Identifying and Projecting Sales
It would be nice if you could look into a crystal ball and see what the future holds when you project sales for your business. Since you can’t, projecting sales requires industry research and looking at a variety of perspectives to determine how each might impact the sales and profitability of your business.
Sales is the first component of the net income equation used to determine profitability.
What is a Sales Forecast?
A sales forecast is your prediction of how much revenue your business will bring in over a certain period of time.
The sales forecast represents the sales volume flows for each month and the entire year. The sales forecast starts by listing key assumptions that form the monthly sales projection. You will need to know your pricing and factor in seasonality effects, such as summertime vs. December. For example, assume the average sale is $120, but the slowest months are December and January.
As well, how you calculate your sales forecasts will depend on if you are providing a service or selling products. Below are examples showing how to predict either one.
There are many factors you need to think about in sales forecasting. You should ask yourself:
- How many items do you expect to sell and much will you charge?
- Are there major marketing initiatives planned that will influence sales in certain months?
Your sales forecast doesn’t have to include everything; however it needs to be specific.
Remember, the explanation of the assumptions is essential in the sales forecast; don’t just include the numbers!
Open the Forecasting Worksheet and complete Part A: Sales Forecast
The Industry Review is optional. Here are the links again:
- http://www.ic.gc.ca/eic/site/pp-pp.nsf/eng/home (Industry financial performances by NAIC code)
- https://www150.statcan.gc.ca/n1/en/catalogue/12-501-X (NAIC list)
- https://www.ic.gc.ca/app/scr/app/cis/search-recherche?lang=eng (Industry information by NAIC code)
Sales projections, regardless of the approach used, should be based on the facts you uncover during research about your business venture and industry. Assumptions:
- Provide the reader of the plan with confidence that your projections are not just guesses.
- Help readers understand the sources of information for your financial projections.
- Remind you of the facts you used as a basis for projections.
Your assumptions should describe how you developed sales forecasts and predicted growth. You should explain differences among months, such as seasonal variations, number of sales days in the month, heavy marketing, repeat business, new product or service release, and expansion plans. Your assumptions should substantiate sales forecasts by including facts and figures. Assumptions may need to be very detailed to provide adequate information for the reader.