The Importance of Sales Forecasting for Helping Business

One of the most important components of a company’s success is conducting quality sales forecasts. A properly performed forecast allows you to run your business more productively, optimize your expenses, control them, etc. Sales forecasting also helps to form sufficient stocks in the warehouse, not too overstated, but not understated as well.

Sales forecasting is very important from the point of view of planning management actions, all sorts of events, etc. Forecasting is extremely important for the work of sales managers. Although many managers neglect forecasting, entrusting it to accountants, in order to work as effectively as possible sales managers need to conduct sales forecasting, carried out according to all the rules, taking into account the peculiarities and nuances of the procedure.

Most companies today seek to automate and simplify the process of sales forecasting. Top sales forecasting software helps in this process because it simplifies the work process, and saves time and the company’s money. The process is effective when the best result is achieved with minimal effort. Business automation leads to improvements in the quality of tasks performed as well as more efficient task management. Notes, calls, and emails to relay information can be replaced by more advanced solutions usually included in business process automation software. When a team has a dashboard to check on tasks, it becomes easier to manage deadlines and optimize teamwork. In this way, business automation improves the execution of all business processes.

Tasks of sales forecasting

In order to forecast sales of a department or line of business, the heads of the sales department use individual indicators of the managers. Directors, on the other hand, take the totals of departments or lines of business as the basis for forecasting sales of goods for the organization as a whole.

Forecasts in report format are transmitted to managers or shareholders to build the company’s outlook for the reporting period and analyze the required actions. This data becomes a kind of crystal ball capable of predicting the company’s future.

Sales forecasting promotes the timely detection of problems and helps in making the right decisions in order to eliminate shortcomings.

The importance of sales forecasting is also determined by other reasons. It is necessary for planning personnel recruitment, resource allocation, goal setting, and budgeting.

What is the difference between a forecast and a plan?

A forecast and a sales plan are not identical, though closely related, concepts. They are different elements of management that have their own characteristics.

A plan is a range of objectives set by management for a department or each employee. It usually contains profit and sales volume targets. Managers should be guided by them in the process of work, selecting the most effective tools to implement the goal.

Forecast – a probable situation that may occur in the future. Forecasts are based on a certain base but are never 100% accurate. They give an idea of how much product, for what amount, and with what profitability is likely to be sold. This is not an axiom, but merely a guess about the prospects for the near or distant future of the business, an attempt to trace the dynamics of indicators. But it is informed judgments about the value of sales that help optimize planning.

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The forecast is always based on a concrete base and is never created from assumptions if they are connected, for example, with an unreasonable desire of the management to receive a certain benefit in any period. A forecast always has a certain base underneath it.

As a rule, a basis for sales forecasting is the data on the volumes of previous periods. The simplest example of forecasting is given below.

Importance of Sales Forecasting

Using the method of target forecasting in the formation of a sales forecast, it is important to immediately decide what volume of products the company wishes to implement in the future reporting period, or how much should be sold to implement the strategic intentions.

Sales managers and management of the organization sets the volume of sales, after which detailed plans are developed.

Targeted sales forecasting is a method, which is necessary for the company when going through crisis situations when the competition is growing sharply and working with the current list of products.

Casual sales forecasting methods

They are also called causal and are based on searching for the factors that determine customer behavior. This search takes place through economic and mathematical modeling. It consists in building a model of behavior, which takes into account the development of interrelated processes and phenomena. Multifactor forecasting should be based on the proper selection of factors. It is impossible to make it only with the help of statistics, as it requires deep knowledge of economic processes and market peculiarities.

How to make an accurate forecast?

To make an accurate sales forecast, you need to proceed as follows:

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Collect the indicators for a certain period of time. The indicators should be specified as accurately as possible. If the products are new and have not yet been on sale, it is better to make an accurate forecast a couple of months after their arrival in the stores.

Calculation of the seasonality factor. This is most conveniently done with the help of a chart showing the seasonal changes in sales.

Calculation of the price elasticity of demand. If the demand for products has high elasticity, it is not recommended to raise the price much in order to increase sales.

Accounting for production capacity

Determination of the coefficient of influence of external factors. It is especially important to take into account the general economic situation in the country, the presence of competitors, etc.

Taking into account the information about the sales forecast from the sales department.

Conclusion

The creation of accurate sales forecasts allows you to use the available resources in the most effective way, reduce costs, develop a work plan and optimize the economic activity of the company.

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