Are you having trouble with projection? And by projection, we mean the sales, not the psychological ones.
For FP&A executives, getting really good at estimating projected sales helps fuel growth, and optimize earnings in your company’s overall success.
How Sales Projections Unfold Over Time
Sales forecasts help managers set sales quotas, and then HR uses these quotas to figure out how many new hires are needed. It creates a domino effect that all starts with those sales predictions.
And let’s not forget about revenue forecasting which is a key for budget planning. By estimating future sales, the finance team can decide how much to allocate for production and storage costs.
Sure, they can handle stuff like pricing and marketing strategies, but there are factors out of their control too – like the economy and industry changes. Getting an accurate revenue prediction means putting all these pieces together.
FP&A Things to Remember for Projecting Sales
1. Previous Sales Data
Crafting an accurate forecast gets a boost when you look at past sales. Take a moment to look into the historical sales data to see how things like pricing or seasonal changes affected sales before. It’s fair to expect these trends to continue, though different factors could still affect future sales.
2. Market Trends
If you notice a drop, figuring out why can help you grab a bigger piece of the market. On the flip side, if things are looking up, it’s safe to say your competitors are growing too. So, how are they handling the spike in demand?
3. Competitor’s Market
To get precise projected sales, companies need to look into what their competitors are up to. Tryl to figure out where your business overlaps with others in terms of customers and communication strategies.
4. Get to Know What Your Customer Likes
Understanding sales takes a big step forward when you really get to know your target audience. This kind of data is useful when you’re putting together ads. And you can then check how well those ads are working to help predict future sales.
5. Check the Economy
For sure, how the economy is doing will really affect how much money you think you’re going to make. It’s important to link things like GDP, inflation, and how well your product is doing.
How Data Collection Boosts Sales Forecast
When looking at what could impact future sales, the next step is all about gathering the data you need for your sales predictions. You’ll want to pull data from both inside and outside sources to get a well-rounded view.
Internal Data
Start off by checking out past sales numbers – they’re key for most sales forecasting methods. For example, seeing how many units you sold last year around the same time can give you a good idea of what to expect this year.
And don’t forget about talking to your customers. Chat with your sales teams and customer support to get a feel for what your customers are thinking and what’s driving their purchases.
External Data
Keep an eye on economic indicators like the consumer price index (CPI), which shows how prices for everyday items are changing.
It’s also important to stay updated on industry benchmarks and comparisons. This helps you make sure you’re keeping up with the competition and that your revenue forecasts are on point. And lastly, digging into market research reports gives you a deep dive into your industry – a solid way to gather data for your sales predictions.
Sales Forecast Methods
Sales forecasts come in two main approaches: quantitative and qualitative.
Quantitative methods? Yep, they’re all about the crunching numbers! Think historical data, big-picture economic indicators, and industry-specific insights, among other things.
On the flip side, qualitative approaches focus on input from experts deep in the sales game or the company as a whole. Quantitative methods are straight-up facts, while qualitative methods bring in that personal touch.
Quantitative Methods
1. Time-Series Analysis
A time series is just data points recorded regularly over time, like every month or quarter. You can show these points on a line chart. After that, the analysis kicks off.
There are different ways to do time-series analysis, but the simplest is the naive method. This method predicts future values by just continuing the trend line from the present, without considering any other changes or factors in the data.
2. Statistical Models
In sales forecasting, we usually rely on different statistical models. One common approach is looking at a set period of past data, like the last three months. For example, to predict sales in the 25th month, we’d average out sales from months 22, 23, and 24.
Then, there’s exponential smoothing. This method gives more weight to recent sales numbers, assuming they’re most relevant to the current market conditions.
Lastly, there’s ARIMA. It’s a mix of autoregressive and moving average elements, allowing it to pick up on patterns and trends in time-series data influenced by seasonal shifts.
3. Regression Forecasting
When using regression forecasting, we dig into how sales are linked to specific factors like price or customer behavior. In this analysis, sales are what we’re trying to predict, while the factors affecting sales are what we’re looking at separately.
