how to write sales forecast in business plan

How to Create a Sales Forecast

11 min. read

Updated October 27, 2023

Business owners are often afraid to forecast sales. But, you shouldn’t be. Because you can successfully forecast your own business’s sales.

You don’t have to be an MBA or CPA. It’s not about some magic right answer that you don’t know. It’s not about training you don’t have. It doesn’t take spreadsheet modeling (much less econometric modeling) to estimate units and price per unit for future sales. You just have to know your own business. 

Forecasting isn’t about seeing into the future

Sales forecasting is much easier than you think and much more useful than you imagine.

I was a vice president of a market research firm for several years, doing expensive forecasts, and I saw many times that there’s nothing better than the educated guess of somebody who knows the business well. All those sophisticated techniques depend on data from the past — and the past, by itself, isn’t the best predictor of the future. You are.

It’s not about guessing the future correctly. We’re human; we don’t do that well. Instead, it’s about setting down assumptions, expectations, drivers, tracking, and management. It’s about doing your job, not having precognitive powers. 

• Successful forecasting is driven by regular reviews

What really matters is that you review and revise your forecast regularly. Spending should be tied to sales, so the forecast helps you budget and manage. You measure the value of a sales forecast like you do anything in business, by its measurable business results.

That also means you should not back off from forecasting because you have a new product, or new business, without past data. Lay out the sales drivers and interdependencies, to connect the dots, so that as you review plan-versus-actual results every month, you can easily make course corrections.

If you think sales forecasting is hard, try running a business without a forecast. That’s much harder.

Your sales forecast is also 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. The sales forecast is almost always going to be the first set of numbers you’ll track for plan versus actual use, even if you do no other numbers.

If nothing else, just forecast your sales, track plan-versus-actual results, and make corrections — that process alone, just the sales forecast and tracking is in itself already business planning. To get started on building your forecast follow these steps.

And if you run a subscription-based business, we have a guide dedicated to building a sales forecast for that business model.

• Step 1: Set up your lines of sales

Most forecasts show several distinct lines of sales. Ideally, your sales lines match your accounting, but not necessarily in the same level of detail.   

For example, a restaurant ought not to forecast sales for each item on the menu. Instead, it forecasts breakfasts, lunches, dinners, and drinks, summarized. And a bookstore ought not to forecast sales by book, and not even by topic or author, but rather by lines of sales such as hardcover, softcover, magazines, and maybe categories (such as fiction, non-fiction, travel, etc.) if that works.

Always try to set your streams to match your accounting, so you can look at the difference between the forecast and actual sales later. This is excellent for real business planning. It makes the heart of the process, the regular review, and revision, much easier. The point is better management.

For instance, in a bicycle retail store business plan, the owner works with five lines of sales, as shown in the illustration here.  

In this sample case, the revenue includes new bikes, repair, clothing, accessories, and a service contract. The bookkeeping for this retail store tracks sales in those same five categories.

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• Step 2: Forecast line by line

There are many ways to forecast a line of sales.

The method for each row depends on the business model

Among the main methods are:.

• Unit sales : My personal favorite. Sales = units times price. You set an average price and forecast the units. And of course, you can change projected pricing over time. This is my favorite for most businesses because it gives you two factors to act on with course corrections: unit sales, or price.
• Service units : Even though services don’t sell physical units, most sell billable units, such as billable hours for lawyers and accountants, or trips for transportations services, engagements for consultants, and so forth.
• Recurring charges : Subscriptions. For each month or year, it has to forecast new signups, existing monthly charges, and cancellations. Estimates depend on both new signups and cancellations, which is often called “churn.”
• Revenue only : For those who prefer to forecast revenue by the stream as just the money, without the extra information of breaking it into units and prices.

Most sales forecast rows are simple math

For a business plan, I recommend you make your sales forecast a detailed look at the next 12 months and then broadly cover two years after that. Here’s how to approach each method of line-by-line forecasting.

Start with units if you can

For unit sales, start by forecasting units month by month, as shown here below for the new bike’s line of sales in the bicycle shop plan:

I recommend looking at the visual as you forecast the units because most of us can see trends easier when we look at the line, as shown in the illustration, rather than just the numbers. You can also see the numbers in the forecast near the bottom. The first year, fiscal 2021 in this forecast, is the sum of those months.

Estimate price assumptions

With a simple revenue-only assumption, you do one row of units as shown in the above illustration, and you are done. The units are dollars, or whatever other currency you are using in your forecast. In this example, the new bicycle product will be sold for an average of $550.00. 

That’s a simplifying assumption, taking the average price, not the detailed price for each brand or line. Garrett, the shop owner, uses his past results to determine his actual average price for the most recent year. Then he rounds that estimate and adds his own judgment and educated guess on how that will change. 

Multiply price times units

Multiplying units times the revenue per unit generates the sales forecast for this row. So for example the $18,150 shown for October of 2020 is the product of 33 units times $550 each. And the $21,450 shown for the next month is the product of 39 units times $550 each. 

Subscription models are more complicated

Lately, a lot of businesses offer their buyers subscriptions, such as monthly packages, traditional or online newspapers, software, and even streaming services. All of these give a business recurring revenues, which is a big advantage. 

For subscriptions, you normally estimate new subscriptions per month and canceled subscriptions per month, and leave a calculation for the actual subscriptions charged. That’s a more complicated method, which demands more details. 

For that, you can refer to detailed discussions on subscription forecasting in How to Forecast Sales for a Subscription Business .

• But how do you know what numbers to put into your sales forecast?

The math may be simple, yes, but this is predicting the future, and humans don’t do that well. So, don’t try to guess the future accurately for months in advance.

Instead, aim for making clear assumptions and understanding what drives your sales, such as web traffic and conversions, in one example, or the direct sales pipeline and leads, in another. Review results every month, and revise your forecast. Your educated guesses become more accurate over time.

Experience in the field is a huge advantage

In a normal ongoing business, the business owner has ample experience with past sales. They may not know accounting or technical forecasting, but they know their business. They are aware of changes in the market, their own business’s promotions, and other factors that business owners should know. They are comfortable making educated guesses.

If you don’t personally have the experience, try to find information and make guesses based on the experience of an employee,  your mentor , or others you’ve spoken within your field.

Use past results as a guide

Use results from the recent past if your business has them. Start a forecast by putting last year’s numbers into next year’s forecast, and then focus on what might be different this year from next.

Do you have new opportunities that will make sales grow? New marketing activities, promotions? Then increase the forecast. New competition, and new problems? Nobody wants to forecast decreasing sales, but if that’s likely, you need to deal with it by cutting costs or changing your focus.

Look for drivers

To forecast sales for a new restaurant, first, draw a map of tables and chairs and then estimate how many meals per mealtime at capacity, and in the beginning. It’s not a random number; it’s a matter of how many people come in.

To forecast sales for a new mobile app, you might get data from the Apple and Android mobile app stores about average downloads for different apps. A good web search might also reveal some anecdotal evidence, blog posts, and news stories, about the ramp-up of existing apps that were successful.

Get those numbers and think about how your case might be different. Maybe you drive downloads with a website, so you can predict traffic from past experience and then assume a percentage of web visitors who will download the app.

