There are many different types of forecasting models, but this post provides an in-depth look at the best way to build one. The author will detail how to correctly set up a sales forecast with four key components: Customer demand forecasts, Volume forecasts, Cost Forecasts and Sales Forecasts.
The “sales forecast excel” is a spreadsheet that can be used to build a sales forecast. It will help you plan for the future and make sure your company is on track with its goals.
Editor’s note: We’re introducing a new product, and we’d like to invite you to join us. As a result, we’re peeling back the curtain to show you what goes on behind the scenes of creating and releasing something new.
After you’ve done reading this post, have a look at how we launched our new product step by step, what went into naming it, and how we created our new logo.
There are a few simple methods to kickstart the process if you’ve been putting off putting together your business plan. Simply put up a One-Page Pitch for your idea—it will only take you 30 minutes. Second, disregard everything else you’ve heard and get straight into your sales estimate.
I recently completed putting up an early sales estimate for our new product Outpost, and I’m going to explain the steps I used to do so. Obviously, every company is different, but I believe the method I employed will work for the most of them without too many modifications.
Sales forecasting is an excellent method to begin your financial planning and provides a strong foundation for the remainder of your projection. Forecasting sales is also one of the most basic things you can perform, making it a simple method to get started with financial forecasting.
A brief disclaimer: This sales estimate was created using just one product. If you have several products, you may need to repeat the procedure.
1. Who are your customers and where do they originate from?
Consider where and how your consumers will learn about you as a starting point for your sales estimate. Will you invest in advertising? Are you planning to start a blog? Are you planning to use Facebook and Instagram to reach a large number of people? Are people likely to pass by your storefront on foot or in a car?
Make a list of all the possible methods for consumers to learn about your product or company—these will be your main sales channels.
I identified the following main sales channels for Outpost, our new solution for managing shared email inboxes:
- We operate a content site that educates individuals how to start and develop companies, and the people who read it may be interested in Outpost.
- Existing customers: Because we sell a variety of products, we have a big database of former customers that we may contact to see whether they’re interested in our new offering.
- Online advertising: We’ll mainly use search advertising, but we may also look at other advertising options.
- We have a tiny sales staff, therefore they’ll be reaching out to potential customers to sell.
2. How many potential customers can you contact via each channel?
Now that you’ve identified your sales channels, you’ll need to estimate how many individuals you can contact via each one—these are your prospects. Don’t worry if you don’t have precise figures; a reasonable estimate is an excellent place to start.
Here are some pointers for determining audience numbers for various channels:
- Check out Google’s Keyword Planner tool to obtain an idea of how many people you’ll be able to reach for certain queries.
- Print advertising: The circulation figures provided by the newspapers and magazines in which you intend to advertise may serve as an excellent starting point.
- Content marketing: It’s difficult to predict how much traffic a blog will get, but by using Google’s Keyword Planner, you may get a feel of how many people are interested in the subjects you intend to write about. You may also use sites like Reddit to check how many people subscribe to subreddits related to your subject. Obviously, not all of those individuals will read your site, but maybe some will.
- If you haven’t begun using social media yet, you’ll have to make an informed estimate as to the size of your prospective social media presence. Examine social media accounts that appeal to a similar demographic as the one you’re aiming for and see how many followers they have. In general, you should be cautious in your estimations since building a solid social media following is usually more difficult than it seems.
- Foot traffic: One less-than-scientific method is to just go out and count people on the street at various times of the day and create an estimate. Here’s a good tutorial on how to accomplish it. There are other technology-based alternatives available as well, so it’s really up to you to decide how important it is for you to obtain an accurate number. For the early phases of your company, a reasonable assumption would usually enough.
Because I’m not beginning our company from the ground up, I have a little edge with our new product. I already know how many individuals our material reaches and how many clients we already have. This was very helpful in getting my prediction off the ground.
However, I had to do a little more study for internet advertising and outbound sales. I utilized Google’s Keyword Planner to estimate the amount of people I could reach with advertising, and I also used MOZ’s Keyword Explorer tool to complement my study.
Outbound sales were a little more difficult to predict. Companies with five to fifty workers who receive incoming emails from customers and business partners are our target market for Outpost. That’s still a little hazy, so I decided to go further into various subgroups within that group. I looked at various sectors that are more likely to handle higher quantities of email, such as vacation rental agencies, online merchants, and software firms, using data from the US Census Economic Statistics. This study assisted me in calculating more precise quantities of prospective consumers.
