s going to have for you. After all, the world is going to change, your business is going to change, and you’ll be updating your forecast to reflect those changes.

12 months from now is far enough into the future to guess. You’ll have to update your forecasts regularly with actual performance to help keep them accurate. 

And don’t forget, all forecasts are wrong—and that’s O.K. Your forecast is just your best guess at what’s going to happen. As you learn more about your business and your customers, you can change and adjust your forecast. It’s not set in stone.

Why using visuals will make forecasting easier

My final word of advice is to make sure that you graph your monthly sales with a chart.

how to do a sales forecast for business plan

A chart will make it easy to see how your sales might dip during a slow period of the year and then grow again during your peak season. A chart will also highlight potentially unreasonable guesses at your sales growth. If for example, you show a big jump in sales from one month to the next, you should be able to back this up with a strategy that’s going to deliver those sales.

Adjust your forecasts based on actual results

Your sales forecast isn’t done when you start sharing it with lenders and investors. Instead, smart businesses use their sales forecast to measure their progress and ensure that they’re on the right track. Their sales forecast becomes a live forecast . An up-to-date management tool that helps them run their business better.

The easiest way to convert your sales forecast into a management tool is to have a monthly financial review meeting where you look at your business’s finances. You shouldn’t just look at your accounting system, though. You should compare the numbers from your accounting software to your forecast and see if you’re on track. 

Are you exceeding your goals? Or maybe you’re falling a little bit short. Either way, knowing if you’re meeting your goals or not will help you determine if you need to make some shifts in strategy. This way, your business numbers drive your strategy.

Forecasting is easier with LivePlan

Tools like LivePlan can help with this. LivePlan uses a smart dashboard to automatically compare your forecast to your numbers from your accounting system—no cutting and pasting or complicated spreadsheets required. And with LivePlan’s LiveForecast feature , you can update the forecasts within your Profit and Loss Statement, with the push of a button. 

This allows you to spend less time updating and more time analyzing performance to make better decisions. In fact, the LiveForecast feature allows you to expand the details of your performance and identify the variance in performance within your statements. You’ll know your current cash position and the impact on projected year-end totals at a glance. It provides you with enough information to then explore the dashboard with questions and potential steps in mind.

Sales forecasting isn’t as difficult as you think

Just remember that sales forecasting doesn’t have to be hard. Anyone can do it and you, as an entrepreneur, are the most qualified to do it for your business. You know your customers, and you know your market, so you can forecast your sales.

Editor’s note: This article was originally published in March 2016, and was updated for 2021.

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Noah Parsons

Noah Parsons

Posted in financials, join over 1 million entrepreneurs who found success with liveplan.

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How to Create a Sales Forecast

Every Business Needs One

Susan Ward wrote about small businesses for The Balance for 18 years. She has run an IT consulting firm and designed and presented courses on how to promote small businesses.

how to do a sales forecast for business plan

Sales Forecasting is the process of estimating what your business’s sales are going to be in the future. A sales forecast period can be monthly, quarterly, half-annually, or annually.

Sale forecasting is an integral part of business management. Without a solid idea of what your future sales are going to be, you can’t manage your inventory or your cash flow or plan for growth . The purpose of sales forecasting is to provide information that you can use to make intelligent business decisions.

For example, if your forecast indicates a 30% increase in sales of products or services, you may wish to begin searching for larger business premises and hire additional staff to meet the demand. Conversely, a forecast of shortfalls in sales can allow you to mitigate the effect by taking advance measures such as reducing expenses or reorienting your marketing efforts.

How to Create a Sales Forecast

A sales forecast is an estimate of the quantity of goods and services you can realistically sell over the forecast period, the cost of the goods and services , and the estimated profit.

Typically this is done by:

  • Making a list of the goods and services to be sold
  • Estimating of the number of each to be sold
  • Multiplying the unit price by the estimated number of goods or services to be sold
  • Determining the cost of each good or service
  • Multiplying the cost of each good or service by the estimated number to be sold
  • Subtracting total cost from the total sales 

If your business has a huge number of items in inventory it may be necessary to condense unit sales/costs into categories.

Sales Forecast Assumptions

There are many factors that can potentially affect sales that should form the basis for your sales forecast, including:

  • The economy and your particular industry:  Is the economy slowing? Is the market for your goods and services growing or declining? Is there more competition entering the marketplace? Are you likely to gain or lose any major customers? Your sales forecast should include an estimate of percentage growth or shrinkage in the market.
  • Regulatory changes:  sometimes new laws or regulations can affect your sales prospects, either positively or negatively.
  • Your products or services:  Are you launching any new products or services that may increase sales, or are sales of your existing products/services declining due to better products/services or lower prices from competition? Will you be forced to raise prices due to increased material, labor, or other costs and how might this affect sales?
  • Your marketing efforts:  Are you embarking on any new marketing campaigns or spending more or less on advertising? Perhaps bringing a new company website online, beefing up your email marketing , or branching into social media to increase sales? Are you hiring additional sales staff or losing your best salesperson?

Sales Forecasting for Existing Businesses

Sales forecasting for an established business is easier than sales forecasting for a new business ; the established business already has a sales forecast baseline of past sales. A business’s sales revenues from the same month in a previous year, combined with knowledge of general economic and industry trends, work well for predicting a business’s sales in a particular future month.

If your business has repeat customers, you can check with them to see if their purchase levels are likely to continue in future. If you don't wish to contact them directly you can infer future activity based on the health of the customer industry.

Sales Forecasting for New Businesses

Sales forecasting for a new business is more problematical as there is no baseline of past sales. The process of preparing a sales forecast for a new business involves researching your target market , your trading area and your competition and analyzing your research to guesstimate your future sales. See Three Methods of Sales Forecasting and Sales Forecasting for Your Business Plan for further explanation.

Sample 6 Month Sales Forecast

Create a range of forecasts.

It is a good idea to create multiple sales forecasts using a range of predictions, particularly for new businesses. After creating an initial forecast using your best estimates create another forecast based on  optimistic numbers and another based on pessimistic ones. Update your forecast with the actual values as time progresses.

Sales forecasting done on a month by month basis will give you a much more realistic prediction of how your business will perform than one “lump” sales forecast for the year. You can also update your forecasts on an even more granular basis if needed, for example, you might want to do it on a weekly basis if you are concerned about hitting a monthly sales target. 

