A small business guide to sales forecasts
- Sales forecasting is the process business owners go through to estimate future sales.
- An accurate forecast of total sales allows a business to better decide on important financial matters.
- Homebase integrates with your point-of-sale provider to help you make better financial decisions, manage your labor costs, and easily set your monthly sales forecasts.
What is sales forecasting?
Sales forecasting, simply put, is the process business owners go through to estimate future sales. An accurate forecast of total sales allows a business to better decide on important financial matters. These can include budgeting and wage management. They can also accurately predict short-term and long-term performance.
Business owners can use historical sales data from monthly, quarterly, or annual time periods to determine their forecasting model. Companies that rely on a sales team or sales reps to increase revenue often rely on their sales pipeline to determine their monthly sales forecast.
It is easier for business owners operating for a longer period of time to use historic data to determine accurate sales forecasting. Newer companies instead use accurate data in terms of market research and competitive intelligence to forecast sales.
Forecasting sales helps business owners gain insight into managing their workforce’s labor costs (whether they pay minimum wage or higher), cash flow, and other financial resources. Not only does it help businesses learn how to effectively distribute their resources, but it can also help employers make better decisions on when they can provide benefits like holiday pay.
Additionally, sales forecasting gives business owners the ability to predict and set an achievable revenue amount. They can also better allocate resources in an efficient manner and plan for the future growth of the company.
Using accurate data is the most important element of efficient forecasting. When you sign up for Homebase and integrate your point-of-sale, you can track your labor costs and sales together and run a smarter business. Homebase integrates with the top POS providers, including:
- Pay Anywhere
How to forecast sales
Before setting up your sales forecast template, it’s important to define your goals. These can include how many products you want to sell, subscription renewals, general revenue, and more. Your list of goals should reflect what stage your business is in. If you are just getting started, you might want to focus on increasing your customer base through things like new logos.
What are some sales forecasting methods?
If you have been operating for a while and have multiple sources of revenue, you might want to focus on the volume of products sold. If your business model includes subscribing customers, you can focus on Annual Recurring Revenue (ARR).
The first step in creating your sales forecast is to map your sales process and manage your pipeline. Define your pipeline stages to reflect how your customers behave, meaning how long it takes a sale to go through.
Next, divide your products into categories. You can also separate your services in a similar manner, and divide them into billable hours, subscriptions, or whatever metrics work for your business.
If you have the ability to do so, take a look at your historical data to better forecast. If you can project your sales based on how your business has performed in the past, you’ll be able to set an effective baseline that allows you to consider seasonality and fluctuations. Looking at the past two years is a good place to start, but be sure to adjust your numbers for inflation.
When looking at your historical data, use the corresponding period of time to set your forecast. Forecast monthly sales moving forward a year, and then annually forecast your sales moving forward three years. You can also include quarterly projections if you want to take high seasonality into account.
If you want to calculate unit sales for new products or services that do not have historical data behind them, you can separate them into two different sections and compare them to the products you already have.
Just as you did with your unit sales, project prices monthly moving forward a year, and annually moving forward three years. Repeat this step for each line of sale, and then multiply your unit sale projections by their prices to calculate the total sales revenue for each unit type.
The amount you pay to acquire a specific unit is known as your cost per unit, or Cost of Goods Sold. For physical items, the supplier would determine their cost per unit. For services, the cost per unit includes the cost of service delivery, like the amount of gas spent on a taxi ride.
Once you have all your numbers—unit sale projections, projected prices, and average unit costs—the rest is fairly simple. Multiply your unit sale projections by your projected prices to calculate your sales. Then, multiply your unit sale projections by your average unit costs to calculate your costs of sales.
Finally, subtract your cost of sales from your actual sales, and you will have the basis for your profit and loss statement.
As mentioned above, Homebase helps keep your sales data in one easy-to-use place by integrating with your POS provider. This accurate historical data combined with labor cost forecasts can help you make better scheduling and hiring decisions to keep your costs on track.
What is a sales forecast examples?
Let’s go over an easy-to-understand sales forecast example. Last month, Joe’s Pizza had $150,000 of monthly recurring revenue. For the last 12 months, their sales revenue grew 12% monthly. Their monthly costs were around 1% each month.
Joe’s Pizza would conduct the following calculation:
($150,000 X 1.12) – ($150,000 X .01) = $166,500
Homebase makes it easy to determine accurate sales data to calculate your sales forecast with ease. Sign up for Homebase today to integrate your sales history in with your scheduling and time tracking, and you’ll see for yourself how utilizing the platform can take the guesswork out of your monthly forecasts.