• Estimate direct costs

Direct costs are also called the cost of goods sold (COGS) and per-unit costs. Direct costs are important because they help calculate gross margin, which is used as a basis for comparison in financial benchmarks, and are an instant measure (sales less direct costs) of your underlying profitability.

For example, I know from benchmarks that an average sporting goods store makes a 34 percent gross margin. That means that they spend $66 on average to buy the goods they sell for $100.

Not all businesses have direct costs. Service businesses supposedly don’t have direct costs, so they have a gross margin of 100 percent. That may be true for some professionals like accountants and lawyers, but a lot of services do have direct costs. For example, taxis have gasoline and maintenance. So do airlines.

A normal sales forecast includes units, price per unit, sales, direct cost per unit, and direct costs. The math is simple, with the direct costs per unit related to total direct costs the same way price per unit relates to total sales.

Multiply the units projected for any time period by the unit direct costs, and that gives you total direct costs. And here too, assume this view is just a cut-out, it flows to the right. In this example, Garrett the shop owner projected the direct costs of new bikes based on the assumption of 49 percent of sales.

Given the unit forecast estimate, the calculation of units times direct costs produces the forecast shown in the illustration below for direct costs for that product. So therefore the projected direct costs for new bikes in October is $8,894, which is 49% of the projected sales for that month, $18,150.

• Never forecast in a vacuum

Never think of your sales forecast in a vacuum. It flows from the strategic action plans with their assumptions,  milestones , and metrics. Your marketing milestones affect your sales. Your business offering milestones affect your sales.

When you change milestones—and you will, because all business plans change—you should change your sales forecast to match.

• Timing matters

Your sales are supposed to refer to when the ownership changes hands (for products) or when the service is performed (for services). It isn’t a sale when it’s ordered, or promised, or even when it’s contracted.

With proper  accrual accounting , it is a sale even if it hasn’t been paid for. With so-called cash-based accounting, by the way, it isn’t a sale until it’s paid for. Accrual is better because it gives you a more accurate picture, unless you’re very small and do all your business, both buying and selling, with cash only.

I know that seems simple, but it’s surprising how many people decide to do something different. The penalty for doing things differently is that then you don’t match the standard, and the bankers, analysts, and investors can’t tell what you meant.

This goes for direct costs, too. The direct costs in your monthly  profit and loss statement  are supposed to be just the costs associated with that month’s sales. Please notice how, in the examples above, the direct costs for the sample bicycle store are linked to the actual unit sales.

• Live with your assumptions

Sales forecasting is not about accurately guessing the future. It’s about laying out your assumptions so you can manage changes effectively as sales and direct costs come out different from what you expected. Use this to adjust your sales forecast and improve your business by making course corrections to deal with what is working and what isn’t.

I believe that even if you do nothing else, by the time you use a sales forecast and review plan versus actual results every month, you are already managing with a business plan . You can’t review actual results without looking at what happened, why, and what to do next.

Tim Berry is the founder and chairman of Palo Alto Software , a co-founder of Borland International, and a recognized expert in business planning. He has an MBA from Stanford and degrees with honors from the University of Oregon and the University of Notre Dame. Today, Tim dedicates most of his time to blogging, teaching and evangelizing for business planning.

Table of Contents

• Forecasting isn’t about seeing into the future

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Sales forecasting: How to create a sales forecast template (with examples)

A strong sales team is the key to success for most companies. They say a good salesperson can sell sand at the beach, but whether you’re selling products in the Caribbean or Antarctica, it all comes down to strategy. When you’re unsure if your current strategy is working, a sales forecast can help.

What is a sales forecast?

A sales forecast predicts future sales revenue using past business data. Your sales forecast can predict a number of different things, including the number of new sales for an existing product, the new customers you’ll gain, or the memberships you’ll sell in a given time period. These forecasts are then used during project planning to determine how much you should allocate towards new products and services. 

Why is sales forecasting important?

Sales forecasting helps you keep a finger on your business’s pulse. It sets the ground rules for a variety of business operations, including your sales strategy and project planning. Once you calculate your sales projections, you can use the results to assess your business health, predict cash flow, and adjust your plans accordingly.

An effective sales forecasting plan:

Predicts demand: When you have an idea of how many units you may sell, you can get a head start on production.

Helps you make smart investments: If you have future goals of expanding your business with new locations or products, knowing when you’ll have the income to do so is important. 

Contributes to goal setting: Your sales forecast can help you set goals outside of investments as well, like outshining competitors or hiring new team members.

Guides spending: Your sales forecast may be the wake-up call you need to set a budget and use cost control to reduce expenses.

Improves the sales process: You can change your current sales process based on the sales projections you’re unhappy with.

Highlights financial problems: Your sales forecast template will open your eyes to problem areas you may not have noticed otherwise. 

Helps with resource management: Do you have the resources you need to fill orders if it’s an accurate sales forecast? Your sales forecast can guide how you allocate and manage resources to hit targets.

When you have an accurate prediction of your future sales, you can use your projections to adjust your current sales process. Leveraging inventory management software can help you implement these adjustments more effectively by providing up-to-date data on stock levels and supply chain performance.

Sales forecasting methods

Sales forecasting is an important part of strategic business planning because it enables sales managers and teams to predict future sales and make informed decisions. But why are there multiple sales forecasting methods? Simply put, businesses vary in size, industry, and market dynamics, so no single methodology suits all.

Choosing the right sales forecasting method is more of an art than a science. It involves:

Analyzing your business size and industry

Assessing the available data and tools

Understanding your sales cycle's complexity

A few telltale signs that you've picked the correct approach include:

Improved accuracy in sales target predictions

Enhanced understanding of market trends

Better alignment with your business goals

Opportunity stage forecasting

Opportunity stage forecasting is a dynamic approach ideal for businesses using CRM systems like Salesforce. It assesses the likelihood of sales closing based on the stages of the sales pipeline. This method is particularly beneficial for sales organizations with a clearly defined sales process.

For example, a software company might use this method to forecast sales by examining the number of prospects in each stage of their funnel, from initial contact to final negotiation.

Pipeline forecasting method

The pipeline forecasting method is similar to opportunity stage forecasting but focuses more on the volume and quality of leads at each pipeline stage. It's particularly useful for businesses that rely heavily on sales forecasting tools and dashboards for decision-making.

A real estate agency could use it by examining the number of properties listed, the stage of negotiations, and the number of closings forecasted in the pipeline.

Length of sales cycle forecasting

Small businesses often prefer the length of sales cycle forecasting. It's straightforward and involves analyzing the duration of past sales cycles to predict future ones. This method is effective for businesses with consistent sales cycle lengths.

A furniture manufacturer, for instance, might use this method by analyzing the average time taken from initial customer contact to closing a sale in the past year.

Intuitive forecasting

Intuitive forecasting relies on the expertise and intuition of sales managers and their teams. It's less about spreadsheets and more about market research and understanding customer behavior. This method is often used with other, more data-driven approaches.

A boutique fashion store, for example, might use this method, relying on the owner's deep understanding of fashion trends and customer preferences.

Historical forecasting

Historical forecasting uses past performance data to predict future sales. This method is advantageous for businesses with ample historical sales data. It's less effective for new markets or rapidly changing industries.

An established book retailer could use historical data from previous years, considering seasonal trends and past marketing campaigns, to forecast next quarter's sales.