Accounting Software Makes Forecasting Easier

Business accounting software packages such as QuickBooks can perform sales forecasts, including individual forecasts, by customer, based on existing sales data. See 6 Advantages of Using Small Business Accounting Software,  Before You Buy Accounting Software for Your Small Business , and  The Best Accounting Software for Small Business .

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How to Create a Sales Forecast

Female entrepreneur standing at the front of her shop reviewing receipts to start organizing categories for a sales forecast.

11 min. read

Updated October 27, 2023

Business owners are often afraid to forecast sales. But, you shouldn’t be. Because you can successfully forecast your own business’s sales.

You don’t have to be an MBA or CPA. It’s not about some magic right answer that you don’t know. It’s not about training you don’t have. It doesn’t take spreadsheet modeling (much less econometric modeling) to estimate units and price per unit for future sales. You just have to know your own business. 

  • Forecasting isn’t about seeing into the future

Sales forecasting is much easier than you think and much more useful than you imagine.

I was a vice president of a market research firm for several years, doing expensive forecasts, and I saw many times that there’s nothing better than the educated guess of somebody who knows the business well. All those sophisticated techniques depend on data from the past — and the past, by itself, isn’t the best predictor of the future. You are.

It’s not about guessing the future correctly. We’re human; we don’t do that well. Instead, it’s about setting down assumptions, expectations, drivers, tracking, and management. It’s about doing your job, not having precognitive powers. 

  • Successful forecasting is driven by regular reviews

What really matters is that you review and revise your forecast regularly. Spending should be tied to sales, so the forecast helps you budget and manage. You measure the value of a sales forecast like you do anything in business, by its measurable business results.

That also means you should not back off from forecasting because you have a new product, or new business, without past data. Lay out the sales drivers and interdependencies, to connect the dots, so that as you review plan-versus-actual results every month, you can easily make course corrections.

If you think sales forecasting is hard, try running a business without a forecast. That’s much harder.

Your sales forecast is also 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. The sales forecast is almost always going to be the first set of numbers you’ll track for plan versus actual use, even if you do no other numbers.

If nothing else, just forecast your sales, track plan-versus-actual results, and make corrections — that process alone, just the sales forecast and tracking is in itself already business planning. To get started on building your forecast follow these steps.

And if you run a subscription-based business, we have a guide dedicated to building a sales forecast for that business model.

  • Step 1: Set up your lines of sales

Most forecasts show several distinct lines of sales. Ideally, your sales lines match your accounting, but not necessarily in the same level of detail.   

For example, a restaurant ought not to forecast sales for each item on the menu. Instead, it forecasts breakfasts, lunches, dinners, and drinks, summarized. And a bookstore ought not to forecast sales by book, and not even by topic or author, but rather by lines of sales such as hardcover, softcover, magazines, and maybe categories (such as fiction, non-fiction, travel, etc.) if that works.

What’s your biggest business challenge right now?

Always try to set your streams to match your accounting, so you can look at the difference between the forecast and actual sales later. This is excellent for real business planning. It makes the heart of the process, the regular review, and revision, much easier. The point is better management.

For instance, in a bicycle retail store business plan, the owner works with five lines of sales, as shown in the illustration here.  

how to do a sales forecast for business plan

In this sample case, the revenue includes new bikes, repair, clothing, accessories, and a service contract. The bookkeeping for this retail store tracks sales in those same five categories.

  • Step 2: Forecast line by line

There are many ways to forecast a line of sales.

The method for each row depends on the business model

Among the main methods are:.

  • Unit sales : My personal favorite. Sales = units times price. You set an average price and forecast the units. And of course, you can change projected pricing over time. This is my favorite for most businesses because it gives you two factors to act on with course corrections: unit sales, or price.
  • Service units : Even though services don’t sell physical units, most sell billable units, such as billable hours for lawyers and accountants, or trips for transportations services, engagements for consultants, and so forth.
  • Recurring charges : Subscriptions. For each month or year, it has to forecast new signups, existing monthly charges, and cancellations. Estimates depend on both new signups and cancellations, which is often called “churn.”
  • Revenue only : For those who prefer to forecast revenue by the stream as just the money, without the extra information of breaking it into units and prices.

Most sales forecast rows are simple math

For a business plan, I recommend you make your sales forecast a detailed look at the next 12 months and then broadly cover two years after that. Here’s how to approach each method of line-by-line forecasting.

Start with units if you can

For unit sales, start by forecasting units month by month, as shown here below for the new bike’s line of sales in the bicycle shop plan:

how to do a sales forecast for business plan

I recommend looking at the visual as you forecast the units because most of us can see trends easier when we look at the line, as shown in the illustration, rather than just the numbers. You can also see the numbers in the forecast near the bottom. The first year, fiscal 2021 in this forecast, is the sum of those months.

Estimate price assumptions

With a simple revenue-only assumption, you do one row of units as shown in the above illustration, and you are done. The units are dollars, or whatever other currency you are using in your forecast. In this example, the new bicycle product will be sold for an average of $550.00. 

That’s a simplifying assumption, taking the average price, not the detailed price for each brand or line. Garrett, the shop owner, uses his past results to determine his actual average price for the most recent year. Then he rounds that estimate and adds his own judgment and educated guess on how that will change. 

how to do a sales forecast for business plan

Multiply price times units

Multiplying units times the revenue per unit generates the sales forecast for this row. So for example the $18,150 shown for October of 2020 is the product of 33 units times $550 each. And the $21,450 shown for the next month is the product of 39 units times $550 each. 

Subscription models are more complicated

Lately, a lot of businesses offer their buyers subscriptions, such as monthly packages, traditional or online newspapers, software, and even streaming services. All of these give a business recurring revenues, which is a big advantage. 

For subscriptions, you normally estimate new subscriptions per month and canceled subscriptions per month, and leave a calculation for the actual subscriptions charged. That’s a more complicated method, which demands more details. 

For that, you can refer to detailed discussions on subscription forecasting in How to Forecast Sales for a Subscription Business .

  • But how do you know what numbers to put into your sales forecast?

The math may be simple, yes, but this is predicting the future, and humans don’t do that well. So, don’t try to guess the future accurately for months in advance.

Instead, aim for making clear assumptions and understanding what drives your sales, such as web traffic and conversions, in one example, or the direct sales pipeline and leads, in another. Review results every month, and revise your forecast. Your educated guesses become more accurate over time.

Experience in the field is a huge advantage

In a normal ongoing business, the business owner has ample experience with past sales. They may not know accounting or technical forecasting, but they know their business. They are aware of changes in the market, their own business’s promotions, and other factors that business owners should know. They are comfortable making educated guesses.

