To get the best result and prospect, the revenue forecast should reflect sales over the next 12 months, and afterward, you can use the 1-year gross revenue forecast template for the next 2-5 years. Exist daily, weekly and quarterly projections, but the ideal term for long-term forecasts is a 3-year forecasting plan.
Visual forecasting: what problems can solve a sales forecast?Pitfalls. Forecasting software provides time and opportunity to avoid or mitigate potential business problems. For example, after launching a new product, you notice that the sales business plan is not fulfilled at 100%. The reason could be the lack of new customers and the sales gap, and an improved marketing strategy might fix this. If you think of how to forecast revenue for a new product online forecasting tool would do perfectly, helping to prevent all possible issues you can't see now.
Personnel management. If, for example, you need to anticipate an increase in demand, you need to split the budget between hiring new people and getting new resources for the business. If you want to reduce sales, you should suspend the hiring process and attract more business quality resources.
Doubts and ineffective decisions. With a ready 1-year or 5-year forecast template, you can define how to improve your sales process and set new goals. It gives confidence and allows you to focus on your company's growth.
What can affect the quality of the forecast in the future?
- changes on the market. Inflation, business instability, a crisis can undermine customers' desire to buy and invest;
- changes in the law. If you plan to forecast revenue and new laws or regulations are coming the next quarter, that may affect your business. It is important to consider these changes while building future sales forecast for your company, especially annual ones;
- product improvement, innovations. Your competitors don't sleep, and they could invest in a new design or innovation for their product, which will partially affect your sales predictions. Interestingly, innovations in your own product can also affect your sales expectations - your product might cause a high demand, which will create a gap in supply, mess in management, quality of delivery, etc.
How to forecast revenue using historical data?
In historical forecasting, the numbers are obtained by analyzing previous years' data, often taking into account data obtained in certain periods (trends, seasonality). For example, if a company's regular monthly income in July was $20,000, it will likely earn the same amount in August. You can also add an increasing percentage, for example, 5-10%, and predict an average monthly income of $20250-20500.
Historical predictions work well if you don't plan strong advertising campaigns, product changes, or implement sales at the peak of law changes.
How to improve sales forecasting accuracy?
1. Constant control and modification. It is important to constantly monitor how relevant the model (sales forecast spreadsheet) is, as all costs are tied to sales. Even if you launch a new product, you can predict it - get the first sales data after the launch or get basic data such as costs, purchases, prices, and previous sales results to get an approximate forecast.
It is useful to focus on sales of those who have released a similar product before you - relying on your actual sales vs. somebody’s past sales numbers can help predict future sales numbers. Just focus on questions such as: is there a risk that competitors will overtake you, is there an upcoming new product feature, or a marketing strategy? To define your sales projection, it is important to adapt it to the up-to-date situation.
2. Focus on volume rather than the detail. Usually, sales forecasting software gives you many options, but most of them can’t provide you the detailed forecasts for each good/service. For example, let’s see how to forecast revenue and improve sales for a coffee shop. In forecasting, it would be more accurate and simple to forecast coffee sales in bulk by supplier country or coffee type (coarse, medium, or fine ground) than to track sales of individual сups or bags of coffee. In this way, the difference between the forecast and actual sales becomes comparable and brings order to the accounting.
If you don't know how to calculate sales revenue forecast or what to consider, make some assumptions: what drives my sales? Traffic and conversions or direct sales through social networks and the store? You can try first one assumption and then another to choose which one works best for your business. The ideal option for the sample, in this case, will be a quarterly or weekly sales forecast, which is enough to determine whether the assumption was correct and, if not, to make adjustments to it.
3. Predict prices for future revenue. When planning a forecast, especially the long-term one, it is important to anticipate price growth over time, directly proportional to sales growth. Also, think about how direct costs associated with sales growth can affect this same price.
It is not that hard to improve B2B or B2C sales if you have small business financial forecasting software. Remember what you are selling and what you want to achieve – in this way, your sales will grow faster than you think.