Multivariable analysis forecasting

Multivariable analysis forecasting is a more sophisticated method that's ideal for larger sales organizations. It analyzes factors like market trends, economic conditions, and marketing efforts to provide a holistic view of potential sales outcomes.

An automotive company, for example, could analyze factors like economic conditions, competitor activity, and past sales data to forecast future car sales.

How to calculate sales forecast

Sales forecasts determine how much you expect to do in sales for a given time frame. For example, let’s say you expect to sell 100 units in Q1 of fiscal year 2024. To calculate sales forecasts, you’ll use past data to predict future trends. 

When you’re first creating a forecast, it’s important to establish benchmarks that determine how much you normally sell of any given product to how many people. Compare historical sales data against sales quotas—i.e., how much you sold vs. how much you expected to sell. This type of analysis can help you set a baseline for what you expect to achieve every week, month, quarter, and so on.

For many companies, this means establishing a formula. The exact inputs will vary based on your products or services, but generally, you can use the following:

Sales forecast = Number of products you expect to sell x The value of each product

For example, if you sell SaaS products, your sales forecast might look something like this: 

SaaS FY24 Sales forecast = Number of expected subscribers x Subscription price

Ultimately, the sales forecasting process is a guess—but it’s an educated one. You’ll use the information you already have to create a data-driven forecasting model. How accurate your forecast is depends on your sales team. The sales team uses facts such as their prospects, current market conditions, and their sales pipeline. But they will also use their experience in the field to decide on final numbers for what they think will sell. Because of this, sales leaders are more likely to have better forecasting accuracy than new members of the sales team.

Sales forecast vs. sales goal

Your sales forecast is based on historical data and current market conditions. While you always hope your sales goals are attainable—and you can use data to estimate what your team is capable of—your goals might not line up directly with your forecast. This can be for a number of reasons, including wanting to create stretch goals that push your sales team beyond what they’ve done in the past or big, pie-in-the-sky goals that boost investor confidence.

How to create a sales forecast

There are different sales forecasting methods, and some are simpler than others. With the steps below, you’ll have a basic understanding of how to create a sales forecast template that you can customize to the method of your choice. 

1. Track your business data

Without details from your past sales, you won’t have anything to base your predictions on. If you don’t have past sales data, you can begin tracking sales now to create a sales forecast in the future. The data you’ll need to track includes:

Number of units sold per month

Revenue of each product by month

Number of units returned or canceled (so you can get an accurate sales calculation)

Other items you can track to make your predictions more accurate include:

Growth percentage

Number of sales representatives

Average sales cycle length

There are different ways to use these data points when forecasting sales. If you want to calculate your sales run rate, which is your projected revenue for the next year, use your revenue from the past month and multiply it by 12. Then, adjust this number based on other relevant data points, like seasonality.

Tip: The best way to track historical data is to use customer relationship management (CRM) software. When you have a CRM strategy in place, you can easily pull data into your sales forecast template and make quick projections.

2. Set your metrics

Before you perform the calculations in your sales forecast template, you need to decide what you’re measuring. The basic questions you should ask are:

What is the product or service you’re selling and forecasting for? Answering this question helps you decide what exactly you’re evaluating. For example, you can investigate future trends for a long-standing product to decide whether it’s worth continuing, or you can predict future sales for a new product. 

How far in the future do you want to make projections? You can decide to make projections for as little as six months or as much as five years in the future. The complexity of your sales forecast is up to you.

How much will you sell each product for, and how do you measure your products? Set your product’s metrics, whether they be units, hours, memberships, or something else. That way, you can calculate revenue on a price-per-unit basis.

How long is your sales cycle? Your sales cycle—also called a sales funnel—is how long it takes for you to make the average sale from beginning to end. Sales cycles are often monthly, quarterly, or yearly. Depending on the product you’re selling, your sales cycle may be unique. Steps in the sales cycle typically include:

Lead generation

Lead qualification

Initial contact

Making an offer

Negotiation

Closing the deal

Tip: You can still project customer growth versus revenue even if your company is in its early phases. If you don’t have enough historical data to use for your sales forecast template, you can use data from a company similar to yours in the market. 

3. Choose a forecasting method

While there are many forecasting methods to choose from, we’ll concentrate on two straightforward approaches to provide a clear understanding of how sales forecasting can be implemented efficiently. The top-down method starts with the total size of the market and works down, while the bottom-up method starts with your business and expands out.

Top-down method: To use the top-down method, start with the total size of the market—or total addressable market (TAM). Then, estimate how much of the market you think your business can capture. For example, if you’re in a large, oversaturated market, you may only capture 3% of the TAM. If the total addressable market is $1 billion, your projected annual sales would be $30 million. 

Bottom-up method: With the bottom-up method, you’ll estimate the total units your company will sell in a sales cycle, then multiply that number by your average cost per unit. You can expand out by adding other variables, like the number of sales reps, department expenses, or website views. The bottom-up forecasting method uses company data to project more specific results. 

You’ll need to choose one method to fill in your sales forecast template, but you can also try both methods to compare results.

Tip: The best forecasting method for you may depend on what type of business you’re running. If your company experiences little fluctuation in revenue, then the top-down forecasting method should work well. The top-down model can also work for new businesses that have little business data to work with. Bottom-up forecasting may be better for seasonal businesses or startups looking to make future budget and staffing decisions.

4. Calculate your sales forecast

You’ve already learned a basic way to calculate revenue using the top-down method. Below, you’ll see another way to estimate your projected sales revenue on an annual scale.

Divide your sales revenue for the year so far by the number of months so far to calculate your average monthly sales rate.

Multiply your average monthly sales rate by the number of months left in the year to calculate your projected sales revenue for the rest of the year.

Add your total sales revenue so far to your projected sales revenue for the rest of the year to calculate your annual sales forecast.

A more generalized way to estimate your future sales revenue for the year is to multiply your total sales revenue from the previous year.

Example: Let’s say your company sells a software application for $300 per unit and you sold 500 units from January to March. Your sales revenue so far is $150,000 ($300 per unit x 500 units sold). You’re three months into the calendar year, so your average monthly sales rate is $50,000 ($150,000 / 3 months). That means your projected sales revenue for the rest of the year is $450,000 ($50,000 x 9 months).

5. Adjust for external factors

A sales forecast predicts future revenue by making assumptions about your growth rate based on past success. But your past success is only one component of your growth rate. There are external factors outside of your control that can affect sales growth—and you should consider them if you want to make accurate projections. 

Some external factors you can adjust your calculations around include:

Inflation rate: Inflation is how much prices increase over a specific time period, and it usually fluctuates based on a country’s overall economic state. You can take your annual sales forecast and factor in inflation rate to ensure you’re not projecting a higher or lower number of sales than the economy will permit.

The competition: Is your market becoming more competitive as time goes on? For example, are you selling software during a tech boom? If so, assess whether your market share will shrink because of rising competition in the coming year(s).

Market changes: The market can shift as people change their behavior. Your audience may spend an average of six hours per day on their phones in one year. In the next year, mental health awareness may cause phone usage to drop. These changes are hard to predict, so you must stay on top of market news.

Industry changes: Industry changes happen when new products and technologies come on the market and make other products obsolete. One instance of this is the invention of AI technology.

