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17/03/2015 03:34:28 PM

How to Forecast and Budget Sales

A sales forecast is a planning tool that management uses to guide company operations and evaluate performance. Companies conduct sales forecasts to predict sales volume for a future period and to compare estimated sales in the future with actual sales over a past period. The forecast is based on historical sales figures and an analysis of expected market conditions, such as the introduction of new competitors or fluctuations in demand. The sales forecast is the starting point for budgeting. The sales budget, in turn, drives the production, direct materials, direct labor and manufacturing overhead budgets.

Instructions

    • 1

      Prepare a customer profile for your product or service. Most companies report that about 20 percent of their customers account for nearly 80 percent of sales volume. In forecasting sales, your first step should be to identify the customer group within your target market that accounts for the majority of sales. Your customer profile will largely depend on what business your company is in. Examples of customer profiles are: middle-aged professional males who like to golf, low-income households in a particular area and small business owners who are looking to expand.

    • 2

      Look at market trends. Changing market conditions may work for you or against you, depending on what you're offering and changes in the market. Talk to trade suppliers and discuss which products and services are expected to do well in the near future and refer to trade magazines and business periodicals aimed at your particular industry.

    • 3

      Determine the size and location of your trading area. This is defined as the distance that an average customer will travel to buy the product or service from your establishment. Your trading area also includes those places where you will distribute or advertise your product or service. Once you have identified the general area, talk to locals, the chamber of commerce or other business establishments to identify characteristics unique to the area.

    • 4

      Estimate the size of the market by taking into account the number of prospects in your trading area and the average amount a prospect spends on the product or service. If you identified single-parent households as your prospects, the size of the market would be the number of single-family households multiplied by the average amount a household spends on the product or service per month. If the area has 1,000 single-parent families and each spends $500 on the product or service, the size of the market is $500,000. This market will be split among you and your competitors.

    • 5

      Make a list of competitors in your area. Visit each establishment and analyze operations by taking note of the location, foot traffic at different times during the day, customer profiles, promotional activities, quality and range of products or services offered. Talk to staff and customers for more insight on how the business is run and how customers are served.

    • 6

      Project sales. Your prediction may be based on a similar establishment's recent sales volume or an estimate of the percentage of the target market that will buy from you. If you estimate that you will sell to 40 percent of the market (from 1,000 single-family households) and they will spend 50 percent of their average spending of $500 per household, your sales forecast would be $100,000 (400 times 250)

      Source: www.ehow.com