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What is Sales Forecasting?

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  • Written By: Sheri Cyprus
  • Edited By: Bronwyn Harris
  • Last Modified Date: 05 November 2016
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Sales forecasting is estimating what a company's future sales are likely to be based on sales records as well as market research. The information used in them must be well organized and may include information on the competition and statistics that affect the businesses' customer base. Companies try to forecast sales in hopes of identifying patterns so that revenue and cash flow can be maximized.

Before the forecasting process begins, marketing, sales, or other managers should determine how far ahead the estimate should be done. Short-term forecasting is a maximum of three months and is often effective for analyzing budgets and markets. Intermediate forecasting is between a period of three months and two years and may be used for schedules, inventory and production. Long-term forecasting is for a minimum of two years and is good for dealing with growth into new markets or new products. Sales forecasts should be conducted regularly and all results need to be measured so that future methods can be adjusted if necessary.

Basically, sales forecasting is analyzing all parts of a business from total inventory to the strengths and weaknesses of salespeople. Managers must think about changes in customer sales or other changes that could affect the estimated figures. They must be competitive when assessing the competition and how they can surpass others in the marketplace to better meet the needs of the target market.

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Forecasting analysis involves the use of computer software, which typically includes different sales management categories and also keeps track of different departments. Many software packages have a dashboard format in which charts and statistics are easily accessible on one page. Dashboard software is preferred by many managers over having to look through lengthy reports to find information, since everything is charted and graphed and set out much like the dashboard of a car with its information readable at a glance.

Businesses can customize dashboard and other sales forecasting software to suit their specific needs. For example, sales goals can often be placed on the same page as the chart feature that tracks their progress. Orders and proposals submitted to clients can be tallied and organized. Quarterly revenue flows may be displayed with estimated future revenue for instant progress status. The performance of sales staff can also be tracked.

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Bhutan
Post 3

SauteePan- There is also the Delphi method in which forecasts are given to a member of management who then relates the information with the current conditions in the market. The figures are revised repeatedly until there is agreement among all the team members involved.

Some companies rely heavily on what the sales force has to say regarding future trends. Since they know their market as well as their customers, they are in the best position to determine what the future sales would be like.

Many companies weigh heavily what the individual salesperson has to say regarding future sales forecasting trends.

SauteePan
Post 2

Greenweaver- I know that my company uses sales forecasting tools like sales forecasting software in order to determine future sales.

Often they use a regression analysis which is a sales forecasting model that allows a company to determine sales patterns based on the past. The software helps to highlight this information.

While this is one of the most effective quantitative sales forecasting methods, management often uses other methods as well to help arrive at the final sales forecasting figure.

Some companies rely on the opinion of upper management. Sometimes sales forecasting is based on their opinion of future sales.

GreenWeaver
Post 1

In order to provide accurate sales forecasting, a business has to have a sales forecasting system.

This should be a sales forecasting spreadsheet that offers information on past sales as well as sales that are pending.

Many businesses refer to this as their pipeline business. Sales forecasting examples would include a 20% increase over last year's sales. The company can arrive at this figure by looking at these sales trends for last year as well as the current year.

As a result of the increase in sales a company may decide to hire additional salespeople to its workforce. In addition a rise in inventory by the same margin would occur.

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