I get a lot of questions from new entrepreneurs about “How to project sales for a new business?” This group of entrepreneurs has a positive outlook on the future of their new business ventures. While this may seem common, most people don’t know exactly how to forecast future sales and how much income they’ll make.
A daunting task if you look too far into the future. Fortunately, none of us are fate tellers, but none of us knows more about your new business than you. Unless, of course, you’ve got a crystal ball and can see into the future, you’d be better off playing the stock market. As well as making you money, it’ll be considerably easier!
So, my best recommendation is to relax and take a deep breath. You’re just as capable of putting up a credible and reasonably accurate prognosis as everyone else. Let’s get dive into the business of solving it.
How to project sales?
The process of creating a sales forecast entails two distinct steps. Sanity checking them is necessary after building the numbers using a bottom-up and then a top-down strategy. If you’re not already aware of these two methodologies, you can learn more about them in our post on how to write a business plan’s market analysis.
Decompose the figure into a series of measurable sub-hypotheses when creating a financial projection. The disparities between the forecast and actual figures may be easily analyzed, and the hypothesis can be adjusted to produce a new, more accurate forecast.
A series of hypotheses will generate a sales volume projection and a pricing hypothesis in this section. Pricing in our business plan outline is discussed in the pricing section; therefore, I won’t detail it here.
However, there are several ways to enhance your chances of making an accurate guess about the volume.
You can also hire a Business System Analyst too.
Sales forecasting for firms with a physical site
One of the most excellent ways to gauge how many consumers your business will attract is to visit the street where it will be located and observe how many other businesses in the area have similar businesses to your own.
Consider moving to a neighborhood with similar traffic to yours where you can discover stores and restaurants with similar concepts.
It’s critical to ensure that your analysis isn’t skewed by the weekday and its associated seasonality when performing this type of street due diligence. Make sure to include at least one workday and one full weekend in your schedule. Once you’ve calculated the traffic volume, all that’s left is to use a conversion rate to subtract the revenue.
Using your competition to estimate sales
It’s more difficult if your company isn’t based in a specific location. The first step is to check your competitors’ financial records or a similar business on a financial information website like Companies House. Using the past sales figures provided by these accounts, you can extrapolate an approximation of the company’s historical volume sold. You can then utilize ratios like sales per square meter or sales per employee to make sales predictions.
Lead-based sales forecasting
One of the greatest methods for predicting sales volume for organizations with a sales team is to develop your volume projection based on your lead generation capabilities.
To demonstrate this, let’s look at an example. Assume that your sales process is as follows: You first call potential customers to set up a meeting, and then you go to the meeting to close the deal.
You can use the number of phone calls an average salesperson can handle in a day to forecast your sales. Based on the expected success percentage, you may calculate the number of meetings your salesperson will get. Deduct the number of sales from meetings and apply a second anticipated success rate.
Plan out the sales funnel rather than relying on a global conversion ratio. Your sales prediction can be adjusted on the fly based on your understanding of how many customers are converting at each stage of your sales funnel. This means that your sales team will have more specific goals to work toward as well.
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Online business revenue forecasting
You can utilize the Google Adwords keyword tool if you have an online business. Use this tool to determine how much traffic each term is expected to generate and how many clicks you can expect from a certain ad campaign. You’ll need to figure out how much money you’re willing to spend on Adwords to get an idea of how many people will see your ad so that you can develop your volume projection. You may then use a conversion ratio to determine how many sales have been generated from the total number of clicks.
How to forecast sales?
The first step in projecting your sales is to figure out what you should be forecasting. You don’t want to anticipate revenues for your entire firm because that would be too generic. You don’t want to generate a forecast for some products and services.
No one wants to generate forecasts for every item on the menu when beginning a business. Focus instead on larger areas like lunch, dinner, and beverages. Predict the most popular items you’ll sell when you open a clothes store, such as casual wear, outerwear, and so on.
Depending on the types of sales you make, you’ll likely need anywhere from three to ten different categories. Assuming you’re forecasting more than ten people and less than 3, you’re likely underestimating how much work it will be.
The End of the Story
Marketing, location, competition, pricing structure, your business knowledge, weather, and the general economic condition all have a role in your future sales. Do your homework, but err on the side of caution. Overpromising and under-delivering are preferable to aiming low and exceeding the estimate by a considerable margin. Wall Street has been using the same strategy for more than a century.