As spring moves to summer, forecast should be for warmer and sunnier weather. What is forecast for your business? Is outlook sunny or cloudy?
Do you know what sales you can expect, whether for a team of sales people or within your own business or practice? How do you feel about putting together a forecast? How do others in your business feel? I wonder why you have these feelings?
Forecasting is vital for any business – well, accurate forecasting is vital!! This is true for professional services as well as commercial organisations. How often are your forecasts accurate? Inaccurate forecasting carries all sorts of hazards. Whether there is a tendency to be too optimistic and sunny with your forecasts, or too downbeat and understating it, there are potential problems for business. Are people encouraged, or allowed, to be pragmatic about their forecasts or do they feel as though they have to tell you they will do well? Do you tend to think that there are too many factors outside of your control and so it is not worth doing anyway?
Why does it matter? Apart from reality that sales, whether to existing or new clients, are lifeblood of your business! Being too optimistic about potential sales can lead to various issues – anticipating revenues which will not happen, planning resources such as people and products, problems with cash flow, panic management! The other end of equation, under-estimating has its own problems too! Although it can feel good to see sales coming in which were not anticipated, think about problems they might cause within your own business. Cash flow problems of a different sort, need to get resources at short notice, quality of customer or client service and response are all probabilities. Becoming more accurate with your forecasts will help you run a smoother and more profitable organisation.
How do you approach forecasting sales? Tea leaves, roll of dice, check stars or ask others for their expectations? There are some basic principles to consider or follow and a variety of methods you can use to help and they should prove more reliable then ideas above! Although we are presuming you are already an established business, many of principles will apply even for new start-ups.
First point – look at your records for previous couple of years and do some analysis.
- What are average monthly sales? (or revenues if you prefer!)
- Can you break this down to weekly figures, if useful to you?
- Are any obvious patterns or trends to these? Seasonal or market driven?
- What is breakdown between new business and repeat business?
- How frequently do existing customers purchase?
- Can you assess average “order” size from each category?
- What are trends in all of these, year on year?
You may find that looking at a “Z-chart” can help you to take a realistic view of how you are doing. The key line here is top one, which is created by taking rolling total from previous 12 months. It shows how you are really doing on a year-on-year basis and allows for seasonal dips and highs, which can distort annual figures and cause a knee jerk reaction. Knowing trends is a good start. The next stage is to assess and breakdown your actual sales process. What are specific steps and activities you take to go from identifying potential customers or clients through to getting their commitment? Not only steps and best practice activities, but how long does process take on average? (The sales cycle, sales lead time or whatever phrase suits your business.)
Too often, organisations and sales managers in particular spend too long looking at results, which are effectively historical data and difficult to do anything about! Fundamentally, sales will come from right levels of activity directed at right potential clients – using appropriate skills. If these inputs are wrong, there is an inevitability about outputs! Getting to grips with your sales process can help you to create effective measures and control points to improve sales forecasting and sales performance.
An element of forecasting, and good sales planning and management, is old maxim – “start with end in mind”. What do you need to be generating need to in terms of business? (Revenue, or numbers of units or whatever works for you.) Working back from this you can start to see where your critical checks and controls should be – and how you can assess probability of getting a sale.