Most business owners know that in order to increase their chances of having a successful operation, the first thing that they should do is check their cash-flow statement. This is even before they make any major decisions about how to spend money. That is because this simple sheet of paper reflects their current and future expenses as well as all their income sources and bank balances. And if it is done right, it will only take a few minutes to make a few calculations on how new expenses would affect it all. You just need to use the right sales forecasting methods.
But what some might not realize is that they can also use the same methods of analysis and comparison for sales forecasting. This way, they help ensure that the right type of products are sold in the largest volume possible. Read on for a list of sales forecasting methods to ensure your finances stay in the black.
6 Sales Forecasting Methods That Show You the Future
1. Guesses with Education
Before there were computer programs that could create algorithms that determined the potential sales volume of an item. Therefore, businesses relied heavily on their senior sales managers and long-running executives for information for sales forecasting methods. Often the oldest and wisest staff members, they could easily tell how well a product would do when it hit the market.
That is because they usually had years of experience working in a vast array of market fluctuations. So, they knew when consumer spending on key items would raise and lower. Current businesses can follow suit by seeking out the advice of their own experienced staff or other trusted market advisers.
2. Sales Averaging
A quick determination of a product’s potential sales volume can be done by adding up the total sales of the product from the prior year, then dividing them out to get an average.
- For example, if a company wants to see what their income from a product will be for the remainder of the year, they can divide last year’s total sales volume for the product by 12.
- Or it can be broken down even further by dividing it by 52 for the weekly sales rate or 365 to get a daily look at what is happening during certain times of the year.
3. Comparison of Other Similar Products
One of the most difficult aspects of sales forecasting methods is trying to determine how well a product will do when nothing like it has ever been sold before. For situations like this, companies can take a look at some of the other products that they have that are made with similar components.
- This works because consumers are more likely to buy a new kind of product from a company that they have past experience with than from one they never heard of before.
- Or a business may want to check the way that the market is reacting to other new products in the same industry as theirs.
4. Market Research
There is no better way to determine how a group of people feel about a product than to directly ask them. But it is impossible to go to every consumer’s house to talk to them. So, businesses can simply take a look at their current spending habits and preferences. It is possible by asking a sample of the population to do surveys for them.
While time consuming, sales forecasting methods like this are more accurate than trying to figure out how much of the average 2% of the population’s disposable income should be spent on an item.
5. Location Calculations
This method of sales forecasting is a little more complex because it requires extra data to be accurate. But it works very well because it focuses on common sense. First, a business has to determine how many people live within a one mile radius of them. Then, you have to look up the total population of the city. Divide the first number by the second number to get a percentage. This is the amount of people who are the most likely to spend money at the business. Their reason is the convenience of its location.
- The data can expand outward to include those who live further away. But as the distance increases, the expectation of spending at the business will decrease.
- Finally, all of this information has to transfer to the product itself. So if 5% of a city’s population live within a mile of the business, then the number of people can multiply by the price of the product to get the potential sales volume.
6. Total Sales Inclusion
Sometimes, businesses who sell a huge variety of products don’t want to waste time with calculating the individual sales of one product. This is because they make the most money by selling at wholesale prices. So in other words, when one product is sold out, it isn’t reordered. They just ship in a new one from another company that is willing to offer items at a cost that they are willing to pay. For instances like this, it helps to use sales forecasting methods. They will average in everything that a company has for sale at any given time.
- Simply, calculate the square footage of the floor space where all of the items are for sale.
- Then, determine what the worth of the entire current product inventory is.
- Divide the total amount of goods by the square footage to get a dollar amount. If the goods for sale are small, then a business may want to use square inches instead.
- Multiply this amount by the amount of people that visit the business on a daily basis. Then, this will give the potential sales volume for any given day.
To the Sum
As you can see, these sales forecasting methods all offer unique ways to determine how much potential sales income that a business can achieve at any given time. It is important to mention that none of them are exact though. There are simply too many variables that can impact the market and buying habits of consumers.
So, it helps to use more than one of them at a time. And remember, the expenses for the products being sold still have to be deducted. This way, you will be able to tell what the true profit margin from the products will be.
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