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Estimating sales

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It’s common practice for business owners to estimate sales by focussing on total revenues and using that to drive their business plan. But, if you think about it, that doesn’t make sense. Whether you succeed or fail, you will have no idea how or why it happened. You’re flying in the dark.

It takes a little more time, but your sales forecast should start from the bottom up and in as much detail as you can. You clearly need to know the sales price of your products and services, but you can also calculate an average sales value, based on historical data (revenue ÷ number of sales).

Look where your business is coming from and report it by market sector or sales channel (direct, distribution, internet, etc). Analyse the source of your new business in previous years. Where did your sales come from? Was it the result of advertising, telesales, direct mail, networking or online enquiries/SEO? The idea is to build up a map of where your business is coming from and then use historical data as the basis for your forecast.

You might expect established customers to maintain their sales levels – but how much of your business does that represent? If a high proportion of your sales are one-offs, you will be much more reliant on converting leads. So which ones worked best for you in the past? How well did they convert? You can use the conversion rate to help generate your forecast.

Start to build your forecast by looking at each market sector or channel. What unit sales did they produce in the past and is that a good basis for next year? If you are investing in marketing, you should be able to tell from historic data what each campaign cost and the return it generated. Now you can use your planned investment in marketing to generate a forecast for new sales.

It may take you a while, but you will end up with a much better understanding of your business and the factors which are driving it. And it means that when you compare your actual results with what you predicted, you’ll be able to see exactly where things exceeded or fell short of your expectations.


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