Legislation: Although not as common, changes in legislation can affect the way companies sell their products. For example, vaping was a multi-million dollar industry until laws banned the sale of vape products to people under the age of 21. 

Seasonality: Many industries experience seasonality based on how human behavior and human needs change with the seasons. For example, people spend more time inside during the winter, so they may be on their computers more. Retail stores may also experience a jump in sales around Christmas time.

Tip: You can create a comprehensive sales plan to set goals for team members. Aside from revenue targets and training milestones, consider assigning each of these external factors to your team members so they can keep track of essential information. That way, you’ll have your bases covered on anything that may affect future sales growth. 

Sales forecast template

Below you’ll see an example of a software company’s six-month sales forecast template for two products. Product one is a software application, and product two is a software accessory. 

In this sales forecast template, the company used past sales data to fill in each month. They projected their sales would increase by 10% each month because of a 5% increase in inflation and because they gained 5% more of the market. They kept their price per unit the same as the previous year.

Putting both products in the same chart can help the company see that their lower-cost product—the software accessory—brings in more revenue than their higher-cost product. The company can then use this insight to create more low-cost products in the future.

Sales forecast examples

Sales forecasting is not a one-size-fits-all process. It varies significantly across industries and business sizes. Understanding this through practical examples can help businesses identify the most suitable forecasting method for their unique needs.

Sales forecasting example 1: E-commerce

In the e-commerce sector, where trends can shift rapidly, intuitive forecasting is often useful for making quick, informed decisions.

Scenario: An e-commerce retailer specializing in fashion accessories is planning for the upcoming festive season.

Trend analysis phase: The team spends the first week analyzing customer feedback and current fashion trends on social media, using intuitive forecasting to predict which products will be popular.

Inventory planning phase: Based on these insights, the next three weeks are dedicated to selecting and ordering inventory, focusing on products predicted to be in high demand.

Sales monitoring and adjustment: As the holiday season approaches, the team closely monitors early sales data, ready to adjust their inventory and marketing strategies based on real-time sales performance.

This approach allows the e-commerce retailer to stay agile , adapting quickly to market trends and customer preferences.

Sales forecasting example 2: Software development

For a software development company, especially one working with B2B clients, opportunity stage forecasting can help predict sales and manage the sales pipeline effectively.

Scenario: A software development company is launching a new project management tool.

Lead generation and qualification phase: In the initial month, the sales team focuses on generating leads, qualifying them, and categorizing potential clients based on their progress through the sales pipeline.

Proposal and negotiation phase: For the next two months, the team works on creating tailored proposals for high-potential leads and enters negotiation stages, using opportunity stage forecasting to predict the likelihood of deal closures.

Closure and review: In the final phase, the team aims to close deals, review the accuracy of their initial forecasts, and refine their approach based on the outcomes.

Opportunity stage forecasting enables the software company to efficiently manage its sales pipeline , focusing resources on the most promising leads and improving their chances of successful deal closures.

Pair your sales forecast with a strong sales process

A sales forecast is only one part of the larger sales picture. As your team members acquire leads and close deals, you can track them through the sales pipeline. A solid sales plan is the foundation of future success.  

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How to Create a Sales Forecast (Examples & Templates)

Every business needs management tools to maximize performance and keep everything running smoothly. A sales forecast is a critical tool that businesses use to measure their progress and check everything is going to plan. Here’s a closer look at why sales forecasts are important and how to create them. We have some great templates for you, too.

What Is a Sales Forecast – And Which Factors Impact It?

Sales forecasts are data-backed predictions about the sales volume a business will experience over a specific period.

A sales forecast is very important because it provides the foundation for almost all other planning activities. Businesses will rely on accurate sales forecasting to better understand how they should plan financially and execute their game plan .

This means that sales forecasts have the potential to make or break a business.

As with anything in life, though, nothing is certain. Sales forecasts can be affected by a range of factors. This means that businesses have to prepare for any and all eventualities.

Here’s a look at some of the factors that can affect sales forecasting:

A lack of sales history

Sales forecasts are often built using historical data. Businesses analyze previous results to extrapolate and create predictions. If a business starts and lacks a good body of historical sales data, it will struggle to create an accurate sales forecast.

The type of business

Each industry has its series of unique challenges and quirks. Those factors are sometimes unpredictable and could affect a business’s revenues. The ad tech industry, for instance, is often rocked by new data privacy regulations.

Outside factors

Some businesses find that everything is moving according to plan before blindsiding by an unpredictable event they cannot control. Consumer earnings may plummet, for instance, and cause people to restrict their spending.

Inside factors

Some businesses are forced to change their pricing or payment structures. This new dynamic can often have unpredictable effects and cause a business to veer off course from what its sales forecast predicted.

Why Should You Establish Sales Forecasts?

Sales forecasting is essential for every business. Here are some of the key reasons.

Perform accurate financial planning

Sales forecasts help the CFO and financial team understand how much cash is going to be coming into a business. This gives businesses a better understanding of how they can use that capital and makes it possible to calculate what profit they can expect over a given period .

Plan sales activities

A sales forecast can help executives with sales planning. Those executives will understand how many salespeople to employ, for instance, and which quotas and targets to attribute to each of those salespeople. This means that an accurate sales forecast can help salespeople to understand and hit their objectives.

Coordinate marketing

A sales forecast will have a big impact on marketing. For instance, the sales forecast might show that sales are waning, and a bigger investment needs to be placed within marketing. It might also show that a particular product or service fails to deliver appropriate amounts of value.

Control inventory

A sales forecast gives businesses a good understanding of how much inventory they will need to purchase and retain. This is an important factor; it helps businesses balance overstocking and running out of materials. This is also true for SaaS businesses needing customer support and success.

Avoid fluctuations in price

An accurate sales forecast helps businesses maintain consistent product and service pricing. A poor sales forecast might mean a business is forced to adjust its pricing unpredictably. This tactic is often the result of panic; without the proper strategy, it jeopardizes a business’s profitability.

How to Forecast Sales – The Best Sales Forecasting Methods

Businesses around the world use a range of sales forecasting techniques. Here’s a closer look at some key methods you could use.

Opportunity Stage Forecasting

What is it?

This sales forecasting technique calculates the likelihood of deals closing throughout a pipeline.

Most businesses use a sales pipeline divided into a series of sections. The likelihood of converting a prospect increases the deeper the prospect moves into the sales process. To get the most from this technique, the team must dig into the current performance of the sales team.

After that analysis, the probabilities might look something like this:

• Sales Accepted lead : 10% probability of closing
• Sales Qualified Lead : 25% probability of closing
• Proposal sent : 40% probability of closing
• Negotiating : 60% probability of closing
• Contract sent : 90% probability of closing

Using these probabilities, you can extrapolate an opportunity stage sales forecast. You’ll want to take the deal’s potential value and multiply that by the win likelihood.

Who should use it

This is a great sales forecasting method if you have access to historical data, lots of leads in your pipeline, and you need a quick estimate. It’s important to understand that this isn’t the most accurate option, given that many random factors affect those probabilities.

Length of Sales Cycle Forecasting

This sales forecasting method finds the average length of your sales cycle. This helps you predict when your deals will likely close and reveal opportunities for your sales team to expedite the sales cycle.