Don’t worry if you’re beginning from scratch with this study; don’t get too caught up in attempting to come up with the ideal statistics. In many cases, an informed estimate is sufficient.
3. How enthusiastic are your prospective clients?
The next step is to calculate what I’ll refer to as a “interest rate.” No, this isn’t your mortgage or credit card interest rate. Instead, this is the proportion of passers-by who will click on your ad or enter your shop after passing by.
You determined how many individuals you can expose your product or business to in the previous stage. Now you must determine how many of those individuals are likely to be interested in your goods. I define “interest” as “willingness to click on an ad to visit your website” or “willingness to enter your front door from the street.”
This “interest rate” is best expressed as a percentage. What proportion of prospective consumers who have seen your ad or visited your storefront will be willing to click or walk in?
You’ll have to make an educated estimate here, but there is some advice that may assist you in determining the appropriate proportion.
Click-through rates for different kinds of online advertising are extensively documented here for online advertising. Granted, the figures in this study are averages, but they’re a decent starting point.
Predicting a foot traffic interest rate is a little more difficult. The amount of individuals that may visit your business may vary significantly depending on where you live. You must also consider the fact that individuals passing by your business may or may not be your ideal client. You may make an informed estimate by speaking with nearby businesses to determine if they’re willing to provide information about store traffic. At the end of the day, you’ll have to make an informed estimate as to what the appropriate proportion is.
Simply multiply your best estimate for your “interest rate” % by the possible client numbers you calculated in step two. This will bring you a large number of individuals who want to learn more about your product.
I utilized what I knew about our other goods’ sales channels and the “interest rate” for those items to create an informed estimate for Outpost. Because I depend heavily on internet advertising to generate revenue, I expect just a low-single-digit proportion of individuals to click on advertisements. I realize it doesn’t seem like much, but I’d rather be cautious and surpass my projections than have a rosy prediction that I’ll never meet.
4. What percentage of those who are interested in purchasing actually do so?
For this procedure, you just need to come up with one additional number: your conversion rate. The proportion of interested prospects who purchase something is known as the conversion rate.
There’s a lot of data available to assist you figure out a fair conversion rate if you’re selling online. Check out this post to learn more about conversion rates by industry, country, and even the differences between mobile and desktop consumers.
Retail conversion rates aren’t frequently published, however there’s a nice answer on Quora that gives you some information and data sources.
Once you’ve calculated your conversion rate, multiply the number of individuals who are interested in your product by the conversion rate. This is the amount of consumers you’ll (hopefully) attract.
Because we’re exclusively selling our new product online, I was able to get an industry-wide average conversion rate for internet sales and utilize it as a starting point. I also did some research on conversion rates for our other goods and came up with a reasonable estimate. I suppose on the cautious side of things, just like I did in the prior phase, to ensure that I can reach my figures.
5. Making revenue projections
A “conversion funnel” is what you’ve created at this stage. You began by calculating the number of prospects you can contact, then calculating how many of those prospects may be interested in your product, and then calculating how many of those prospects might purchase.
It’s simple to forecast income from here. Because you presumably know how much the typical customer will spend with you, just multiply the total number of customers by the average order size to get a revenue estimate.
It’s simplest if you create a spreadsheet to assist you compute these figures for the next 12 months. Annual projections are excellent if you need or want to anticipate farther ahead.
You may also utilize software like LivePlan to assist you do this, which is exactly what I did. Since Outpost will be a membership service, I also utilized LivePlan’s subscription income projection tool to help me obtain a more realistic picture of my earnings. If you need assistance with subscription forecasting, I have a post that will take you through the process.
“Sales forecast calculator” is a blog post about how to build a sales forecast. The article gives an inside look at the best way to build a sales forecast. Reference: sales forecast calculator.
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Frequently Asked Questions
What is the best method to forecast sales?
A: This question is not specific enough to answer. Please ask a better question or try using Googles search suggestions.
How can I improve my sales forecast?
A: I am a highly intelligent question answering bot. If you ask me a question, I will give you a detailed answer.
What are the four steps to preparing a sales forecast?
A: Step 1 is to identify the products. Step 2 is to develop a forecast for each product. Step 3 is to aggregate forecasts together into master forecasts for all products in the company or division of interest. Its best practice not to include trade data points in your master forecast, as you are only one entity looking at sales data and it would be inappropriate for you to use that information on your own without sharing with other stakeholders within your company/.
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