Sales Forecasting for the New Business

Sales forecasting is an essential ongoing part of a business. For the new business, this task can be daunting, as there is no sales precedent.

Sales forecasting is an essential part of a new business because trends leading to the business’ profit or loss can be predicted and avoided if possible. With no history to look into, research is even more essential. Investors or banks will require sales information in reviewing the business plan when financing is sought.

The specific type of sales forecast is dependent upon the type of business and what is sold. A sales forecast for a consumer item will differ from that of a heavy equipment manufacturer or personal financial advisor. The essential ingredients will vary industry to industry, and it helps to research the content most appropriate for the business in question.

There are several methods of conducting sales forecasting for the new business.

Competition

Researching competitors’ sales records and trends might offer a guide, but could be difficult to do. Competitors might not be willing to reveal confidential information such as sales. Networking through an organization such as the Chamber of Commerce might allow open doors. Competition might not seem so heavy within a common organization.

Surveys

Another method of forecasting sales is to conduct customer surveys. The survey should be targeted to consumers within the expected sales target group. The questions should be clear, short, and few, and cover how often the customer tends to make a certain purchase over what period of time. Ask the customer what they like or dislike about the current product they buy, and how much they pay for it. A survey can be done in several ways: by mail, email, Internet, phone, or in person. Mailing lists are available for purchase, or the phone book or Internet can be referenced. Web site surveys through the business site are an option as well. There are companies who also can conduct surveys. The difficulty with surveying is that they typically have a low rate of return and can be expensive, especially when outsourced. Offering discounts for filling out and returning a survey may achieve higher returns.

Experts

Contact experts in the sales or marketing fields, in particular those who represent similar products. This research might be more time consuming but could yield excellent results. Contact sales and marketing departments of colleges and universities as well. Contacting expert buyers or consumers who deal with the product or service in question also may be advantageous.

The Internet

The Internet is a good source for conducting sales forecasting methods research. Networking with other businesses online could get some questions answered.

Service Businesses

Predicting sales for a service business is not very different. In some ways it is easier to obtain information for a service business, because research can be done while posing as a potential client. For instance, if planning on starting a physical therapy office, consult with existing PT offices for their rates, hours of operation, fees charges, insurance acceptance, and rough estimate of their current client base. This information should be public. It may be better than to disclose the reason for the contact.

Prepare More Than One Forecast

Multiple sales forecasts should be done to achieve more realistic figures. Conducting one survey and a second in a month or several months also can be a strategy. It is also recommended to perform more than one type of survey. Demonstrating research in sales in multiple ways helps sharpen professionalism in the eye of the financier.

Sales Forecast Preparation

Once the information is gathered it must be organized, making certain to weigh apples with apples and oranges with oranges. Remember that some figures might be over a month, and some over a few months’ time. Decide on one time frame and calculate the results. Include information on expenses, deducting those from the profit. If accepting both cash and credit, note that some credit payments will not clear immediately. If planning on invoicing, consider that some debts will not be recovered immediately, and some will never be paid. Explain that as a new business, the results may vary.

While preparing the forecast and report, it is vital to realize what questions bankers or investors will ask, such as the process by which the income will be earned, and how unforeseen circumstances such as failing economy will be covered. Whether a product is seasonal is a consideration, as is the market. If selling swimwear in Florida, there might not be seasonal swings in sales. If selling swimwear in Canada, however, there could be issues unless Internet sales are planned.

Bankers or investors will want to be sure the product or service has merit and is viable. If it is something unique, they will want and need to learn more about it. Be sure business knowledge is evident when presenting the market analysis. If the product or service is not uncommon, be sure to state why this one sell better than the competitors’.

The particular format of the sales forecast is less important as is the content and its readability. Include only most pertinent information and figures to save confusion and being passed over by the financier.

The sales forecast results should be documented in the written business plan in the financial section.