What Is a Sales Forecast in Business?

What is a sales forecast?

A sales forecast is an estimation of your company’s sales in the future. Many different departments in a company use sales forecasts to help accurately structure budgets, manage expenses and consider investment opportunities.

Sales forecasts are valuable and important tools for businesses. They can help you identify potential problems and find solutions to mitigate long-term damages. For example, if when making your sales forecast you notice that your sales team’s numbers are 20% lower than the same time last year, you can take measures to increase customer conversions and bring your sales numbers back up.

Components of a sales forecast

You can use a variety of techniques and formulas to create a sales forecast. A few of the most popular forecasting methods include:

Opportunity stage forecasting
Length of sales cycle forecasting
Intuitive forecasting
Historical forecasting
Multivariable analysis forecasting
Pipeline forecasting

Most sales forecasts share some common components. Use these to help you establish your sales forecast, regardless of which specific method of forecasting you use:

A list of the products or services you sell
An estimation of how many of each product or service you intend to sell
The cost of each product or service

These basic components will help you determine the amount of money you can expect to make from sales in a given period of time. Many companies use their sales forecasts as comparative tools to see how the company might fare compared to previous months or years.

What can impact a sales forecast

The reason you can use so many different methods to evaluate potential sales is that a number of factors can influence a sales forecast. Consider these internal and external influences on your sales forecast:

Employee turnover

Changes to your sales team, either through employees leaving the company, bringing new employees onboard or both, can impact your sales figures. Account for any losses or additions to your sales team in your forecast.

Policy changes

Any changes you make in sales policy can affect your company’s future sales. For example, if your salespeople could previously discount sales at any time but are now limited to offering discounts for the first two weeks of the month, expect to see some changes in revenue in the future, and account for those in your forecast. The same holds true for changes in territory. Except sales to drop for a time as a salesperson gets to know their new area.

Competitors

If new businesses enter your marketplace, you may see a drop in sales. Watch the competitive field closely and be sure to adjust your sales forecast to reflect any potential poaching from external competitors. Seeing competitors entering the market is also a good indication that you may need to implement new sales strategies with your team to keep your numbers from dropping too dramatically.

Economic factors

The state of the economy impacts when people buy and how much they spend. Watch the economy and see how and when people are spending their money. If you see sales are dropping in all sectors, plan for lower sales in your sales forecast and begin considering ways to limit expenses.

Market shifts

Changes in your specific market can also affect your sales forecast. For example, if you work in real estate and a corporation announces they’re opening a new office in your area, you can expect the demand for homes to go up, along with your potential sales.

Legislative updates

New laws impact some industries more than others but staying aware of any new legislation that affects the business world can help you create an accurate sales forecast.

Seasonality

Seasonal businesses like ski resorts or amusement parks should modify their sales forecasts to reflect changes in customer visits. Some companies who don’t run overtly seasonal enterprises may notice some historical seasonality by reviewing past sales reports, helping them prepare accurate forecasts.

What Is a Sales Forecast in Business?