As a small business owner, the success of your business relies not only on executing in the moment but knowing where you are headed in the future. If you’re like most owners, it is easy to get sucked into the “one day at a time” mantra as you roll up your sleeves and run multiple aspects of your business. But in order for you to grow revenue, reduce expenses and thrive in the long term, it helps to step back and have a healthy focus on honing your skills at sales forecasting.

 

What Is Sales Forecasting?

Sales forecasting is a term that is often over complicated with enterprise jargon and tossed around without much explanation in the small business marketplace. Yet as an owner, you need to understand its importance and how it affects all aspects of your business. Let’s take a look at what a sales forecast is, the benefits and why to adopt a predictable model for your small business.

The Definition of a Sales Forecast

A sales forecast allows you to determine what your estimated sales (Revenue, New Customers, etc.) will be for a given time period. The forecast is generated from an analysis of previous data about your sales, the sale of similar products by your competitors, and market response to your offerings.

Essentially, the sales forecast is a critical component of your management framework and it enables you to assess and improve key business initiatives such as:

  • More accurate forecasting of expenses and cash flow projections
  • Understanding the best venues for deploying marketing dollars
  • Turning more prospective customers into repeat customers
  • Adapting your product to better meet the demands of your customers
  • Inventory management control
  • Timely staffing and hiring

 

How To Adopt Sales Forecasting

A sales forecast produces an accurate representation of your projected revenue and growth for your business. As with any small business, cash flow is key to keeping the lights on and the doors open. By implementing a sales forecast and using it consistently you will be more capital efficient and get the best ROI for your sales & marketing budget.

You will also be better prepared to know when you need to bring on new hires and expand your team. So before you build your sales forecast for the upcoming quarter and beyond, here are 4 tips to consider:

Solidify Your Marketing and Sales Process

Before you can accurately predict future sales and revenue, there first must be a predictable process in place for finding, converting and growing sales from customers. Otherwise your estimate will be like throwing darts at a dart board. On the money one month and way off the next.

It’s all about putting together a systematic process that drives more opportunities that ultimately convert into sales month over month. So if you are using outbound methods to drive sales like cold calling,  you may want to rethink your process and incorporate an inbound marketing strategy to create a more predictable and scalable process.  

Leveraging the Right Tools

One of the easiest ways to create and follow an accurate sales forecast is to leverage the power of a small business CRM.  A CRM will help you get to the sales and marketing data you need quickly and easily.

For example, we use Hatchbuck to continuously reshape our sales process, propel new sales to small business owners and give us insights in our sales pipeline. In fact, we have successfully increased the company’s revenue by 2,300 percent since 2012, and this rapid growth was achieved without resorting to cold calls and “shot in the dark” marketing and sales strategies.

With the right tools in place, we have the ability to track new sales historically, categorize lost sales by reason, and better analyze the number of leads per month by source.

In essence, we get a complete picture of the entire marketing and sales funnel – helping us to better predict where we are having success and where to best allocate our resources next month and thereafter. We also have the ability to run real time reports such as a 3 Month Forecast Report to give us a 90 day snapshot of our sales pipeline by close probability.

Also, financial software tools like Quickbooks can be a great source of product and expense data. These tools help you get the full picture on the total cost per customer and other important data points key to forecasting.

Don’t Create Your Plan in a Vacuum

To help you create a sales forecast for your small business that is achievable but stretches beyond the current performance – don’t go at it alone.  I would highly recommend bringing in your sales team into the process since they will be responsible for achieving this upcoming year’s numbers.

There is nothing worse than a team not believing in the reality of the goals and projections set out in front of them. By allowing them to take ownership in creating the plan, they are more likely to hold themselves accountable month in and month out.

If you’re both the owner and the sales team, ask for outside feedback on your model. By bringing in an outside set of eyes you may be surprised what you find. Maybe you are overly optimistic and your plan is out of reach leaving you with a cash shortfall at the end of the year. Or possibly your sales forecast is not aggressive enough and not maximizing your capital as efficiently as possible.

Measure and Adjust

Once you have your forecast in place, don’t just let it collect dust. Access your monthly sales reports and compare actual performance to your forecasts. Determine what went right or what went wrong. Understand where you need to make adjustments to help you better manage your business moving forward.  You may find you have an opportunity to invest more into marketing campaigns – further accelerating sales growth or driving higher profitability.

If you miss your targets, dig into the causes to better understand where you have a bottleneck in your sales and marketing process:

  • Are your salespeople under performing?
  • Do you have enough sales people to respond to lead generation demands?
  • Did you miss the mark on the number of opportunities generated?
  • Did your sales conversions slip?
  • Did a competitor win a larger percentage of the business because of a new product or service they launched?

By looking for these trends connected to lower sales performance, you enable yourself to better forecast revenue and expenses for the future.

Budgeting and forecasting may seem like a daunting task for your business, but you put yourself in the best chance to achieve your growth goals when you do. Start by solidifying your sales and marketing process, implementing the right tools, and taking a proactive approach to modeling your sales projections.