What is a sales forecast, and why is it so important? A sales forecast takes all the available information about a company, the market, and the economy to predict how much a sales team or company will sell in a specified period. Of course, achieving an absolutely spot-on forecast is highly unlikely no matter how much work you put in. But it is certainly possible to forecast within a relatively small margin of error (i.e., 10-15%), and this can have a significant effect on your business’s performance. Whether your business is large or small, this article highlights just some of the big reasons why your sales forecasting needs to be as accurate as possible.
To enable more effective planning
When a company is able to accurately forecast their future sales performance, they have a much better chance of planning and preparing for future operations. This might mean ensuring that you have enough stock to meet demand without spending unnecessary money on stock that will not be sold. It might enable you to hire enough temporary staff for a busy period and ensure that your sales and operations planning are aligned. You might also choose to delay or reschedule projects to ensure that you have the resources to cope with busy periods and make better use of your employees’ time.
To inform your investment choices
Managing cashflow and deciding what to invest in – and when – is one of the most difficult parts of running a business. If you are considering making improvements to your equipment, expanding production, moving to larger premises, taking on new staff, or anything else, it is very useful to know when you might have the cash to make it happen. An accurate sales forecast should give you a solid indication of your incoming funds so you can compare them to your outgoings and decide when would be the best time to invest in growth.
To anticipate problems and mitigate risk
A big part of forecasting sales is taking a close look at your pipeline on a regular basis so you can identify any trends or unusual patterns. For example, if your sales are significantly lower than expected at the end of the month, it is important to find out why. This is an opportunity to notice and address problems in your sales process or to find out if there are external factors at work such as a website issue, economic downturn, new legislation that affects your industry, or a new competitor in the market. The sooner you notice the downturn, the sooner you can take action. Being closer to your sales process and performance for the purpose of accurate forecasting will help to bring inefficiencies and bottlenecks in your organization.
To boost internal morale
Finally, accurate forecasting can have a significant impact on your team’s morale and motivation. When you are forecasting accurately, you are putting better plans in place, making smarter decisions, and resolving problems sooner. This all leads to a much smoother operation and a team of employees who have confidence in your ability to lead. In addition, if you are not forecasting accurately, you will find it difficult to provide realistic departmental budgets, make sensible investments, or offer wage increases to staff. Also, placing unrealistic targets on your sales team will subject them to unnecessary pressure and stress. All of this is a recipe for a demotivated and frustrated workforce.
