Sales forecasting, or the process of projecting future sales and profit, is considered a serious matter in B2B marketing. In fact, business2community.com reported that “sales forecasts have been misleading business entities for a long time.” Because of this, marketers are expected to assess thoroughly the numbers presented during sales forecasting, for it is a challenge to come up with forecasts that are accurate and reliable. Sales forecasting is an important facet in managing the business. A good knowledge of its future sales will help a company to properly plan and manage its inventory and cash flow.
Basically, sales forecasting can be a challenge for startups compared to established companies that already have guidelines as a result of their past sales. For instance, estimating the future sales for a given month is done by using previous revenues from the same time of the year plus some basic knowledge of economic trends in the industry. But for new companies, its sales forecast is footed on less established data like market research and assessment of the competition.
Sales forecasting is also associated with market tracking. Tracking studies support the company in assessing and developing not only its brand but also the company’s performance. Through this, marketers and researchers can examine and study transitions or changes in the market brought on by shifts in customer needs and customer loyalty-retention, advancements and progress on new customer segments, and growth or abatement on category usage.
Types of a Sales Forecast
Sales forecasts can be classified as either short-term, medium-term, or long-term. A short-term forecast focuses on tactical matters and covers periods up to 3 months and beyond. It also regards short-term fluctuations with great importance compared to general sales trends. On the other hand, a medium-term forecast is involved with the area of business budgeting and covers periods for 1 year ahead. Long-term forecasts encompass periods of 3 years and beyond and are used by financial accountants on long-term resource implications.
Importance of Sales Forecasting
Sales forecasting generally gives the business some insights that will help them identify whether or not the company should expand. In addition, information on cash flow and the company’s capacity to manage its resources efficiently are illustrated in sales forecasting. Data from the sales forecast are also used by companies in making decisions such as acquisitions of investment capital. If the business entity does not conduct a sales forecast, uncertainties regarding the level of inventory that must be kept and how the company will appropriate its resources will emerge. Also, it will become difficult for the company to project its future success.
Steps in a Sales Forecast
The first step in a sales forecast involves looking for the appropriate level of detail. Companies need not rely on misleading accounting reports that provide enormous sales information that is simplified depending on the product or customer. What they need is a workable level of detail. They can use a line of sales or create columns by months and years. Next is segmenting the details into useful pieces. In this way, it is more convenient at the start to regard total sales as “units x prices” compared to identifying them as total sales. Lastly, make educated guesses. If there is an already existing previous data, use them. Do not develop a sales forecast from scratch. If there is none, use assumptions in estimating sales drivers.
Techniques in Sales Forecasting
B2B companies usually do not have the hefty sales volume needed when using statistical approaches in sales forecasting. As a result, they rely on the weighted pipeline method and forecast categories, which have both considerable disadvantages. According to salesforce.com, these drawbacks include judgmental amounts and judgmental closing dates. However, the same website laid out ways on how to assuage these difficulties. Marketers should properly document the entire sales process, decompose the closing probability, and reality checks for closing dates.
In general, sales forecasting methods can be classified as either qualitative or quantitative. Under a qualitative approach, companies can employ a consumer/user survey method (involves asking consumers about the possibility of them making a purchase on the forecast period), delphi method (involves translating a view or opinion into forecast), salesforce composite (involves creating an individual sales forecast, usually product-by-product, and aggregate them to build the company’s forecast), panels of executive opinion or jury method (involves consulting industry experts), and product testing and marketing. On the contrary, a quantitative technique is comprised of time series analysis (moving averages, exponential smoothing, time series, Z charts) and casual techniques (leading indicators, simulation, diffusion models).