A sales forecast is an integral part of managing a business. It is a process of estimating future sales. In running a business daily, management of inventory, cash flow and developing a plan for business growth has proven difficult without knowing or having an idea of what the future sales will be.

The accuracy of sales forecasts is crucial in making business decisions and predicting both short and long-term performance. With this information, problems and opportunities can be identified and relevant plans of action drawn to respond to the developments.

A basis for sales forecasts

Sales forecasts enable effective management of businesses. It is based on data from previous sales, comparisons with other industries, and economic trends.

  • Existing businesses – Established companies start their sales forecast from past business data. This is easier than doing forecasting for new businesses. Past sales coupled with information on economic trends increases the accuracy of forecasts. Companies review each customer’s level of sales and determine if the customers will buy more or less in the future. The customers can be contacted directly or inference of future activity can be done based on the behavior of the customers.
  • New businesses – Newly founded companies’ forecasts are drawn from assumptions based on thorough research of the target market and good judgment. The assumptions are any factors that could significantly affect the company’s sales e.g. the market, the company’s resources, barriers to sale and the products.

Importance of sales forecasts

The forecast done by the sales force provides enough information that enables virtual management of business aspects. Future activities can be planned for and each salesperson has a business plan and objectives to meet depending on the forecasts.

Depending on the research done, as well as past sales, forecasting offers an estimate of the demand for the products. The sales team can research the demand and create it through lead generation and qualification. Demand prediction and efficient management of production results to better control of a business’s supply chain. This leads to better management of resources.

Sometimes it is difficult to meet customer’s demands in terms of quantity of products ordered. Accurate forecasting increases the rate of; On time In full (OTIF) delivery. The forecasts enable manufacturing of sufficient products so that customer needs’ can be fulfilled making them happy and reducing the number of complaints.

Marketing also benefits from sales forecasting. Any prediction of low sales gives marketing an opportunity to schedule promotions or disqualify the low selling products.