Forecast And Plan Your Sales

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  • 1. Forecast and plan your sales 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 Created by Business Link on 23 November 2009 10:48 You can personalise content from the Business Link website and download it in PDF format. This is a free service Forecast and plan your sales | Created by Business Link on 23 November 2009 10:48 Ã#¨ Crown copyright 2007 Page 1
  • 2. Forecast and plan your sales Subjects covered in this guide Introduction Introduction A sales forecast is an essential tool for A basis for sales forecasts managing a business of any size. It is a month-by-month forecast of the level of Your sales assumptions sales you expect to achieve. Most businesses draw up a sales forecast once a Developing your forecast year. Avoiding forecasting pitfalls Armed with this information you can rapidly Creating a sales plan identify problems and opportunities - and do something about them. Here's how sales forecasting helped my firm For example, accurately forecasting your Related guides on businesslink.gov.uk sales and building a sales plan can help you manage your production, staff and financing Related web sites you might find useful needs more effectively and avoid unforeseen cashflow problems. While it's always wise to expect the unexpected, a well-constructed sales plan, You can find this guide by navigating to: combined with accurate sales forecasting, Home > Sales and marketing > Selling > can allow you to spend more time Forecast and plan your sales 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 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 Forecast and plan your sales | Created by Business Link on 23 November 2009 10:48 Ã#¨ Crown copyright 2007 Page 2
  • 3. Forecast and plan your sales you make to each customer? the value of sales. By knowing the volume, • Are there particular months where you can plan what resources you're likely to you acquire or lose more customers need in terms of production, storage, than usual? transport and staffing. Existing businesses Your sales assumptions The starting point for your sales forecast is last year's sales. Every year is different so you need to consider any changing circumstances that Before you factor in a new product launch, could significantly affect your sales. These or an economic trend, look at the level of factors - known as the sales forecast sales for each customer last year. Do you assumptions - form the basis of your know of any customers who are going to forecast. buy more - or less - from you next year? Wherever possible, put a figure against the In the case of customers who account for a change - as shown in the examples below. significant value of sales, you may want to You can then get a feel for the impact it will ask them if they plan to change their have on your business. Also, give the purchase level in the foreseeable future. reasoning behind each figure, so that other people can comment on whether it's realistic. New businesses New businesses have to make assumptions Here are some typical examples of based on market research and realistic assumptions: judgement. The market You could begin by listing the number of customers you think is realistic to attain in • The market you sell into will grow by your first year. List them as 'New customer 2 per cent. 1', 'New customer 2' etc. Then try to • Your market share will shrink by 2 apportion a realistic sales figure against per cent, due to the success of a each of them, bearing in mind that a few competitor. larger customers are likely to account for a greater share of sales than the rest - Your resources although this depends on your type of business. There must inevitably be some • You will double your sales force from guesswork here, but at least you should three people to six people, halfway reach a forecast that is broadly in the right through the year. area. • You will spend 50 per cent less on advertising, which will reduce the number of enquiries from potential Depending on your type of business, you customers. may want to specify the volume of sales in the forecast - for example, how many Overcoming barriers to sale five-litre cans of paint you sell - as well as Forecast and plan your sales | Created by Business Link on 23 November 2009 10:48 Ã#¨ Crown copyright 2007 Page 3
