Effective sales forecasting tips

Forecasting your sales is a brilliant move in business, because it gives you an advance window of how your business will run in the next couple of years. But doing a forecast is not just simply a guessing game. It requires a strong basis on how you will derive your sales figures. Diligent research and analysis is a must before you could come up with very realistic projections.

A majority of companies gain benefit from a sales forecast. It helps them to manage and monitor carefully their sales standing. It helps them in making pricing decisions and in assessing future capacity requirements. Although it is a fact that forecasted data are totally not considered precise and accurate, it still gives them an idea on deciding what type of marketing strategy to adopt in order to stay on top of the line or meet their desired goal.

It is true that when we forecast, we are playing with probabilities, chances of being right or committing an error. The lower the error ratio of our forecast, the better the forecast is and the higher its percentage of error, the higher risk of having a very predictable sales output.

There are factors to consider before coming up with a sales forecast. Factors that greatly affect our sales can be categorized as dependent and independent factors. Dependent factors are those that can greatly affect your sales, but can be controlled by the management. While independent factors are those that are not within the company's jurisdiction but can create big difference on the outcome of sales. Examples of dependent factors are price of the commodity or service, cost of producing the product and inventory level. While economic and political situations, change in consumer preferences and competition level are examples of independent factors.

There are several methods of doing a sales forecast. These were categorized into methods relying on judgment and methods relying on quantitative data. The Delphi technique, prediction market, game theory, simulated interaction and judgmental bootstrapping are methods that makes use of pure judgment or based on intuition or qualitative data. Results from these methods are considered as educated guess.
While the causal methods, moving averages, exponential smoothing, regression and time series analysis are quantitative methods of doing a sales forecast. Each of these methods requires the use of historical sales data or current data from a test market. Results from these methods were derived from a systematic procedure of analysis.

Either of these methods can be adopted in creating your sales forecast. Although a combined methods can improve its level of accuracy and reduce the likelihood of large percentage of errors, but it is still not considered one hundred percent accurate.