Table of contents

Forecast and plan your sales 2

Introduction 2

A basis for sales forecasts 2

Your sales assumptions 3

Developing your forecast 4

Avoiding forecasting pitfalls 5

Creating a sales plan 5

Here's how sales forecasting helped my firm 6

Related guides on businesslink.gov.uk 7

Related web sites you might find useful 7

Forecast and plan your sales

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Subjects covered in this guide

Introduction

A basis for sales forecasts

Your sales assumptions

Developing your forecast

Avoiding forecasting pitfalls

Creating a sales plan

Here's how sales forecasting helped my firm

Related guides on businesslink.gov.uk

Related web sites you might find useful

You can find this guide by navigating to:

Home > Sales and marketing > Selling >Forecast and plan your sales

Introduction

A sales forecast is an essential tool formanaging a business of any size. It is amonth-by-month forecast of the level ofsales you expect to achieve. Mostbusinesses draw up a sales forecast once ayear.

Armed with this information you can rapidlyidentify problems and opportunities - and dosomething about them.

For example, accurately forecasting yoursales and building a sales plan can help youmanage your production, staff and financingneeds more effectively and avoidunforeseen cashflow problems.

While it's always wise to expect theunexpected, a well-constructed sales plan,combined with accurate sales forecasting,can allow you to spend more timedeveloping your business rather thanresponding to day-to-day developments insales and marketing.

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

A basis for sales forecasts

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

• How many new customers do yougain each year?

• How many customers do you loseeach year?

• What is the average level of sales

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you make to each customer?• Are there particular months where

you acquire or lose more customersthan usual?

Existing businesses

The starting point for your sales forecast islast year's sales.

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

In the case of customers who account for asignificant value of sales, you may want toask them if they plan to change theirpurchase level in the foreseeable future.

New businesses

New businesses have to make assumptionsbased on market research and realisticjudgement.

You could begin by listing the number ofcustomers you think is realistic to attain inyour first year. List them as 'New customer1', 'New customer 2' etc. Then try toapportion a realistic sales figure againsteach of them, bearing in mind that a fewlarger customers are likely to account for agreater share of sales than the rest -although this depends on your type ofbusiness. There must inevitably be someguesswork here, but at least you shouldreach a forecast that is broadly in the rightarea.

Depending on your type of business, youmay want to specify the volume of sales inthe forecast - for example, how manyfive-litre cans of paint you sell - as well as

the value of sales. By knowing the volume,you can plan what resources you're likely toneed in terms of production, storage,transport and staffing.

Your sales assumptions

Every year is different so you need toconsider any changing circumstances thatcould significantly affect your sales. Thesefactors - known as the sales forecastassumptions - form the basis of yourforecast.

Wherever possible, put a figure against thechange - as shown in the examples below.You can then get a feel for the impact it willhave on your business. Also, give thereasoning behind each figure, so that otherpeople can comment on whether it'srealistic.

Here are some typical examples ofassumptions:

The market

• The market you sell into will grow by2 per cent.

• Your market share will shrink by 2per cent, due to the success of acompetitor.

Your resources

• You will double your sales force fromthree people to six people, halfwaythrough the year.

• You will spend 50 per cent less onadvertising, which will reduce thenumber of enquiries from potentialcustomers.

Overcoming barriers to sale

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• You are moving to a better location,which will lead to 30 per cent morecustomers buying next year.

• You are raising prices by 10 per cent,which will reduce the volume ofproducts sold by 5 per cent but resultin a 4.5 per cent increase in overallrevenue.

Your products

• You are launching a range of newproducts. Sales will be small thisyear and costs will outweigh profits,but in future years, you will reap thebenefits.

• You have products that are newlyestablished and that have thepotential to increase sales rapidly.

• You have established products thatenjoy steady sales but have littlegrowth potential.

• You have products that facedeclining sales, perhaps because ofa competitor's superior product.

For new businesses, the assumptionsneed to be based on market research andgood judgement.

Developing your forecast

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

You can then create your sales forecast.This becomes easy once you have found away to break the forecast down intoindividual items.

• Can you break down your sales byproduct, market, or geographicregion?

• Are individual customers importantenough to your business to warranttheir own individual sales forecast?

• Can you estimate the conversion rate- the percentage chance of the salehappening - for each item on yoursales forecast? For example, youmight predict that a customer willpurchase £1,000 worth of products. Ifyou estimate that there's a 70 percent chance of this happening, theforecast sales for this customer are£700, ie 70 per cent of £1,000.

For example, you might predict that acustomer will purchase £1,000 worth ofproducts. If you estimate that there's a 70per cent chance of this happening, theforecast sales for this customer are £700, ie70 per cent of £1,000.

Selling more of your product to an existingcustomer is far easier than making a firstsale to a new customer. So the conversionrates for existing customers are muchhigher than those for new customers.

You may want to include details of whichproduct each customer is likely to buy. Thenyou can spot potential problems. Oneproduct could sell out, while another mightnot shift at all.

By predicting specific sales, you'reforecasting what you think will be sold. Thisis generally far more accurate than startingwith a target figure and then trying to workout how to achieve it.

The completed sales forecast isn't just usedto plan and monitor your sales efforts. It'salso a vital part of the cashflow. See ourguide to cashflow management: thebasics.

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There is a wide range of sales forecastingsoftware available that can make the wholeprocess much simpler and more accurate.This software generates forecasts based onhistorical data. If you are considering buyingsoftware, get advice from an IT expert, yourtrade association, your business advisers orbusinesses of a similar size and in similarmarkets.