4. Market Share Method
The market share method uses a top-down approach for sales forecasting. It starts by looking at the total size of the market interested in your product.
To calculate the overall market demand, we multiply the number of buyers by how much they typically consume in your industry. Then, we estimate your market share. Market share is affected by various factors like competition, pricing, product uniqueness, marketing efforts, and customer preferences. Predicting these can be tricky, for sure!
Qualitative Methods
1. Intuitive Method
Your sales team has some really valuable insights into how your sales process works. Sometimes, asking them about the likelihood of certain deals going through can help you predict your sales. But keep in mind, they might be a bit too optimistic at times. So, it’s good to balance their intuition with other reliable factors when making decisions.
2. Jury of Executive Opinions
Managers typically have a solid knowledge of what’s happening in their own departments. The “jury of executive opinions” approach brings together managers from different areas like sales, marketing, finance, and production to discuss sales matters. Together, they aim to reach a common understanding. This method zeroes in on evaluating how each department impacts the overall sales process.
3. Delphi Method
The Delphi method involves getting industry experts involved. At first, each person comes up with their own sales forecast.
What’s cool about having these experts on board is that they can shine a light on tricky-to-measure stuff like upcoming tech breakthroughs, changing consumer tastes, and shifting behaviors.
Effective Techniques for Predicting Sales Revenue
Check out these tips to boost your ability to predict future sales. By trying out these proven methods, you’ll get a better understanding of sales trends, leading to wiser choices and more successful business outcomes.
- Using a mix of forecasting methods is the way to go! Don’t limit yourself to just one technique. Try at least two to get a fuller picture of your situation.
- Start by looking at your typical monthly sales pace. It’s a great way to measure your progress and see how you’re doing compared to your baseline.
- Break it down by product category or unit. This is easier than trying to forecast for the entire company. Focusing on units rather than just money can give you a clearer view of factors like demand, pricing, and customer preferences.
- Keep an eye on external trends and seasonality. Sales forecasting isn’t just about your data. Changes in customer preferences, tech advancements, or market competition can all affect your sales. Stay updated and adjust your forecasts accordingly.
- Learn from the gaps between your predictions and actual results. While perfect accuracy is rare, you can improve your forecasts by understanding why there are differences and making necessary tweaks.
- Update your forecasts based on what’s actually happening. Be flexible to match your predictions with reality, and factor in any planned changes like price updates or marketing strategies.
Top Your Sales Projection
Developing accurate sales projections is a strategic planning component for FP&A executives. By understanding past sales data, market trends, competitor activities, and consumer preferences, organizations can create more informed forecasts that drive decision-making and resource allocation. As economic factors and industry dynamics continually shift, remaining adaptable and open to refining forecasting techniques will ensure that businesses are prepared to respond proactively to the challenges and opportunities ahead.
FAQs
What are the 4 steps in calculating projected sales?
To calculate projected sales, start by reviewing past sales data. Then, consider any upcoming changes or trends that might affect sales. Estimate the impact of these changes, and finally, combine this with your past data to predict future sales.
What is the formula for sales prediction?
The formula for sales prediction is a way to estimate how much a business will sell in the future. The basic formula is: Sales Prediction = (Average Sales per Customer) x (Number of Customers). This means you multiply how much each customer usually spends by the number of customers you expect to have. This simple method helps businesses plan for the future by giving them an idea of what their sales might look like.
How do you calculate the projected amount?
To calculate the projected amount or sales, you first need to know the starting amount and then estimate how much it will grow or shrink over a certain period. You can do this by multiplying the starting amount by the expected growth rate. For example, if you expect a 5% growth, you would multiply the starting amount by 1.05. This will give you an estimate of the future amount based on your assumptions.
How to calculate projected unit sales?
To calculate projected unit sales, start by estimating the total market size for your product. Then, determine the percentage of that market you expect to capture, which is your market share. Multiply the total market size by your market share to get the projected number of units you expect to sell. You can also consider past sales data, market trends, and any upcoming marketing efforts to refine your projection. This will give you a good estimate of how many units you might sell in the future.