According to an article by Michael Flint entitled “Cash Flow: The Reason 82% of Business…
As a small business owner, it’s easy to get swamped with operational day-to-day demands and lose focus of the bigger picture. However, the ultimate success of your business depends not only on meeting the “in the moment” responsibilities, but also having a clear, holistic view of where your enterprise is heading. In order for your organization to remain a viable going concern, it’s important to have a healthy understanding of sales forecasting.
What is Sales Forecasting?
A sales forecast serves to project what your estimated sales will be for a given time period. The forecast itself is generated from an analysis of previous transactional data, the sale of similar products by your competitors, general economic trends, and the market response to your product/service offerings. Serving as a critical component of your management framework, it enables you to evaluate and enhance key business initiatives such as:
- More accurate forecasting of cost structure and cash flow
- Better understanding of ROI on marketing expenditures
- Helping to convert prospects into loyal, repeat customers
- Better inventory management and control
- More timely staffing and hiring
- Enhanced insight on expansion opportunities
Putting a System in Place
Before you can accurately predict future sales and revenue, you must first implement a sound system that keeps track of all transactional customer data. Without a reliable system, it will be like the blind leading the blind. At the end of the day, it’s all about formulating a systematic process that tracks customer transactions, establishes sales categories, drives more opportunities, and ultimately converts leads and prospects into returning customers.
Leveraging the Power of Software
One of the easiest and most effective ways to create and adhere to a sales forecast is by leveraging the power of a good small business CRM system. These tools are typically very user friendly and allow one to compile and organize vast amounts of sales and marketing data that is easily accessible. With the right tools in place, you’ll have the ability to track sales historically, identify reasons for lost sales, see which sales categories are performing best, and better analyze the number of leads per month by source. In addition, financial software management tools such as Quickbooks can be a great source of sales and expense data. This accounting software allows you to get insight into a whole plethora of data points key to forecasting.
Measuring Performance Results
Once you’ve generated your forecast, it’s imperative to continually utilize it. Tap into monthly sales reports and compare your actual performance with what you’ve projected. Determine where the financial disparities lie and what can be done to bridge the gap. If you miss your targets, do a little detective work to ascertain where the bottlenecks in your sales and marketing process may lie:
- Are your salespeople failing to meet performance quotas?
- Do you have enough staff on hand to meet lead generation demands?
- Has a competitor gained new market share?
- Are general economic trends having a negative impact?
- Have opportunities for sales conversions been missed?
- Are your retention management programs missing the mark?
- Are market substitutes lessening demand for your product/service?
Forecasting may initially seem like a tedious and daunting task for your business. However, by employing this valuable tool you enable yourself to better achieve your overall financial goals. Begin with setting up your system, then integrate the tools that will allow you to leverage your data best, and finally make sure to regularly measure results.