If you don’t personally have the experience, try to find information and make guesses based on the experience of an employee,  your mentor , or others you’ve spoken within your field.

Use past results as a guide

Use results from the recent past if your business has them. Start a forecast by putting last year’s numbers into next year’s forecast, and then focus on what might be different this year from next.

Do you have new opportunities that will make sales grow? New marketing activities, promotions? Then increase the forecast. New competition, and new problems? Nobody wants to forecast decreasing sales, but if that’s likely, you need to deal with it by cutting costs or changing your focus.

Look for drivers

To forecast sales for a new restaurant, first, draw a map of tables and chairs and then estimate how many meals per mealtime at capacity, and in the beginning. It’s not a random number; it’s a matter of how many people come in.

To forecast sales for a new mobile app, you might get data from the Apple and Android mobile app stores about average downloads for different apps. A good web search might also reveal some anecdotal evidence, blog posts, and news stories, about the ramp-up of existing apps that were successful.

Get those numbers and think about how your case might be different. Maybe you drive downloads with a website, so you can predict traffic from past experience and then assume a percentage of web visitors who will download the app.

  • Estimate direct costs

Direct costs are also called the cost of goods sold (COGS) and per-unit costs. Direct costs are important because they help calculate gross margin, which is used as a basis for comparison in financial benchmarks, and are an instant measure (sales less direct costs) of your underlying profitability.

For example, I know from benchmarks that an average sporting goods store makes a 34 percent gross margin. That means that they spend $66 on average to buy the goods they sell for $100.

Not all businesses have direct costs. Service businesses supposedly don’t have direct costs, so they have a gross margin of 100 percent. That may be true for some professionals like accountants and lawyers, but a lot of services do have direct costs. For example, taxis have gasoline and maintenance. So do airlines.

A normal sales forecast includes units, price per unit, sales, direct cost per unit, and direct costs. The math is simple, with the direct costs per unit related to total direct costs the same way price per unit relates to total sales.

Multiply the units projected for any time period by the unit direct costs, and that gives you total direct costs. And here too, assume this view is just a cut-out, it flows to the right. In this example, Garrett the shop owner projected the direct costs of new bikes based on the assumption of 49 percent of sales.

how to do a sales forecast for business plan

Given the unit forecast estimate, the calculation of units times direct costs produces the forecast shown in the illustration below for direct costs for that product. So therefore the projected direct costs for new bikes in October is $8,894, which is 49% of the projected sales for that month, $18,150.

how to do a sales forecast for business plan

  • Never forecast in a vacuum

Never think of your sales forecast in a vacuum. It flows from the strategic action plans with their assumptions,  milestones , and metrics. Your marketing milestones affect your sales. Your business offering milestones affect your sales.

When you change milestones—and you will, because all business plans change—you should change your sales forecast to match.

  • Timing matters

Your sales are supposed to refer to when the ownership changes hands (for products) or when the service is performed (for services). It isn’t a sale when it’s ordered, or promised, or even when it’s contracted.

With proper  accrual accounting , it is a sale even if it hasn’t been paid for. With so-called cash-based accounting, by the way, it isn’t a sale until it’s paid for. Accrual is better because it gives you a more accurate picture, unless you’re very small and do all your business, both buying and selling, with cash only.

I know that seems simple, but it’s surprising how many people decide to do something different. The penalty for doing things differently is that then you don’t match the standard, and the bankers, analysts, and investors can’t tell what you meant.

This goes for direct costs, too. The direct costs in your monthly  profit and loss statement  are supposed to be just the costs associated with that month’s sales. Please notice how, in the examples above, the direct costs for the sample bicycle store are linked to the actual unit sales.

  • Live with your assumptions

Sales forecasting is not about accurately guessing the future. It’s about laying out your assumptions so you can manage changes effectively as sales and direct costs come out different from what you expected. Use this to adjust your sales forecast and improve your business by making course corrections to deal with what is working and what isn’t.

I believe that even if you do nothing else, by the time you use a sales forecast and review plan versus actual results every month, you are already managing with a business plan . You can’t review actual results without looking at what happened, why, and what to do next.

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Content Author: Tim Berry

Tim Berry is the founder and chairman of Palo Alto Software , a co-founder of Borland International, and a recognized expert in business planning. He has an MBA from Stanford and degrees with honors from the University of Oregon and the University of Notre Dame. Today, Tim dedicates most of his time to blogging, teaching and evangelizing for business planning.

how to do a sales forecast for business plan

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Real Goals of Sales Forecast

Your sales forecast won’t accurately predict the future. We know that from the start. What you want is to understand the sales drivers and interdependencies, to connect the dots, so that as you review plan vs. actual results every month, you can easily make course corrections.

Sure, people shy from doing forecasts, because it can feel like real numbers and you can think only the numbers people can do it. Don’t believe that. You don’t have to have an MBA degree or be a CPA. You don’t need sophisticated financial models or spreadsheets. I was a vice president of a market research firm for several years, doing expensive forecasts, and I saw many times that there’s nothing better than the educated guess of somebody who knows the business well. All those sophisticated techniques depend on data from the past. And the past, by itself, isn’t the best predictor of the future. You are. So let’s look at how to forecast sales, step by step.

If you think sales forecasting is hard, try running a business without a forecast. That’s much harder. Your sales forecast is also 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. The sales forecast is almost always going to be the first set of numbers you’ll track for plan vs. actual use, even if you do no other numbers.

If nothing else, just forecast your sales, track plan vs. actual results, and make corrections; that’s already business planning.

Match Your Forecast to Your Accounting

It should be obvious: Make sure the way you organize the sales forecast in rows or items or groups matches the way your accounting (or bookkeeping) tracks them.

Match your chart of accounts, which is what accountants call your list of items that show up in your financial statements.

If the accounting divides sales into meals, drinks, and other, then the business plan should divide sales into meals, drinks, and other. So if your chart of accounts divides sales by product or service groups, keep those groups intact in your sales forecast. If bookkeeping tracks sales by product, don’t forecast your sales by channel instead.

If you’re planning for a startup business, coordinate the bookkeeping categories with the forecasting categories.

Get your last Income Statement (also called Profit & Loss) and keep it in view while you develop your future projections.

If you don’t have more than 20 or so each rows of sales, costs, and expenses, then make the rows in the projected statement match the rows in the accounting.

If your accounting summarizes categories for you – most systems do – consider using the summary categories in your business plan. Accounting needs detail, while planning needs a summary.