  • 4. Forecast and plan your sales • You are moving to a better location, • Are individual customers important which will lead to 30 per cent more enough to your business to warrant customers buying next year. their own individual sales forecast? • You are raising prices by 10 per cent, • Can you estimate the conversion rate which will reduce the volume of - the percentage chance of the sale products sold by 5 per cent but result happening - for each item on your in a 4.5 per cent increase in overall sales forecast? For example, you revenue. might predict that a customer will purchase £1,000 worth of products. If Your products you estimate that there's a 70 per cent chance of this happening, the • You are launching a range of new forecast sales for this customer are products. Sales will be small this £700, ie 70 per cent of £1,000. year and costs will outweigh profits, but in future years, you will reap the For example, you might predict that a benefits. customer will purchase £1,000 worth of • You have products that are newly products. If you estimate that there's a 70 established and that have the per cent chance of this happening, the potential to increase sales rapidly. forecast sales for this customer are £700, ie • You have established products that 70 per cent of £1,000. enjoy steady sales but have little growth potential. • You have products that face Selling more of your product to an existing declining sales, perhaps because of customer is far easier than making a first a competitor's superior product. sale to a new customer. So the conversion rates for existing customers are much higher than those for new customers. For new businesses, the assumptions need to be based on market research and good judgement. You may want to include details of which product each customer is likely to buy. Then you can spot potential problems. One Developing your forecast product could sell out, while another might not shift at all. Start by writing down your sales assumptions. See the page in this guide on By predicting specific sales, you're your sales assumptions. forecasting what you think will be sold. This is generally far more accurate than starting You can then create your sales forecast. with a target figure and then trying to work This becomes easy once you have found a out how to achieve it. way to break the forecast down into individual items. The completed sales forecast isn't just used to plan and monitor your sales efforts. It's • Can you break down your sales by also a vital part of the cashflow. See our product, market, or geographic guide to cashflow management: the region? basics. Forecast and plan your sales | Created by Business Link on 23 November 2009 10:48 Ã#¨ Crown copyright 2007 Page 4
  • 5. Forecast and plan your sales There is a wide range of sales forecasting you assume a declining market and software available that can make the whole declining market share, it's illogical to then process much simpler and more accurate. forecast increased sales. For more This software generates forecasts based on information, see the page in this guide on historical data. If you are considering buying your sales assumptions. software, get advice from an IT expert, your trade association, your business advisers or Moving goalposts businesses of a similar size and in similar markets. Make sure the forecast is finalised and agreed within a set timescale. If you're spending a lot of time refining the forecast, it Avoiding forecasting pitfalls can distract you from focusing on your targets. Avoid making excessive Some common forecasting pitfalls are: adjustments to the forecast, even if you discover it's too optimistic or pessimistic. Wishful thinking Not consulting your sales people Being positive is fine, but being over optimistic with your sales forecasting will not Your sales people probably have the best help your business. It's a good idea to look knowledge of your customers' buying back at the previous year's forecast to see if intentions, therefore: your figures were realistic. New businesses should avoid the mistake of working out the • ask for their opinions level of sales they need for the business to • give them time to ask their customers be viable, then putting this figure in as the about this forecast. • get the sales team's agreement to any targets they will be set - rather Not making your forecast achievable than just imposing a target on them, especially if they know that it's You need to consider if it is physically unrealistic or unachievable possible to achieve the sales levels you're forecasting. For example: Not obtaining feedback • one taxi can only make a certain Having built your sales forecast, you need number of airport trips each day someone to challenge it. Get an • a machine can only produce a given experienced person - your accountant or a number of components on each shift senior sales person - to review the whole • a sales team can only visit a certain document. number of customers each week Ignoring your own assumptions Creating a sales plan Make sure your sales assumptions are The questions your sales plan should linked to the detailed sales forecast, answer include: otherwise you can end up with completely contradictory information. For instance, if Forecast and plan your sales | Created by Business Link on 23 November 2009 10:48 Ã#¨ Crown copyright 2007 Page 5
