Sales Forecasting is the process of using a company’s sales records over the past years to predict the short-term or long-term sales performance of that company in the future. This is one of the pillars of proper financial planning. As with any prediction-related process, risk and uncertainty are unavoidable in Sales Forecasting too.
Hence, it’s considered a good practice for Sales forecasting teams to mention the degree of uncertainties in their forecast. Sales Forecasting is a globally-conducted corporate practice where a number of objectives are identified, action-plans are chalked out as well as budgets and resources are allotted to them.
The first step to proper Sales Forecasting is to know the things that fall within your domain directly as a salesperson. This usually relates to your sales staff, clients and prospects. Other factors to consider during the setup of a forecast are the negative ones like − uncertainty, abrupt changes in consumer shopping patterns, etc.
One of the most common yet basic challenges that the management of companies face in making business sales forecasts is that their usual approach is a “top to down” one. This approach leaves very little scope for interaction with the sales manager and the salespersons during the data collection process.
For a successful and accurate Sales Forecasting, it’s necessary to take into consideration the direction from significant departments of the organization, comprising of seniors, managers, sales teams and finally − your own gut feeling. Let’s list down these sources of instructions and how they contribute towards designing a reliable sales forecast.
- Directions from Top-level Seniors− It may be initially necessary for you to increase your sales by 10%, however your seniors, being wiser, may ask you to reconsider your target depending on promises made to outside investors as well as stockholders.
- Directions from one’s own manager− These kind of directions are mostly integrated along with the direction from the top level, but their expectations are generally little more conservative and realistic. If the top management gives you a target of 15% sales growth, your manager will tell you what the real expectations are.
- Direction from Sales Teams− For instance, if the Sales Teams may project a growth of 10% over the management’s forecast figure of 20%; this extra-conservative number is a cushion, so that they could increase their chances to beat the sales forecast.
- Direction from other Entities− Many other entities also take part in Forecasting. Chief among them are the Research and Development department, Human Resource department, Marketing department finance team, manufacturing unit, etc.
Once you are done taking feedback and inputs from all these people, the final question to ask is − what is your interpretation of all these factors? Most often a person’s gut feeling is more accurate than all the numbers put in front of him. Although it’s not advisable to go against the company’s decision, it is always a good policy to do further research till the negative hunch doesn’t go away.
Role of External Factors
While participating in a sales forecast, it is crucial for you to answer after considering both the corporate and the departmental viewpoints that may arise. This will provide the real balance between the expectations of the management and the real-case scenarios that different departments project.
External factors have a very significant role to play in Sales Forecasting. This is mainly because they are not dependent on the organizations’ functioning; the organization is dependent on theirs. Organizations study external factors with great detail because they cannot control or influence them. Just as a forecasting can only inform you about the weather but cannot change it.
The most influential factor is the competition, where the competition stands in terms of market share, new line of products, recognition of brand, expansion or contraction of the sales force, etc. Also, whether there is a new competitor in the market or if any competitor is losing out in business.
There are numerous instances where two financially unsound companies enter into Mergers and Acquisitions. Often, these companies form a strong partnership and emerge as a challenging competitor. Managers need to check whether any of their competitors are involved in any such mergers or acquisitions, and if they are, then what is their collective strength and which minuses of each other they are cancelling out.
Some people might say that being a salesperson, you should abide by a philosophy similar to all other staff members, i.e., “winning over the numbers is the game”. In fact, the reality is that winning numbers only proves to the clients that you can perform. Getting numbers is fine, however the individual contributions of team-mates is a significant factor in correlation to the culture of the corporate world. You need to consider many things, such as the economic status of the environment you are operating in, whether the spot of business is going through growth, recession, etc.
You would also need to check if there are any government-implemented hikes in the interest rates, pricing of commodities and what is the current rate of unemployment. Foreign and domestic regulatory bodies implement policies from time to time, which also dramatically influences your business.
The fluctuations of the Dollar, Yuan and Euro also play an important part. When it comes to regulation, the question to ask is – are the regulatory norms going through any significant changes that could affect your plan in a positive or a negative way? It might initially seem as a great thing to try to revise any forecasts put in front of you in order to improve your opportunities of showing up at the top level, which will give you and your team the privilege to shine among others.
On the other hand, other factors play a major role here. You are not the only one who has been given an isolated forecast; other departments have also been given forecasts depending on the same factors that you might want to manipulate.