If your categories in the projections don’t match the accounting output, you’re not going to be able to track plan vs. actual well. It will take retyping and recalculating. And you’ll lose the most valuable business benefit of business planning: management, steering your company.

The math is simple

Normally your sales forecast will group sales into a few manageable rows of sales and show projected units, prices, and sales monthly for the next 12 months and annually for the second and third years in the future. Here’s a quick example from a bicycle retailer named Garrett (with columns for April-November hidden on purpose, to make viewing easier):

Sample Sales Forecast

If you’re a LivePlan customer, don’t worry about this spreadsheet view, which is generic. LivePlan will guide you through the sales forecast assumptions and do the calculations automatically. For the generic spreadsheet option, shown here, you multiply units times prices to calculate sales. For example, unit sales of 36 new bicycles in March multiplied by $500 average revenue per bicycle means an estimated $18,000 of sales for new bicycles for that month.

Total Unit Sales is the sum of the projected units for each of the five categories of sales.

Total Sales is the sum of the projected sales for each of the five categories of sales.

Calculate Year 1 totals from the 12 month columns. Units and sales are sums of the 12 columns, and price is the average, calculated by dividing sales by units.

The numbers for Year 2 and Year 3 are just single columns; unless you have a special case, projecting monthly results for two and three years hence is overkill. It’s a problem of diminishing returns; you don’t get enough value to justify the time it takes. Other experts will disagree, by the way; and there may be special cases in which extended monthly projections are worth the effort.

Estimate Direct Costs

A normal sales forecast includes units, price per unit, sales, direct cost per unit, and direct costs. Direct costs are also called COGS, cost of goods sold, and unit costs.

COGS stands for Cost of Goods Sold, and applies to businesses that sell goods. COGS for a manufacturer include raw materials and labor costs to manufacture or assemble finished goods. COGS for a bookstore include what the storeowner pays to buy books. COGS for Garrett are what he paid for the bicycles, accessories, and clothing he sold during the month. Direct costs are the same thing for a service business, the direct cost of delivering the service. So, for example, it’s the gasoline and maintenance costs of a taxi ride.

Direct costs are specific to the business. The direct costs of a bookstore are its COGS, what it pays to buy books from a distributor. The distributor’s direct costs are COGS, what it paid to get the books from the publishers. The direct costs of the book publisher include the cost of printing, binding, shipping, and author royalties. The direct costs of the author are very small, probably just printer paper and photocopying; unless the author is paying an editor, in which case what the editor was paid is part of the author’s direct costs.

The costs of manufacturing and assembly labor are always supposed to be included in COGS. And some professional service businesses will include the salaries of their professionals as direct costs. In that case, the accounting firm, law office, or consulting company records the salaries of some of their associates as direct costs.

The illustration below shows how Garrett uses estimated margins to project the direct costs for his bicycle store. For the highlighted estimates, the direct entry for bicycles unit cost is the product of multiplying the price by 68 percent. The total direct costs for bicycles in January are the result of multiplying 30 units by $340 per unit. And here again, LivePlan users don’t need to do these calculations; your software does it automatically.

Sample Direct Costs

Some Quick Notes About Standards

Timing matters.

Standard accounting and financial analysis have rules about sales and direct costs and timing. A sale is when the ownership of the goods changes hands, or the service is performed. That seems simple enough but what happens sometimes is people confuse promises with sales. In the bike store example, if a customer tells Garrett in May that he is definitely going to buy 5 bicycles in July, that transaction should not be part of sales for May. Garrett should put those 5 bicycles into his July forecast and then they will actually be recorded as sales in the bookkeeping actual sales in July when the transaction takes place. In a service business, when a client promises in November to start a monthly service in January, that is not a November sale.

Direct costs also happen when the goods change hands. Technically, according to accounting standards (called accrual accounting), when Garrett the bike storeowner buys a bicycle he wants to sell, the money he spent on it remains in inventory until he sells it. It goes from inventory to direct costs for the income statement in the month in which it was sold. If it is never sold, it never affects profit or loss, and remains an asset until some day when the accountants write off old never-sold obsolete inventory, at which time its lowered value becomes an expense. In that case it was never a direct cost.

Most of this has to do with proper accounting. My standard business plan financials series includes What’s Accrual Accounting and Why Do You Care , which is directly related. When in doubt, please read that one.

Gross Margin

Gross Margin

The distinction isn’t always obvious. For example, manufacturing and assembly labor are supposed to be included in direct costs, but factory workers are paid sometimes when there is no job to work on. And some professional firms put lawyers’ accountants’ or consultants’ salaries into direct costs. These are judgment calls. When I was a young associate in a brand-name management consulting firm, I had to assign all of my 40 hour work week to specific consulting jobs for cost accounting.

Garrett can easily calculate the gross margin he’s projecting with his sales forecast. The illustration below shows his simple calculation of gross margin using his sales and direct costs.

how to do a sales forecast for business plan

How do I know what numbers to use?

But how do you know what numbers to put into your sales forecast? The math may be simple, yes, but this is predicting the future; and humans don’t do that well. Don’t try to guess the future accurately for months in advance. Instead, aim for making clear assumptions and understanding what drives sales, such as web traffic and conversions, in one example, or the direct sales pipeline and leads, in another. And you review results every month, and revise your forecast. Your educated guesses become more accurate over time.

Use experience and past results

  • Experience in the field is a huge advantage . In the example above, Garrett the bike storeowner has ample experience with past sales. He doesn’t know accounting or technical forecasting, but he knows his bicycle store and the bicycle business. He’s aware of changes in the market, and his own store’s promotions, and other factors that business owners know. He’s comfortable making educated guesses. In another example that follows, the café startup entrepreneur makes guesses based on her experience as an employee.
  • Use past results as a guide . Use results from the recent past if your business has them. Start a forecast by putting last year’s numbers into next year’s forecast, and then focus on what might be different this year from next. Do you have new opportunities that will make sales grow? New marketing activities, promotions? Then increase the forecast. New competition, and new problems? Nobody wants to forecast decreasing sales, but if that’s likely, you need to deal with it by cutting costs or changing your focus.
  • Start with your best guess , and follow up. Update your forecast each month. Compare the actual results to the forecast. You will get better at forecasting. Your business will teach you.

How to Forecast a New Business or New Product

What? You say you can’t forecast because your business or product is new? Join the club. Lots of people start new businesses, or new groups or divisions or products or territories within existing businesses, and can’t turn to existing data to forecast the future.