Avoiding forecasting pitfalls

Some common forecasting pitfalls are:

Wishful thinking

Being positive is fine, but being overoptimistic with your sales forecasting will nothelp your business. It's a good idea to lookback at the previous year's forecast to see ifyour figures were realistic. New businessesshould avoid the mistake of working out thelevel of sales they need for the business tobe viable, then putting this figure in as theforecast.

Not making your forecast achievable

You need to consider if it is physicallypossible to achieve the sales levels you'reforecasting. For example:

• one taxi can only make a certainnumber of airport trips each day

• a machine can only produce a givennumber of components on each shift

• a sales team can only visit a certainnumber of customers each week

Ignoring your own assumptions

Make sure your sales assumptions arelinked to the detailed sales forecast,otherwise you can end up with completelycontradictory information. For instance, if

you assume a declining market anddeclining market share, it's illogical to thenforecast increased sales. For moreinformation, see the page in this guide onyour sales assumptions.

Moving goalposts

Make sure the forecast is finalised andagreed within a set timescale. If you'respending a lot of time refining the forecast, itcan distract you from focusing on yourtargets. Avoid making excessiveadjustments to the forecast, even if youdiscover it's too optimistic or pessimistic.

Not consulting your sales people

Your sales people probably have the bestknowledge of your customers' buyingintentions, therefore:

• ask for their opinions• give them time to ask their customers

about this• get the sales team's agreement to

any targets they will be set - ratherthan just imposing a target on them,especially if they know that it'sunrealistic or unachievable

Not obtaining feedback

Having built your sales forecast, you needsomeone to challenge it. Get anexperienced person - your accountant or asenior sales person - to review the wholedocument.

Creating a sales plan

The questions your sales plan shouldanswer include:

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• 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 orteam?

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

• break into the local authority marketby adapting your product for thismarket

• open a shop in an area that youbelieve has the potential forgenerating lots of sales

• boost the average sale per customer

You can then explain the stepping stonesthat will allow you to achieve theseobjectives. Use objectives which areSMART - Specific, Measurable, Achievable,Realistic, Time-bound.

Using the example of breaking into the localauthority market, your stepping stones mightbe to:

• hire a sales person with experienceof the local authority market on abasic salary of £24,000 by thebeginning of February

• fully train the sales person by midApril

• ensure that any changes the productdevelopment team has agreed tomake are ready to pilot by thebeginning of April

As well as planning for new products andnew markets, explain how you propose toimprove sales and profit margins for yourexisting products and markets.

It is often helpful to identify how you couldremove barriers to sales by:

• Increasing the activity levels of thesales team - more telephone callsper day, or more customer visits perweek?

• Increasing the conversion rate ofcalls into sales - through better salestraining, better sales supportmaterials or improved salesincentives?

Here's how sales forecastinghelped my firm

Emma Harrison

The Chocolate Elephant - Opens in a newwindow

Emma's top tips:

• "Be realistic."• "Don't over-buy, because that will kill

your business faster than anything."• "Constantly adjust your forecast,

taking into account external factors."

Sisters Emma Harrison and Victoria Nielsonstarted selling fair trade jewellery in people'shomes in 2005. In 2007, The ChocolateElephant became a limited company sellingethical clothes and gifts. The businesscurrently makes 80 per cent of its sales atcharity fairs, but the sisters have launchedtheir first mail order catalogue andrevamped their website. Here Emmaexplains how the firm forecasts its sales.

What I did

Consider last year's sales

"The first thing we do is look at last year's

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sales and think about our range. One of ourproducts generated 40 per cent of ourincome last year, but this year we dropped itas it was getting to the end of its life cycle interms of attractiveness. At charity fairs youhave to turn over products quickly, aspeople come every year.

"Stock levels are also crucial. We start fromwhat we achieved last year and decide whatwe need to achieve the same sales rateagain.

"It's important to look at the economicclimate, too. We're somewhat dependent oncharity fairs - the more bookings we have,the more sales we generate. But retailsector sales have dropped this year, sowe've introduced a catalogue which willhave a direct impact on sales."

Take seasonal trends into account

"We have two main sales periods -springtime and the lead up to Christmas.Roughly 70 per cent of our sales come inthe last three months of the year, so stockmanagement is crucial.

"There isn't any cash coming in untilmid-November. If we hadn't got our forecastright, we would find ourselves going throughseveral months with very little income andlots of suppliers to pay. We spend a lot oftime figuring out who we have to pay next,when the next fairs are, and when the nextincome is coming in."

Keep it realistic

"It's crucial to have a realistic sales forecast.If our forecast isn't accurate, then at the endof the year we've got stock that we can't sell.There's a fine line between having too muchstock and not enough to meet demand.

"A growing business takes up a hugeamount of cash and we've grown our stockfrom an initial £1,000 investment to £65,000.Your sales forecast is essential to knowinghow you can fund that stock build-up, inorder to grow."

Adjust the forecast

"There are some factors you can't control,such as the credit crisis. This year we knewit would be difficult so we've looked at ourstock and there's a large chunk we knewwouldn't sell at full price, so we've taken awrite-off against last year's profits.

"You must keep adjusting your forecast.Keep re-examining the numbers andadjusting your stock levels. If your sales arecoming in lower than expected, reduce yourprices."

What I'd do differently

Be more price sensitive

"We've just put out our new catalogue and Ialready feel we need to drop some of theprices. Stock becomes dead stock veryfast."

Related guides onbusinesslink.gov.uk

Cashflow management: the basics | Writea marketing plan | Create your marketingstrategy | Market research and marketreports | Planning to sell | The salesappointment | Closing and following upthe sale |

Related web sites you might finduseful

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Sales and forecasting course search onthe Careers Advice website - Opens in anew window

Trade association information on theTrade Association Forum website -Opens in a new window

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