This method is simple. You can find the length of your average sales cycle using the following basic formula:

Total # of days to close deals / # of closed deals

Let’s imagine, for instance, that you find the following:

• Deal 1: 28 days
• Deal 2: 15 days
• Deal 3: 50 days
• Deal 4: 38 days

We closed four deals, and it took 131 days to close them all together. This means that the average length of our sales cycle is 33 days.

Equipped with that information, we can look at our pipeline and estimate how likely we are to close deals based on how old they are. The closer a deal moves toward the average sales cycle length, the more likely it will be closed.

This is a great sales forecasting method for sales managers who want to learn more about the deals spread across their pipeline. For instance, they can use this method to differentiate between different types of groups.

Sales managers might find that the average sales cycle length is much shorter for web leads, for example, when compared to email leads.

Historical Forecasting

Historical forecasting is a very quick and simple sales forecasting technique. The process involves looking back at your previous performance within a certain timeframe and assuming that your future performance will be superior or at least equal.

This is a useful reference because it helps you to get to grips with seasonality and the outside factors that affect your sales. You might find, for instance, that the holidays are a particularly slow time for your business, and looking at historical data can help you to prepare.

With that said, historical forecasting has its issues. It assumes that buyer demand will be constant, which is no longer a given. This could mean you overestimate your sales statistics and use an accurate sales forecast.

This forecasting method is ideal for a business that needs a quick and easy way to project how much it will sell over a given period. That said, historical data should be used as a benchmark instead of the foundation of a sales forecast.

Lead Pipeline Forecasting

This time-consuming sales forecasting method involves reviewing each lead within your pipeline and determining how likely the deal will be closed. That likelihood is determined by exploring factors like the value of the opportunity, the performance of your salespeople, seasonality, and more.

This is a time-consuming method, and it often makes sense for businesses with fewer high-value leads – it wouldn’t necessarily be efficient or make much sense for a SaaS business, for instance.

The big benefit of this method is its accuracy. If you have reliable and rigid data to base your analysis on, you will find that this method can give you a deeper insight into each lead.

This method makes sense for those businesses that have a lower number of leads. Inside salespeople, for instance, will want to get a clearer picture of every lead within their pipeline. This method isn’t appropriate for SaaS businesses that operate according to volume.

Test Market Analysis Forecasting

Businesses often launch exciting new products and services. But it can be difficult to get accurate sales forecasts without historical data . Test Market Analysis forecasting is the process of developing a product or service and introducing it to a test market to forecast sales and get an approximation of future sales.

This limited rollout allows businesses to track the performance of the new offering and monitor things like consumer awareness, repeat purchase patterns, and more. This is a data-gathering exercise, and it feeds businesses with the information they need to create accurate sales forecasts.

This approach is perfect for those businesses that need to perform real-world experiments to gather useful information. A new business can use sales forecasting to use its sales data to predict where future sales can come from. This can limit the cost since it’s an effective way of having a busy sales pipeline. The limited rollout of the product is also useful from a product perspective, given that adjustments can be made according to feedback.

A big issue with this form of forecasting is that one test market may not be like the others. Your data might not reflect the wider reality, so you must make prudent choices that provide you with accurate information.

Multivariable Analysis

As the name suggests, this method calls upon analyzing a range of variables to get the clearest picture possible. This means that if the method is performed well, it can often provide the most accurate forecast.

If you use this technique, you will want to bring together factors like the average length of your sales cycle, the performance of your salespeople, historical forecasting, and more.

The success of this method hinges upon two key factors within your business: 

• the accuracy of your salespeople and their reporting
• the quality of the forecasting tools that you use.

Both of these factors must be in place to make sure this forecasting method has the best chance of success.

Multivariable forecasting is most appropriate for larger and well-organized businesses, as it uses the data and tools necessary to blend various forecasting methods into one. This could be it if you need the most accurate forecast method possible.

Intuitive Forecasting

Your salespeople are on the front; their experience is very valuable. They often have a good idea of how likely they are to close a particular deal and can use educated guesses to assess the situation.

Experienced salespeople can take emotion out of the equation and rely on their experience and knowledge to make accurate predictions. Some businesses decide to incorporate those gut instincts into the way that they forecast a particular sale.

Some businesses, for instance, will add a score to the conversion probability of their various prospects according to the gut feeling of their salespeople.

This intuitive forecasting method is particularly useful for businesses that lack historical data. Without the quantifiable data to provide the basis for your sales forecasting, you might have to turn to more qualitative assessments from your salespeople.

The downside of this sales forecasting method is clear, though. These assessments are highly subjective, and you might find that your salespeople are often more optimistic in their projections. This means those projections should be taken with a pinch of salt, but they are better than nothing.

Sales Forecast Examples

We know the theory, but how about the practice? In these awesome examples, let’s take a closer look at what those sales forecast methods look like.

Standard Business Plan Financials

This example from Tim Berry (chairman and founder of Palo Alto Software) looks at what a startup sales forecast might look like .

Tim sets the scene and describes Magda’s situation – she wants to open a small café in an office park.

He goes on to show how Magda would establish a base case, estimate her monthly capacity, and what type of sales she could expect. To wrap up, she goes through her month-by-month estimates for her first year and estimates her direct cost.

This is a great exercise and unmissable reading for new entrepreneurs dreaming up a new venture.

Sales Forecast Guide by Toptal Research

This simple sales forecasting guide from Toptal Research also includes a simple example that forms the basis of the guide. These simple visuals and data will give you a good idea of how you can put your sales forecasting efforts together and what it will look like.

This example also shows that you can attractively forecast sales and inform the sales teams. Sales forecasting doesn’t have to be boring columns of data, but you can bring your sales forecast to life with colorful visuals.

Detailed Sales Forecast by Microsoft

This detailed sales forecast template from Microsoft makes it simple for you to estimate your monthly sales projections.

The formula comes with pre-built formulas and worksheet features that result in an attractive and clear template. The template also relies on a weighted sales forecasting method based on the probability of closing each opportunity.

Even if you do not use this exact template, it’s a great file to use. It can give you a great idea of the information you need to include and how it might come together in a spreadsheet format.

Sales Forecast Templates

Looking for your own sales forecast templates to get a running start? Here’s a look at some of the most practical and useful templates.

Sales Forecast Template for Excel by Vertex42

This free sales forecast template helps you keep a handle on key information like unit sales, growth rate, profit margins, and gross profit.

The template is already set up to help you compare and analyze a range of products and services on a monthly basis. The chart also includes a range of sample charts that can be used to effectively and accurately communicate the contents of your sales forecast.

The same worksheet can be used to create monthly and yearly forecasts. You can play with the template to find your desired view and information. 

Sales Forecast Template by Freshworks

This simple forecasting template helps you to put together an effective sales forecast. This finished product can then be used to grow your revenues and hit your quotas.

This template is particularly effective for small businesses and startups that need to project sales and prioritize deals at the early stages of their business. Freshworks also explains that the template can help businesses achieve a higher rate of on-time delivery and accurate hiring projections.

The free sales forecast template is very intuitive to use. Again, it’s great to flick through the spreadsheet to understand what you need in a sales forecast and how it can be put together.