Think of the weather experts doing a 10-day forecast. Of course they don’t know the future, but they have some relevant information and they have some experience in the field. They look at weather drivers such as high and low pressure areas, wind directions, cloud formations, storms gathering elsewhere. They consider past experience, so they know how these same factors have generally behaved in the past. And they make educated guesses. When they project a high of 85 and low of 55 tomorrow, those are educated guesses.

You do the same thing with your new business or new product forecast that the experts do with the weather. You can get what data is available on factors that drive your sales, equivalent to air pressure and wind speeds and cloud formations. For example:

  • To forecast sales for a new restaurant first draw a map of tables and chairs and then estimate how many meals per mealtime at capacity, and in the beginning. It’s not a random number; it’s a matter of how many people come in. So a restaurant that seats 36 people at a time might assume it can sell a maximum of 50 lunches when it is absolutely jammed, with some people eating early and some late for their lunch hours. And maybe that’s just 20 lunches per day the first month, then 25 the second month, and so on. Apply some reasonable assumption to a month, and you have some idea.
  • To forecast sales for a new mobile app, you might get data from the Apple and Android mobile app stores about average downloads for different apps. And a good web search might reveal some anecdotal evidence, blog posts and news stories perhaps, about the ramp-up of existing apps that were successful. Get those numbers and think about how your case might be different. And maybe you drive downloads with a website, so you can predict traffic on your website from past experience and then assume a percentage of web visitors who will download the app.
  • So you take the information related to what I’m calling sales drivers, and apply common sense to it, human judgment, and then make your educated guesses. As more information becomes available — like the first month’s sales, for example – you add that into the mix, and revise or not, depending on how well it matches your expectations. It’s not a one-time forecast that you have to live with as the months go by. It’s all part of the lean planning process.

Sales forecast depends on product/service and marketing

Never think of your sales forecast in a vacuum. It flows from the strategic action plans with their assumptions, milestones and metrics. Your marketing milestones affect your sales. Your business offering milestones affect your sales. When you change milestones — and you will, because all business plans change — you should change your sales forecast to match.

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How to Calculate Sales Forecast for a New Business

Projecting sales is the most important and challenging piece of forecasting , especially for new businesses with little to no historic data. Many small business owners don’t know how to forecast sales and completely forego projections; however, this will leave you without an understanding of the risks, needs, and opportunities in your business plan. Not even to mention you will be unable to defend your assumptions to investors.

Thinking about future sales, business strategy, and equations all at once is daunting. To make sales forecasting more palatable, start by closing excel/google sheets. Instead, think about your customer’s journey and the model will flow naturally.

Keep reading to see how we at CFOshare creates a sales forecast out of your customer journey.

The Framework: Mapping the Customer Journey

Tie your sales forecast to your operations by understanding how your target customer interacts with your business. This can be broken into three phases:

  • The Sale Drivers
  • The Product Mix

a visual showing the components of a smart revenue forecast: the sales drivers, the product mix, and the customer lifetime

Forecasting Sales Drivers

Most small businesses acquire their customers from a direct sales approach, a marketing approach, or a combination strategy. Based on your future sales plan, identify your specific acquisition strategy and its expected efficiencies. Some common structures include:

A set of formulas demonstrating how to model three common sales strategies: a sales team strategy, an advertising strategy, and a marketing + sales strategy

Forecasting Product/Service Mix

Next, establish how new customers equate to revenue. Some companies have one product while others have dozens of variations. You can make a list of the different products you offer and assign what percent of customers will buy each product. This product mix will allow you to turn the new customers into unit sales. For Example:

A chart demonstrating how to simplify sales forecasting by grouping products.

When forecasting, it is vital to simplify your product offerings as much as possible to avoid an overly complex model. For example, if you have 6 products that have some similarities in cost and price, it may be worth only forecasting 2 or 3 variations.

Forecasting The Customer Lifetime

How do customers interact with your business? Do you have one-time sales or recurring subscriptions? Will customers come back for multiple purchases or will customers stay subscribed for years? Many businesses derive considerable value after the initial sale, so it is important to understand customer retention and repeat purchase behavior.

Companies that have one-off sales, such as product companies, should understand how customers return product and repeat purchase. SaaS, consultants, and subscription service business plans need to understand how long a customer will engage and if they are paying monthly, annually, or by occurrence. Check out our article on Lifetime Value for more information on customer lifetime.

Completing the Framework

Once you establish the three stages, bring it all together to build your sales forecast framework. The framework highlights the critical variables behind a successful sale and/or marketing strategy.

Feeling lost already? Building forecasts is not for everyone, so contact us for a consultation if you are ready for expert assistance. If you are keeping up and want to DIY, read on…

Modeling Tactics: Creating a Working Sales Forecast

With the framework complete you can move onto creating a sales forecast model. Although I could write a 300-page novel on the tips and tricks for making a financial model, today we’ll focus on three key ideas:

  • The Forecasting Method
  • Believable Data

The Sales Forecasting Methods

Your forecasting method is determined by the way to grow your sales, how much to grow your sales, and your intuition . The way to grow sales is simply an extension of the sales drivers. Common methods include:

How much to grow your sales is a balance of capital, resources, and some intuition. Most people want to know whether liner growth, exponential growth, or step function growth is the best way to forecast; however, equations are not what make a good projection. Start with what resources you have or can acquires. Then, determine if you have the capital to support those resources.

Lastly, use your intuition to determine if the sales forecasting methods feel correct.

For example, your business plan may start with $250k capital and three salespeople. But, after budgeting, you realize you can only afford two salespeople. Will it be easier to grow the business with only two salespeople or to raise $500k in capital? Use your intuition and the forecast to adjust the business plan.

Establish Believable Sales Data

How do you predict the effectiveness of your sales team or marketing campaigns? This is typically the biggest roadblock for owners forecasting on their own. The key to overcoming this hurdle is to ascertain data by creating your own proxies, utilizing comparables, or consulting with experts.

Creating proxies

Creating proxies entails collecting substitute data to approximate future sales metrics. Common proxies include:

  • Collecting data through software
  • Tracking open rates on email campaigns
  • Creating a fake purchase button on your website (while still in development)
  • Tracking responses while surveying.

You can gather a lot of information on customer interest and potential sales effectiveness through these guerrilla tactics.

Using Comparables

Market research to look for comps is an obvious tactic; however, it can be difficult to find relevant data. You can find many articles online that will describe typical expectations and industry standards. Make sure to find industries that you align with as this can greatly alters target metrics.

Consult with Experts

The best resources are always other people; reach out to business owners, investors, or small business organization that will be willing share some information.

