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Sales are the lifeblood of every business. Sales generate cash flow, and businesses can’t operate without cash flow. Sales drive profits, they drive business growth, and they have a major impact on attracting and retaining quality employees, as well as contributing to a healthy business culture. One of the ways business owners maximize profits and drive healthy growth is by employing sales forecasting techniques.

What is Sales Forecasting? 

Sales forecasting is how business owners predict future sales by using existing business data and examining current business conditions with future conditions in mind. A sales forecast estimates future revenue by examining how a company may respond to its internal go-to-market efforts against external conditions. Sales forecasting techniques are used to create profiles of short-term and long-term possibilities for a company’s financial and operating success.  

Why Sales Forecasting is Important 

Effective sales forecasting enables businesses of all sizes to plan their finances, thus making better-informed decisions about marketing, resource allocation, and future operations. It also significantly influences managing inventory levels, staffing requirements, and production schedules. It contributes significantly to good budgeting, goal setting, and proactive problem-solving. 

4 Sales Forecasting Techniques 

Business analyst and author John Naisbitt said, “The most reliable way to forecast the future is to try and understand the present.” A focus on data is what makes these sales forecasting techniques highly valuable: 

  1. Trend analysis. This approach analyzes past sales data to find patterns that may exist in categories, including target audience, seasonality, and geographic location. 
  2. Regression analysis. This approach mathematically examines how different sales strategies affect sales performance over time. 
  3. Time series analysis. This approach uses data collected at different time intervals and analyzes changes over time to predict patterns over trends, cycles, and seasons. 
  4. Causal analysis. This approach analyzes and predicts how market fluctuations and economic changes affect sales and company profits. 

The basic sales forecasting techniques that small businesses use are as follows: First, they examine historical data. Second, projecting the number of units that will be sold multiplied by the price of each unit. The projection can include the number of sales representatives, locations, and online interactions. This is a “bottom-up” forecast. Third, a “top-down” forecast estimates the market’s total size and projects how much of the market the business can capture over a defined period.

Use Sales Forecasting Techniques to Create an Accurate Sales Forecast 

First, document your existing sales processes. Second, gather historical sales data to fuel the sales forecasting techniques you plan to employ. Third, assess sales trends. Fourth, incorporate any changes that may be expected, including pricing, promotions, channels, product changes, and customers. Third, consider alternative scenarios. Fourth, examine competitive information. Fifth, run a preliminary analysis and examine the outcome to see if it meets your expectations. Sixth, use the model and analyze the results. Along the way, make sure your data is accurate, that it is examined subjectively, and that it is generated usably for stakeholders.      

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