Free Sales Forecast Template by Fit Small Business

This sales forecast template is perfect if your CRM doesn’t currently offer built-in sales forecasting. This template can help you create a forecast from scratch that is adjusted to your own particular needs much quicker.

The template is available in various formats, including PDF, Excel, and Google Sheets. This is great news if you create your small business on your own terms and have limited software access .

Again, this template is clear and simple to use. All of the fields are explained within the spreadsheet – you don’t have to worry about going elsewhere to find definitions.

Sales Forecasting Tools

Looking for sales forecasting tools to take your activities to the next level? Here’s a look at some of the standout options.

Pipedrive is a sales CRM that is designed for salespeople by salespeople. It is a robust CRM that includes all of the features a sales team needs to achieve sales success and grow their business.

The tool also includes a forecasting tool. This tool acts as a personal sales manager that helps salespeople to choose the right deals and activities at the right time. This helps salespeople to become better closers.

By all accounts, this function is very useful for salespeople and managers alike. The forecasting tool can also be customized to match the specific needs of salespeople.

Smart Demand Planner

Smart Demand Planner is a consensus demand planning and statistical forecasting solution that understands how accurate critical forecasts are to a business.

The tool was built on the premise that forecasts are often inaccurate and can cause various issues. Moreover, the traditional sales forecast often resides within a complex spreadsheet that is difficult to use, share, and scale.

The tool aims to fix those issues by aligning strategic business forecasting at all levels of your hierarchy. Smart Demand Planner offers a statistically sound objective foundation for your sales activities.

amoCRM is an easy and smart sales solution that focuses on the world of messenger-based sales. The platform understands the popularity and potential of messenger apps, so it offers a whole new way of using the channel to create valuable relationships.

The tool also includes visual, real-time reports that give salespeople and managers powerful insights. These analytics can be used to set targets and also forecast future sales. What’s more, they can measure performance and identify target areas.

The visual look and feel of the platform make this a very intuitive option. It can drive value through accurate forecasting in businesses where messenger-based selling is critical.

As we have seen, forecasts are critical to the success of your business. They can be cost-effective for a new business, keep sales teams and reps informed, and more. However, every business also needs the leads to make those forecasts a reality. Learn more about UpLead today and how our platform can help you to find, connect, and engage with qualified prospects.

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The Last Guide to Sales Forecasting You’ll Ever Need: How-To Guides and Examples

By Kate Eby | January 26, 2020 (updated August 26, 2021)

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Sales forecasts are a critical part of your business planning. In this comprehensive guide, you’ll learn how to do them correctly, including explanations of different forecasting methods, step-by-step tutorials, and advice from experienced finance and sales leaders.

Included on this page, you'll find details on more than 20 sales forecasting techniques , information regarding how to forecast sales for new businesses and products , a step-by-step guide on how to forecast sales , and a free sales forecast template .

What Is Sales Forecasting?

When you produce a sales forecast , you are predicting what your sales or revenue will be in the future. An accurate sales forecast helps your firm make better decisions and is arguably the most important piece of your business plan. 

A sales forecast contrasts with a sales goal . The former is the realistic representation of what you believe will occur, while the latter is what you want to occur. Forecasts are never perfectly accurate, but you should be as objective as possible when creating a sales forecast. Goals, on the other hand, can be based on optimistic or motivational targets.

Because the sales forecast is critical to business planning, many different stakeholders in a company (beyond sales managers and representatives) rely on these estimates, including human resources planners, finance directors, and C-level executives. 

In this article, you’ll learn about different sales forecasting methods with varying levels of sophistication. The most basic method is called naive forecasting , which uses the prior period’s actual sales for the new period’s forecast and does not apply any adjustments for growth or inflation. Naive forecasts are used as comparative figures for more robust methods.

What Is Sales Planning?

A sales plan describes the goals, strategies, target customers, and likely hurdles for your sales effort. The sales plan defines your sales strategy and the method of execution you will use to achieve the numbers in your sales forecast.

Overview of Sales Forecasting Steps

Your sales forecasting model can ultimately become very sophisticated, but to grasp the basics, you should first gain a high-level understanding of what is involved. There are three primary steps to getting started:

• Decide which forecasting method or technique you will use. Also, determine the time period for your forecast. Later in this guide, we will review different methods of forecasting sales, including how to know which is best for your business.  
• Gather the data to plug into your forecast model. The data points will vary by method, but will almost always include your actual past sales and current growth rate.
• Pick a tool to support your forecasting effort. For learning purposes, you can start with pencil and paper, but soon after, you’ll want to take advantage of digital solutions. Common tools include spreadsheets, accounting software, and customer relationship management (CRM) or sales management solutions.

As you get going, remember not to be overly focused on complex formulas. Do regular reality checks to make sure your sales forecasts accord with common sense. Bounce forecasts off sales reps to get realistic feedback, and revise.

You will likely achieve greater accuracy if you build your forecasts based on unit sales wherever possible, because pricing can move independently from unit sales. Use data if you have it.

Benefits and Importance of Sales Forecasting

Sales forecasting helps your business by giving you data to make decisions concerning allocating resources, assigning staff, and managing cash flow and overhead. Using this data reduces your risk and supports your growth. 

Your sales forecast enables you to predict both short and long-term performance and customer demand for your product. In the short term, having a sales forecast makes it easy for you to spot when actual sales are not meeting estimates and gives you an opportunity to make corrections early in the period.

The forecast guides how much you spend on marketing and administration, and the projections generate your sales reps’ objectives. In this way, sales forecasts are an important benchmark for gauging the performance of your sales reps. 

Sales forecasts also lead to better management of inventory levels. With a good idea of how much product you will sell, you can stock enough to meet customer demand without missing any sales and without carrying more than you need. Excess inventory ties up capital and reduces profit margins. 

In the long term, sales forecasts can help you prepare for changes in your business. For example, you might see that within a few years, your company will require more manufacturing capacity to meet growing sales. To expand capacity, you may need to build a new factory, so now you can start planning how you will pay for it. Predictive sales forecasting is a critical part of your presentation if you are seeking equity capital from investors or commercial loans for expansion. 

In short, sales forecasting helps your business avoid surprises, so you aren’t making decisions in a crisis environment. Companies with trustworthy sales forecasts see a 10 percentage point  greater increase in annual revenues compared to counterparts without, according to research from the Aberdeen Group .

What Makes a Good Sales Forecast?

The most important quality for a sales forecast is accuracy. But, the benefits of accuracy must be weighed against the time, effort, and expense of the forecasting technique.

Useful sales forecasts are also easily understood and often include visual elements, such as charts, graphs, and tables, to make important trends visible. 

Ideally, you can quickly build a highly reliable sales forecast with simple, economical methods. The ultimate forecast method would automatically (i.e., without manual intervention) fetch the relevant data and make predictions using an algorithm finely tuned to your business. 

In reality, the forecasting process is more time consuming and subjective. Sales forecasts often depend on reps’ assessments of how likely their prospects are to close, and perceptions vary widely. (A conservative rep’s 60 percent probability may be understated, while another rep’s 60 percent may be overly optimistic.) 

Sales managers, who are usually responsible for forecasting, spend a lot of time factoring in these nuances and other market factors when calculating forecasts. 