The last step is to use excel, google sheet, or another tool to set up equations to tie everything together. Best practice is to use a handful of assumptions that can be adjusted and leave everything else connected by equations . Therefore, you will be able to change an assumption and immediately see the impact on your sales forecast.

For visual examples of good modeling, check out this free on-demand webinar on modeling.

Finding a happy medium between simple and sophisticated is critical while modeling for a small business plan. Too simple, and the model will not paint an accurate picture of your strategy. Too complex, and the model become too difficult to use. Find a balance by identifying and highlighting key assumptions, consolidating less critical assumptions, and utilizing equations to automate the rest.

Beyond Initial Sales Forecasting

Building the sales forecast is just the tip of the forecasting iceberg. Sales forecasting is just a piece of the business forecasting ecosystem. Your business doesn’t start and stop with sales so neither should your modeling.

A forecast also requires standard maintenance as the business evolves and you obtain more data. Best practice is to update the projections monthly in order to stay relevant with the current environment.

Forecasting is challenging, time intensive, and requires industry knowledge and modeling abilities. If, after reading this article, you are still unsure how to forecast sales, sign up for a free consultation to speak with a professional and save yourself the headache. CFOshare is your finance and accounting team with expert services including forecasting.

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How do you forecast sales when launching a new business?

The business plan is an essential document for the definition and presentation of a project and to hope to attract investors. This file includes a lot of information on the products or services offered, the founding team, the strategy, the financing method, but also on the projected turnover and the financial evolution of the company over the years. This is why a successful business plan cannot do without a projected sales plan . But where established companies can use past data, an entrepreneurial project usually has no previous results to rely on. So how do you develop your sales forecast to write a reliable and convincing business plan?

Comment faire des prévisions dans un business plan ?-1

Why make sales forecasts in a business plan?

What are the difficulties in developing a forward-looking plan in a business plan.

Comment faire des prévisions dans un business plan ?-2

What methods should be used to forecast the quantity of products sold?

Without historical data, there is no choice but to focus the sales forecast on external elements. Although sometimes random, they can provide a solid reference for estimating the number of products that will be sold or services that will be provided. It is also wise to take into account the human, financial and material resources of the future company to delimit the future sales capacities. Focus on the means available to make sales estimates in a business plan!

Studying consumer needs

If you are planning to start a business, you have probably done some consumer research to determine the viability of your project. The information gathered from this research can be valuable in estimating your sales, provided you collect relevant data. It is therefore necessary to obtain information on the buying intentions and needs of consumers and to answer essential questions: What is the proportion of people surveyed who would be ready to buy? How often do they buy similar products? How much do they spend on each purchase? Are customers loyal to a competing brand? Does your offer seem to meet their expectations, etc.?

Conducting tests with the target group

To go further in the market research and obtain additional data on customers, you can also conduct test phases for your products and services. For example, you can create prototypes or beta versions of an application or a website, in order to estimate the interest in your offer, the potential conversion rate, the elements that can slow down sales, etc. This will help you refine the forecast results, extrapolating the results to the market. This will help you refine the forecast results, extrapolating the information to a larger scale.

Analysing the competition

Studying the company's production capacities.

In order to make sales forecasts in a business plan, it is also essential to take a close look at what you will be able to produce (or to obtain from your suppliers). Indeed, it seems irrelevant to aim for sales objectives that exceed the number of products you will actually be able to offer to customers . And if you see a demand that exceeds your offer, review your strategy: you could perhaps opt for a higher price or look for investments to increase the production threshold.

Taking into account marketing and sales actions

We recommend these other pages:

  • Sales forecasting methods
  • How to improve sales forecasting?
  • How to avoid pitfalls in sales forecasting?

6 Ways to Create an Effective Sales Forecast

Table of contents.

how to do a sales forecast for business plan

In business, you’re always selling something. Even if your company is the furthest thing from a storefront with cash registers and credit card readers — say, a consultancy that charges by the hour — you make a sale every time you earn money by providing goods or services. Of course, you also incur certain expenses to make these sales, so you’ll need to know ahead of time whether you’ll make enough sales to cover your costs. That’s where sales forecasting comes in.

What is sales forecasting?

Sales forecasting is the use of current and previous sales data to predict your team’s sales activity during an upcoming monthly, quarterly, semiannual or annual period. You can use sales forecasts to identify internal or external sales issues and resolve them with enough time remaining to reach sales goals .

Because a sales forecast is a prediction, it relies on current knowledge to preview upcoming changes. As such, the following factors influence sales forecasts:

  • Your industry’s recent growth or contraction rates
  • The economy in general
  • Your competition’s sales of similar items
  • Your newest product or service launches
  • Fluctuations in your usual operating costs or sales prices
  • New regulations restricting your usual operations
  • Your company’s marketing activities

Although sales forecasts extrapolate from current data, they are primarily concerned with future conditions. As a result, they constitute an integral part of your company’s larger sales plan and should be taken into account alongside your other expectations for the quarter or year.

Sales forecasting is an important financial planning tool and should be part of budgeting. It can also be used as a motivator for sales teams, setting a clear target for them to hit in a given period of time.

How to create a sales forecast

Creating a sales forecast involves basic math and thorough knowledge of your typical sales cycle (although newer companies may lack this information and should conduct research instead). Follow these steps to create a sales forecast:

1. Choose your forecasting method.

Using the past to predict the future is essential to sales forecasting, but not all usage of past data is equal. Try one or more of these three prominent forecasting methods:

  • Opportunity stage forecasting. This forecasting method pertains to your sales funnel. For example, if you know that 80 percent of past leads in the fourth stage of your funnel became customers and a current fourth-stage lead is inching toward a $50,000 deal, you can forecast the revenue you earn from this deal as $50,000 x 0.80 = $40,000.
  • Historical forecasting. This forecasting method pertains to recent or seasonal data. For example, if you see month-to-month sales of $100,000 for a certain product, you can forecast that same amount for next month. If your company operates seasonally, use the numbers from the same month of the previous year instead of using the previous month’s sales. You can also incorporate growth trends into this method: Using the above example, if your sales typically grow 5 percent each month, you should forecast $100,000 + (0.05 x $100,000) = $105,000.
  • Length-of-cycle forecasting. This method pertains to the period of time over which your sales funnel progresses. For example, if your sales funnel usually spans one month and you identify a lead with whom your team has been negotiating for three weeks, the sale has a likelihood of three to four weeks = 75 percent. If the sale would result in $100,000 in revenue, you can forecast $100,000 x 0.75 = $75,000 in sales.

