Your sales forecast is the backbone of your business plan. People measure a business and its growth by sales, and your sales forecast sets the standard for expenses, profits and growth.
When it comes to forecasting sales, don’t fall for the trap that says forecasting takes training, mathematics or advanced degrees. Forecasting is mainly educated guessing. So don’t expect to get it perfect; just make it reasonable. There’s no business owner who isn’t qualified to forecast sales – you don’t need a business degree or accountant’s certification. What you need is common sense, research of the factors, and motivation to make an educated guess.
Your sales forecast in a business plan should show sales by month for the next 12 months – at least – and then by year for the following two to five years. Three years, total, is generally enough for most business plans.
If you have more than one line of sales, show each line of sales separately and add them up. If you have more than 10 or so lines of sales, summarise them and consolidate.
Remember, this is business planning, not accounting, so it has to be reasonable, but it doesn’t need too much detail.
Here are some tips to get you started:
Develop a unit sales projection
Where you can, start by forecasting unit sales per month. Not all businesses sell by units, but most do, and it’s easier to forecast by breaking things down into their component parts. Product-oriented businesses obviously sell in units, but so do a lot of service businesses. For example, accountants and attorneys sell hours, taxis sell rides, and restaurants sell meals.
Use past data if you have it
Whenever you have past sales data, your best forecasting aid is the most recent past. There are some statistical analysis techniques that take past data and project it forward into the future. You can get just about the same results by projecting your two most recent years of sales by month on a line chart and then visually tracking it forward along the same line. Statistical tools are a nice addition, but they’re rarely as valuable in a business plan as human common sense, particularly if it’s guided by analysis.
Use factors for a new product
Having a new product is no excuse for not having a sales forecast. Of course you don’t know what’s going to happen, but that’s no excuse for not drafting a sales projection. Nobody who plans a new product knows the future – you simply make educated guesses. So break it down by finding important decision factors or components of sales.
If you have a completely new product with no history, find an existing product to use as a guide. For example, if you have the next great computer game, base your forecast on sales of a similar computer game. If you have a new auto accessory, look at sales of other auto accessories. Analysts projected sales of fax machines before they were released to the market by looking at typewriters and copiers.
Break the purchase down into factors.
For example, you can forecast sales in a restaurant by looking at a reasonable number of tables occupied at different hours of the day and then multiplying the percentage of tables occupied by the average estimated revenue per table. Some people project sales in certain kinds of retail businesses by investigating the average sales per square foot in similar businesses.
Be sure to project prices
The next step is prices. You’ve projected unit sales monthly for 12 months and then annually, so you must also project your prices. Think of this as a simple spreadsheet that adds the units of different sales items in one section, then sets the estimated prices in a second section. A third section multiplies units times price to calculate sales. The maths is simple – the hard part is making that estimated guess of unit sales.
A fourth section of your projected prices will set the average costs per unit. You want to set costs because a lot of financial analysis focuses on gross margin, which is sales less cost of sales. For financial reasons, cost of sales, also known as costs of goods sold and direct costs, are different from the other expenses that come out of profits.
The cost of sales isn’t what you pay salespeople or for advertising. It’s the amount you pay to buy what you sell. This is usually easy to understand. In any retail store, for example, the cost of goods sold is what the store pays for the products it sells. In service businesses, the cost of sales can be less obvious, but it can still be figured out.
Finally, in a fifth and final section, you multiply unit sales times average cost per unit to calculate your cost of sales. This gives you a sales forecast that you can use for the rest of your financial projections. The first place you’ll use it is at the beginning of your profit and loss statement, which normally starts with sales and cost of sales.
Of course, not all businesses fit easily into the unit sales model. Some business plans will have sales forecasts that project dollar sales only, by line of sales, and then direct costs, by other factors. For example, a taxi business might simply estimate total fares as its sales forecast and gasoline, maintenance and other items as its cost of sales. A graphic artist might stick with the simple dollar-value sales forecast and project cost of sales as photocopy, colour proofs. In the end, it’s always your plan, so you have to make the decisions that are best for you.
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Ensure that you know who you are up against.
Which part of your business plan are you finding the most difficult to complete? Tell us in the comments section below…
Free SWOT Analysis Template
While all SWOT analysis templates comprise the same basic elements, ie Strengths, Weaknesses, Opportunities and Threats, the information you slot under each heading can make or break your planned product or solution launch.
Are you unsure of what to put into your SWOT analysis, or even what a SWOT analysis is? The following guide will assist you in setting up an ideal SWOT analysis and clear up any misconceptions:
21 Free Sample Business Plans
Writing a business plan can be a daunting process. Sample business plans can be very helpful in providing a format for you to build your business plan on.
Here you’ll find free sample business plans for every conceivable type of business.
Go through our collection of free sample business plans – we have one for almost every industry.
However, don’t just copy the sample business plan. The purpose of writing a business plan is to actually research and find out more about the business venture that you have in mind. It also allows you to stress test all of your business assumptions to ensure they hold up to real market conditions.
Business Plan Categories
Find 11 sample business plans here to launch your travel or transport business.
Educational Website Business Plan: Learn from education business, One Week At A Time’s business plan example, and create an educational website of your own.
Related: Business Plan Format Guide
Find 8 sample business plans here to help you launch your computers or internet business.
Find 4 sample business plans here to help you launch your construction or engineering business.
Find 13 sample business plans here to help you launch your consulting business.
16. Food and Farming
Find 7 sample business plans here to help you launch your food or farming business.
Find 4 sample business plans here to help you launch your health and beauty business.
Find 3 sample business plans here to help you launch your hospitality business.
Find 8 sample business plans here to help you launch your manufacturing business.
Find 2 sample business plans here to help you launch your medical or health care business.
Find 2 sample business plans here to help you launch your non-profit organisation.
10. Online Business
Find 2 sample business plans here to help you launch your online business.
Offering any dry cleaning home delivery service has to first start with a detailed business plan. Start your own business now with this sample business plan.
Find 5 sample business plans here to help you launch your services business.
Find 2 sample business plans here to help you launch your pets or animal services business.
Find 13 sample business plans here to help you launch your professional services business.
Are you looking to start your own magazine? Starting out as a magazine publisher will require a business plan similar to this one.
Would you prefer to start up your own newsletter? Use this sample business plan if you are starting up a business that offers newsletter publishing services.
4. Real Estate
Find 8 samples business plans here to help you launch your real estate business
Find 10 sample business plans here to help you launch your restaurant or bar business.
Find 3 sample business plans here to help you launch your retail business.
Find 10 sample business plans here to help you launch your sports and fitness business.
SWOT Analysis Examples
It’s not necessary to hire an expert to do a SWOT analysis for your business, you can quite easily do it yourself after checking out a few SWOT analysis examples online.
Seeing how a SWOT analysis can be implemented in a variety of ways is useful when you are busy with your business plan research and preparation; here are three SWOT analysis examples illustrating how this approach can be tailored to suit pretty much all areas of your business.
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