Surprisingly, spending more time on forecasting does not always improve accuracy. According to research from CSO Insights, sales managers who spend 15 to 20 percent of their time producing their forecast had win rates for approximately 46.5 percent of deals. But, when they spend more than 20 percent of their time on forecasting, the win rate declined by more than two percentage points. 

An axiom of forecasting is that accuracy is highest during time periods that are close at hand and lowest during those that are far into the future. Short-term forecasts draw upon the following: deals that are already in the sales pipeline, the current economic environment, and actual market trends. So, the data underlying short-term forecasts is more reliable.

Forecasting for distant time periods requires bigger guesses about opportunities, demand, competitor activity, and product trends, so it makes sense that the forecast becomes less accurate the further into the future you go. (This concept applies to many companies, especially those that are young and growing; the concept becomes more relevant for all businesses at three years and beyond.) Bear this thought in mind when you look at your sales forecast in order to make long-term decisions.

Sales Forecasting Methods: Qualitative and Quantitative

Sales forecasting methods break down broadly into qualitative and quantitative techniques. Qualitative forecasts depend on opinions and subjective judgment, while quantitative methods use historical data and statistical modeling.

Qualitative Methods for Sales Forecasting

Sales forecasting often uses five qualitative methods. These are based on different ways of generating informed opinions about sales prospects. Creating and conducting these kinds of surveys is often expensive and time intensive. These five qualitative methods include the following: 

• Jury of Executive Opinion or Panel Method: In this method, an executive group meets, discusses sales predictions, and reaches a consensus. The advantage of this method is that the result represents the collective wisdom of your most informed people. The disadvantage is that the result may be skewed by dominant personalities or the group may spend less time reflecting.
• Delphi Method: Here, you question or survey each expert separately, then analyze and compile the results. The output is then returned to the experts, who can reconsider their responses in light of others’ views and answers. You may repeat this process multiple times to reach a consensus or a narrow range of forecasts. This process avoids the influence of groupthink and may generate a helpful diversity of viewpoints. Unfortunately, it can be time consuming.  
• Sales Force Composite Method: With this technique, you ask sales representatives to forecast sales for their territory or accounts. Sales managers and the head of sales then review these forecasts, along with the product owners. This method progressively refines the views of those closest to the customers and market, but may be distorted by any overly optimistic forecasts by sales reps. The composite method also does not take into account larger trends, such as the political or regulatory climate and product innovation. 
• Customer Surveys: With this approach, you survey your customers (or a representative sample of your customers) about their purchase plans. For mass-market consumer products, you may use market research techniques to get an idea about demand trends for your product.  
• Scenario Planning: Sales forecasters use this technique most often when they face a lot of uncertainty, such as when they are estimating sales for more than three years in the future or when a market or industry is in great flux. Under scenario planning, you brainstorm different circumstances and how they impact sales. For example, these scenarios might include what would happen to your sales if there were a recession or if new duties on your subcomponents increased prices dramatically. The goal of scenario planning is not to arrive at a single accepted forecast, but to give you the opportunity to counter-plan for the worst-case scenarios.

Quantitative Methods for Sales Forecasting

Quantitative sales forecasting methods use data and statistical formulas or models to project future sales. Here are some of the most popular quantitative methods:

• Time Series: This method uses historical data and assumes history will repeat itself, including seasonality or sales cycles. To arrive at future sales, you multiply historical sales by the growth rate. This method requires chronologically ordered data. Popular time-series techniques include moving average, exponential smoothing, ARIMA, and X11. 
• Causal: This method looks at the historical cause and effect between different variables and sales. Causal techniques allow you to factor in multiple influences, while time series models look only at past results. With causal methods, you usually try to take account of all the possible factors that could impact your sales, so the data may include internal sales results, consumer sentiment, macroeconomic trends, third-party surveys, and more. Some popular causal models are linear or multiple regression, econometric, and leading indicators.

Sales Forecasting Techniques with Examples

In reality, most businesses use a combination of qualitative and quantitative methods to produce sales forecasts. Let’s look at the common ways that companies put sales forecasting into action with examples.

Intuitive Method

This forecasting method draws on sales reps’ and sales managers’ opinions about how likely an opportunity is to close, so the technique is highly subjective. Estimates from reps with a lot of experience are likely to be more accurate, and the reliability of the forecast requires reps and managers to be realistic and honest.

This method can be especially helpful if you do not have historical data or if you are assessing  new prospects early in your funnel. In these cases, a rep’s gut feeling after initial contact can be a good indicator. If you are a manager, you will review reps’ estimates with an eye for any outliers and work with those reps to make any necessary adjustments. 

Here is an example of the intuitive method in action: You manage a team of four sales reps. You go to each one and inquire about the leads they are nurturing. You ask each rep which opportunities they believe they will win in the next quarter and how much those sales will be worth. John, your strongest rep, tells you $175,000. Alice, another strong performer, says $115,000. Bob, who is in his second year at your company, reports $85,000. Jennifer, a recent college graduate, projects $100,000. You calculate the total of those forecasts and arrive at an intuitive forecast of $450,000. However, you suspect Jennifer’s forecast is unrealistic, because she is inexperienced, so you ask her more questions. Based on what you learn, you decide that only half of Jennifer’s deals are likely to close, so you reduce her contribution to $50,000 and revise your total quarterly forecast to $400,000.

Scenarios Method

Scenario forecasts are qualitative and involve you projecting sales outcomes based on a variety of assumptions. This process can also be a helpful business planning exercise, because once you identify major risks or uncertainty for your company, you can develop action plans to deal with these circumstances if they arise.

Scenario forecasts require an in-depth knowledge of your business and industry, and the quality of the forecast will vary with the expertise of the person or group who prepares the estimate.

To create a scenario forecast, think about the key factors that affect sales, external forces that could influence the outcome, and major uncertainties. Then, write a narrative and numerical description of how the scenario would play out under various combinations of these key factors, external forces, and uncertainties.

Here is an example of the scenarios method in action: Your company sells components for military vehicles. You notice that the most impactful things your sales reps do are meeting with procurement officers in the defense departments of major nations and holding factory tours and product demonstrations for them. These are your key factors. 

The external forces are the number of tenders or requests for proposals that military procurement departments announce, and the value of those items. The risk of conflict in various parts of the world, scarcity of your raw materials, and trends in budget authorizations for defense by major countries are your critical uncertainties. 

You look at how your key factors, external factors, and major uncertainties might combine. One scenario might entail the outcome if your reps increased the number of meetings and product events by 20 percent, the value of U.S. tenders launched rose by six percent, and France decreased defense spending by two percent. 

Under this scenario, you might forecast a six percent increase in unit sales resulting from the following: 

• Having more in-person sales contacts should boost sales by five percent based on past performance.
• You can increase revenue by three percent due to greater U.S. tender opportunities and your current market share.
• Major customer France will not purchase anything, reducing sales by two percent.

Sales Category Method

The category forecasting method looks at the probability that an opportunity will close and divides opportunities into groups based on this probability. The technique relies somewhat on intuition, as does the intuitive method, but the sales category method brings more structure and discipline to the process.