Note that each of these methods has advantages and disadvantages regarding data accuracy, external factors and other considerations. That said, they are more straightforward and reliable (and less technical) than other methods, so they may still be best for your sales forecasts.

2. Identify what you’re selling.

This step may seem obvious, but a thorough sales forecast requires you to identify every item you’re selling. Excluding an item that you sell or including an item you’re no longer producing can lead to inaccurate sales forecasts.

3. Determine your sales prices and quantities.

Once you know what you’re selling, figure out your sales prices and the number of sales that you estimate will occur. The forecasting methods explained in step one can be used to quantify your sales. For example, the sale mentioned in the length-of-cycle example can be seen as a sale of 0.75 units.

4. Multiply your prices and quantities.

Likewise, the $100,000 x 0.75 operation in the above length-of-cycle example shows how to multiply your prices and quantities. This step looks a bit different if you’re using historical forecasting; in that case, multiply your previous period’s sale quantity by its number of products sold.

5. Factor in your costs.

Without taking sales costs into consideration, you can’t get a meaningful picture of your profit margins . That’s why you should also multiply the cost of making each sale by the number of sales.

For example, let’s say you use the historical forecasting method and predict sales for one month of $500,000 based on the previous month’s sales of 500 units at $1,000. Then, if each unit costs $100 to sell, your sales costs are 500 x $100 = $50,000. This means your profit forecast is $500,000 – $50,000 = $450,000.

6. Consider your inventory.

Now that you’ve seen the basic math of sales forecasting, you might feel overwhelmed. Maybe you’re wondering whether you really have to calculate these numbers for all of your items. The answer is usually yes, though if your inventory is large and diverse, you may need to condense revenues and costs into larger categories, as shown in this sales forecast table .

To create a sales forecast, choose a forecasting method; determine your sales prices, quantitie, and costs; make some basic calculations; and consider your inventory.

Why is sales forecasting important?

Sales forecasting gives you the information you need to adjust your company’s upcoming sales strategies and budget. An accurate forecast can point to gaps in your sales team’s methodology; areas where sales costs can be cut; or increases, decreases and trends in your sales. It does so while giving you more than enough time to make these adjustments and remain on track to meet your sales goals.

In addition, a sales forecast gives your sales team a target to strive toward. In sales, staying motivated is critical, and if your sales forecast sets a target, your salespeople will keep their eye on it. That’s especially true if you tie some sort of incentive to beating the forecast for a given period of time, such as team bonuses or boosted commissions for sales that exceed predictions.

What are some key sales forecasting challenges?

Here are some factors that may complicate your sales forecast:

  • Sales history. Creating an accurate sales forecast requires thorough data on your recent company sales. This can present a substantial challenge for newer companies with little or no sales history. Without much past data to go on, several forecast influences — operating costs, sales prices, marketing activities — don’t yet exist for your company.
  • Research. If your company doesn’t have an extensive sales history, you can patch this information gap somewhat via thorough research into your competitors , target market, industry and more. If your company does have an extensive sales history, this research remains important, though perhaps less so. In both cases, the time and money that go into research can pose sales forecasting challenges.
  • Data accuracy. Sales forecasting assumes correct data sets, but in reality, human error — even with the use of customer relationship management (CRM) software — remains possible. When sales reps record inaccurate data in your CRM program , an incorrect sales forecast — and therefore poor planning — can result.
  • Superficiality. In some cases, sales data only showcases numbers without explaining the reasoning behind fluctuations. Without these explanations, predicting future customer behavior can be tougher, which affects the accuracy of your sales forecast. Nearly every industry has a slow or busy period. A sales forecast for a busy period may be inaccurate if it’s based on a slow period, and even the most diligent sales executives can sometimes miss this discrepancy.
  • Sales funnel inconsistency. Not only can two companies’ sales funnels look completely different, but the funnels that two sales reps within the same company use can also vary. Work proactively to prevent this internal discrepancy, as terminology gaps or unstandardized sales processes can result in misleading information and in turn skew sales forecasts.

What to do if you fall short of your sales forecast

Sales forecasts are predictive tools, and sometimes your team may fall short of predictions. If that happens, you should do two things: Analyze your forecasting methodology and review operations and market conditions for the period during which you missed the forecast.

First, take a closer look at your sales forecast and how you developed it. If it was grounded in lofty ambition rather than historical sales data, that may be a clear indicator that it wasn’t realistic. For example, if your team has historically brought in between $100,000 and $200,000 in revenue per quarter, suddenly expecting them to generate $500,000 without any demonstrable changes in operations is setting your team up to fail.

Similarly, if the sales forecast was built on a dependency that wasn’t met, that could explain the failure. For example, if your forecast was built on the premise that your marketing team would generate 20 percent more leads than it did in the previous period and the team only generated 5 percent more leads, it’s unlikely the resulting sales forecast could be met.

If your forecasting methodology appears sound — that is, it’s grounded in historical sales data and realistic assumptions about the upcoming period — take a look at market conditions. Has the economic landscape changed? For example, record inflation between 2021 and 2023 saw declines in consumer spending and reduced marketing budgets. Sales forecasts made before inflation impacted the broader economy are likely to miss the mark. In a case like this, it’s important to revise future sales forecasts once you understand why previous ones were not met. 

Missing a sales forecast isn’t the end of the world, but you should analyze what caused your expectations to be off base and adjust future sales forecasts accordingly.

Sales forecasting supports financial planning and sets sales targets

Sales forecasting is important not only for benchmarking a successful quarter or year for your sales team, but also giving them a clear goal or target to surpass. While meeting a sales forecast is an important goal in itself — especially when that forecast is based on historical sales data and expected lead generation — eclipsing it can be a mark of great success. Sales forecasting is not only an important financial planning tool, it’s also a great motivator to get more out of your sales team.

Jacob Bierer-Nielsen contributed to this article.


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Forecast and plan your sales

Accurately forecasting your sales and building a sales plan can help you to avoid unforeseen cash flow problems and manage your production, staff and financing needs more effectively.

A sales forecast is an essential tool for managing a business of any size. It is a month-by-month forecast of the level of sales you expect to achieve. Most businesses draw up a sales forecast once a year.

Armed with this information you can rapidly identify problems and opportunities - and do something about them.

While it's always wise to expect the unexpected, a well-constructed sales plan, combined with accurate sales forecasting, can allow you to spend more time developing your business rather than responding to day-to-day developments in sales and marketing.