  • 6. Forecast and plan your sales • What are you going to focus on? • What are you going to change? It is often helpful to identify how you could • In practical terms, what steps are remove barriers to sales by: involved? • What territories and targets are you • Increasing the activity levels of the going to give each salesperson or sales team - more telephone calls team? per day, or more customer visits per week? The sales plan will start with some strategic • Increasing the conversion rate of objectives. Here are some examples: calls into sales - through better sales training, better sales support materials or improved sales • break into the local authority market incentives? by adapting your product for this market • open a shop in an area that you Here's how sales forecasting believe has the potential for generating lots of sales helped my firm • boost the average sale per customer Emma Harrison You can then explain the stepping stones The Chocolate Elephant - Opens in a new that will allow you to achieve these window objectives. Use objectives which are SMART - Specific, Measurable, Achievable, Emma's top tips: Realistic, Time-bound. • "Be realistic." • "Don't over-buy, because that will kill Using the example of breaking into the local your business faster than anything." authority market, your stepping stones might • "Constantly adjust your forecast, be to: taking into account external factors." • hire a sales person with experience Sisters Emma Harrison and Victoria Nielson of the local authority market on a started selling fair trade jewellery in people's basic salary of £24,000 by the homes in 2005. In 2007, The Chocolate beginning of February Elephant became a limited company selling • fully train the sales person by mid ethical clothes and gifts. The business April currently makes 80 per cent of its sales at • ensure that any changes the product charity fairs, but the sisters have launched development team has agreed to their first mail order catalogue and make are ready to pilot by the revamped their website. Here Emma beginning of April explains how the firm forecasts its sales. As well as planning for new products and What I did new markets, explain how you propose to improve sales and profit margins for your Consider last year's sales existing products and markets. "The first thing we do is look at last year's Forecast and plan your sales | Created by Business Link on 23 November 2009 10:48 Ã#¨ Crown copyright 2007 Page 6
  • 7. Forecast and plan your sales sales and think about our range. One of our "A growing business takes up a huge products generated 40 per cent of our amount of cash and we've grown our stock income last year, but this year we dropped it from an initial £1,000 investment to £65,000. as it was getting to the end of its life cycle in Your sales forecast is essential to knowing terms of attractiveness. At charity fairs you how you can fund that stock build-up, in have to turn over products quickly, as order to grow." people come every year. Adjust the forecast "Stock levels are also crucial. We start from "There are some factors you can't control, what we achieved last year and decide what such as the credit crisis. This year we knew we need to achieve the same sales rate it would be difficult so we've looked at our again. stock and there's a large chunk we knew wouldn't sell at full price, so we've taken a "It's important to look at the economic write-off against last year's profits. climate, too. We're somewhat dependent on charity fairs - the more bookings we have, "You must keep adjusting your forecast. the more sales we generate. But retail Keep re-examining the numbers and sector sales have dropped this year, so adjusting your stock levels. If your sales are we've introduced a catalogue which will coming in lower than expected, reduce your have a direct impact on sales." prices." Take seasonal trends into account What I'd do differently "We have two main sales periods - springtime and the lead up to Christmas. Be more price sensitive Roughly 70 per cent of our sales come in "We've just put out our new catalogue and I the last three months of the year, so stock already feel we need to drop some of the management is crucial. prices. Stock becomes dead stock very fast." "There isn't any cash coming in until mid-November. If we hadn't got our forecast right, we would find ourselves going through Related guides on several months with very little income and lots of suppliers to pay. We spend a lot of businesslink.gov.uk time figuring out who we have to pay next, Cashflow management: the basics | Write when the next fairs are, and when the next a marketing plan | Create your marketing income is coming in." strategy | Market research and market Keep it realistic reports | Planning to sell | The sales appointment | Closing and following up "It's crucial to have a realistic sales forecast. the sale | If our forecast isn't accurate, then at the end of the year we've got stock that we can't sell. There's a fine line between having too much Related web sites you might find stock and not enough to meet demand. useful Forecast and plan your sales | Created by Business Link on 23 November 2009 10:48 Ã#¨ Crown copyright 2007 Page 7
  • 8. Forecast and plan your sales Sales and forecasting course search on the Careers Advice website - Opens in a new window Trade association information on the Trade Association Forum website - Opens in a new window Forecast and plan your sales | Created by Business Link on 23 November 2009 10:48 Ã#¨ Crown copyright 2007 Page 8