This guide shows you how to put together a sales forecast and a sales plan.

A basis for sales forecasts

Your sales assumptions, developing your forecast, avoiding forecasting pitfalls, creating a sales plan.

Sales forecasts enable you to manage your business more effectively. Before you begin, there are a few questions that may help clarify your position:

  • How many new customers do you gain each year?
  • How many customers do you lose each year?
  • What is the average level of sales you make to each customer?
  • Are there particular months where you acquire or lose more customers than usual?

Existing businesses

The starting point for your sales forecast is last year's sales.

Before you factor in a new product launch, or an economic trend, look at the level of sales for each customer last year. Do you know of any customers who are going to buy more - or less - from you next year?

In the case of customers who account for a significant value of sales, you may want to ask them if they plan to change their purchase level in the foreseeable future.

New businesses

New businesses have to make assumptions based on market research and good judgement.

Every business can also add in the new customers that it expects to attract without actually knowing who they are, or what they will buy. Simply enter "new customer" on your forecast.

Depending on your type of business, you may want to specify the volume of sales in the forecast - for example, how many 3.78-litre cans of paint you sell - as well as the value of sales. By knowing the volume, you can plan the necessary resources in areas such as production, storage and transport.

Every year is different so you need to list any changing circumstances that could significantly affect your sales. These factors - known as the sales forecast assumptions - form the basis of your forecast.

Wherever possible, put a figure against the change - as shown in the examples below. You can then get a feel for the impact it will have on your business. Also, give the reasoning behind each figure, so that other people can comment on whether it's realistic.

Here are some typical examples of assumptions:

  • The market you sell into will grow by 2 per cent.
  • Your market share will shrink by 2 per cent, due to the success of a competitor.

Your resources

  • You will double your sales force from three people to six people, halfway through the year.
  • You will spend 50 per cent less on advertising, which will reduce the number of enquiries from potential customers.

Overcoming barriers to sale

  • You are moving to a better location, which will lead to 30 per cent more customers buying next year.
  • You are raising prices by 10 per cent, which will reduce the volume of products sold by 5 per cent but result in a 4.5 per cent increase in overall revenue.

Your products

  • You are launching a range of new products. Sales will be small this year and costs will outweigh profits, but in future years, you will reap the benefits.
  • You have products that are newly established and that have the potential to increase sales rapidly.
  • You have established products that enjoy steady sales but have little growth potential.
  • You have products that face declining sales, perhaps because of a competitor's superior product.

For new businesses , the assumptions need to be based on market research and good judgement.

Start by writing down your sales assumptions. See the page in this guide on your sales assumptions.

You can then create your sales forecast. This becomes easy once you've found a way to break the forecast down into individual items.

  • Can you break down your sales by product, market, or geographic region?
  • Are individual customers important enough to your business to warrant their own individual sales forecast?
  • Can you estimate the conversion rate - the percentage chance of the sale happening - for each item on your sales forecast?

For example, you might predict that a customer will purchase $1,000 worth of products. If you estimate that there's a 70 per cent chance of this happening, the forecast sales for this customer are $700, i.e. 70 per cent of $1,000.

Selling more of your product to an existing customer is far easier than making a first sale to a new customer. So the conversion rates for existing customers are much higher than those for new customers.

You may want to include details of which product each customer is likely to buy. Then you can spot potential problems. One product could sell out, while another might not move at all.

By predicting actual sales, you're forecasting what you think will be sold. This is generally far more accurate than forecasting from a target figure and then trying to work out how to achieve it.

The completed sales forecast isn't just used to plan and monitor your sales efforts. It's also a vital part of the cash flow.

There is a wide range of sales forecasting software available that can make the whole process much simpler and more accurate. This software generates forecasts based on historical data. If you are considering buying software, get advice from an IT expert, your trade association, your business advisors and businesses of a similar size and in similar markets.

Five common forecasting pitfalls are:

Wishful thinking

It's all too easy to be over-optimistic. It's a good idea to look back at the previous year's forecast to see if your figures were realistic. New businesses should avoid the mistake of working out the level of sales they need for the business to be viable, then putting this figure in as the forecast.

You also need to consider if it is physically possible to achieve the sales levels you're forecasting. For example:

  • one taxi can only make a certain number of airport trips each day
  • a machine can only produce a given number of components on each shift
  • a sales team can only visit a certain number of customers each week

Ignoring your own assumptions

Make sure your sales assumptions are linked to the detailed sales forecast, otherwise you can end up with completely contradictory information. For instance, if you assume a declining market and declining market share, it's illogical to then forecast increased sales. For more information, see the page in this guide on your sales assumptions.

Moving goalposts

Make sure the forecast is finalised and agreed within a set timescale. If you're spending a lot of time refining the forecast, it can distract you from focusing on your targets. Avoid making excessive adjustments to the forecast, even if you discover it's too optimistic or pessimistic.

No consultation

Your sales people probably have the best knowledge of your customers' buying intentions, therefore:

  • ask for their opinions
  • give them time to ask their customers about this
  • get the sales team's agreement to any targets that will be set

No feedback

Having built your sales forecast, you need someone to challenge it. Get an experienced person - your accountant or a senior sales person - to review the whole document.

The questions you should answer in your sales plan are:

  • What are you going to focus on?
  • What are you going to change?
  • In practical terms, what steps are involved?
  • What territories and targets are you going to give each salesperson or team?

The sales plan will start with some strategic objectives . Here are some examples:

  • break into the municipal market by adapting your product for this market
  • open a store in an area that you believe has the potential for generating lots of sales
  • boost the average sale per customer

You can then explain the stepping stones that will allow you to achieve these objectives. Use objectives which are SMART - Specific, Measurable, Achievable, Realistic, Time-bound.

Using the example of breaking into the municipal market, the stepping stones might be to:

  • hire a sales person with experience of the municipal market on a salary of $48,000 by the beginning of February
  • fully train the sales person by mid April
  • ensure that any changes the product development team has agreed to make are ready to pilot by the beginning of April

As well as planning for new products and new markets, explain how you're going to improve sales and profit margins for your existing products and markets. It is often helpful to identify how you will remove barriers to sales:

  • Can you increase the activity levels of the sales team - more telephone calls per day, or more customer visits per week?
  • Can you increase the conversion rate of calls into sales - through better sales training, better sales support materials or improved sales incentives?

Original document, Forecast and plan your sales , © Crown copyright 2009 Source: Business Link UK (now GOV.UK/Business ) Adapted for Québec by Info entrepreneurs

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