The categories that each company uses vary widely, but they correspond broadly to stages in the sales pipeline. These are some typical labels and definitions:

• Omitted: The deal has been lost or the prospect is no longer engaging. 
• Pipeline: The opportunity will not realistically close during the quarter.
• Possible, Best Case, Upside, or Longshot: There is a realistic possibility that the deal could close at the projected value in the quarter if everything falls into place, but this is not certain. Overall, fewer than half of the opportunities in this group end up closing in the quarter at the planned value.
• Probable or Forecast: The sales rep is confident that the deal will close at the planned value in the quarter. Most of these opportunities will come to fruition as expected.
• Commit or Confident: The salesperson is highly confident that the deal will close as expected in this quarter, and only something extraordinary and unpredictable could derail it. The probability in this category is 80 to 90 percent. Any deal that does not close as forecast should generally experience only a short, unanticipated delay, rather than a total loss.
• Closed: The deal has been completed; payment and delivery have been processed; and the sale is already counted in the quarter’s revenue. 

To compile your forecast, look at the combined value of the potential deals in the categories under three scenarios:

• Worst Case: This is the minimum value you can anticipate, based on the closed and committed deals. If you have very good historical data for your sales reps and categories and feel confident making adjustments, such as counting a portion of probable deals, you may do so, but it is important to be consistent and objective.
• Most Likely: This scenario is your most realistic forecast and looks at closed, committed, and probable deal values, again with possible adjustments based on historical results. For example, if you have tracked that only 60 percent of your probable deals tend to close in the quarter, adjust their contribution downward by 40 percent.
• Best Case: This is your most optimistic forecast and hinges on executing your sales process perfectly. You count deals in the closed, commit, probable, and possible categories, with adjustments based on past performance. The possible category, in particular, requires a downward adjustment.  

As the quarter or period progresses, you revise the forecast based on updated information. This method can quickly get cumbersome and time consuming without an analytics solution.

Here is an example of the sales category method in action: You interview your sales team and get details from the reps on each deal they are working on. You assign the opportunities to a category, then make adjustments for each scenario based on past results. For example, you see that over the past three years, only half the deals in the possible category each quarter came to fruition. Here’s what the forecast looks like:

Top-Down Sales Forecasting

In top-down sales forecasting, you start by looking at the size of your entire market, called the total addressable market (TAM), and then estimate what percentage of the market you can capture. 

This method requires access to industry and geographic market data, and sales experts say top-down forecasting is vulnerable to unrealistic objectives, because expectations of future market share are often largely conjecture.

Here is an example of top-down sales forecasting in action: You operate a new car dealership in San Diego County, California. From industry and government statistics, you learn that in 2018, 112 dealers sold approximately 36,000 new cars and light trucks in the county. You represent the top-selling brand in the market, you have a large sales force, and your dealership is located in the most populous part of the county. You estimate that you can capture eight percent of the market (2,880 vehicles). The average selling price per vehicle in the county last year was $36,000, so you forecast gross annual sales of $103.7 million. From there, you determine how many vehicles each rep must sell each month to meet that mark.

Bottom-Up Sales Forecasting

Bottom-up sales forecasting works the opposite way, by starting with your individual business and its attributes and then moving outward. This method takes account of your production capacity, the potential sales for specific products, and actual trends in your customer base. Staff throughout your business participates in this kind of forecasting, and it tends to be more realistic and accurate. 

Begin by estimating how many potential customers you could have contact with in the period. This potential quantity of customers is called your share of market (SOM) or your target market . Then, think about how many of those potential customers will interact with you. Then, make an actual purchase.

Of those who do purchase, factor in how many units of your product they will buy on average and then how much revenue that represents. If you aren’t sure how much your customers will spend, you can interview a few. 

Here is an example of bottom-up sales forecasting in action: Your firm sells IT implementation services to mid-sized manufacturers in the Midwest. You have a booth at a regional trade show, and 3,000 potential customers stop by and give you their contact information. You estimate that you can engage 10 percent of those people in a sales call after the trade show and convert 10 percent of those calls into deals. That represents 30 sales. Your service packages cost an average of $250,000. So, you forecast sales of $7.5 million.

Market Build-Up Method

In the market build-up method, based on data about the industry, you estimate how many buyers there are for your product in each market or territory and how much they could potentially purchase. 

Here is an example of the market build-up method in action: Your company makes safety devices for subways and other rail transit systems. You divide the United States into markets and look at how many cities in each region have subways or rail. In the West Coast territory, you count nine. To implement your product, you need a device for each mile of rail track, so you tally how many miles of track each of those cities have. In the West Coast market, there are a total of 454 miles of track. Each device sells for $25,000, so the West Coast market would be worth a total $11.4 million. From there, you would estimate how much of that total you could realistically capture.

Historical Method

The historical sales forecasting technique is a classic example of the time-series forecasting that we discussed under quantitative methods. 

With historical models, you use past sales to forecast the future. To account for growth, inflation, or a drop in demand, you multiply past sales by your average growth rate in order to compile your forecast. 

This method has the advantage of being simple and quick, but it doesn’t account for common variables, such as an increase in the number of products you sell, growth in your sales force, or the hot, new product your competitor has introduced that is drawing away your customers.

Here is an example of the historical method in action: You are forecasting sales for March, and you see that last year your sales for the month were $48,000. Your growth rate runs about eight percent year over year. So, you arrive at a forecast of $51,840 for this March.

Opportunity Stage Method

The opportunity stage technique is popular, especially for high-value enterprise sales that require a lot of nurturing. This method entails looking at deals in your pipeline and multiplying the value of each potential sale by its probability of closing. 

To estimate the probability of closing, you look at your sales funnel and historical conversion rates from top to bottom. The further a deal progresses through the stages in your funnel or pipeline, the higher likelihood it has of closing.

The strong points of this method are that it is straightforward to calculate and easy to do with most CRM systems. 

But, opportunity-stage forecasting can be time consuming. 

Moreover, this method doesn’t account for the unique characteristics of each deal (such as a longtime repeat customer vs. a new prospect). In addition, the deal value, stage, and projected close date have to be accurate and updated. And, the age of the potential deal is not reflected. This method treats a deal progressing quickly through the stages of your pipeline the same as one that has stalled for months. 

If your sales process, products, or marketing have changed, the use of historical data may make this method unreliable.

Here is an example of the opportunity stage method in action: Say your sales pipeline comprises six stages. Based on historical data, you calculate the close probability at each stage. Then, to arrive at a forecast, you look at the potential value of the deals at each stage and multiply them by the probability.

Length-of-Sales-Cycle Method

This is another quantitative method that shares some similarities with the deal stage method. However, this model looks at the length of your average sales cycle. 

First, determine the average length in days of your sales process. This figure is also known as time to purchase or sales velocity . Add the total number of days it took to close all of the past year’s deals and divide by the number of deals. Then, calculate the probability of new deals closing in a certain period of time as a percentage of the average sales cycle length. 

With this method, the biases of individual reps are less of a factor than with the deal stage model. Also, with this technique, you can fine-tune the probabilities for different lead types. (For example, prospects referred by current customers may close in an average of 27 days, while prospects who make contact after an online search need an average of 62 days.) But, this technique requires you to know and record how and when prospects enter your pipeline, which can be time intensive.

Here is an example of the length-of-sales-cycle method in action: You review the 37 deals your company won last year and see that they took a total of 2,997 days to close. To calculate the average length of the sales cycle, you divide 2,997 by 37 and see that the average sales cycle lasted 81 days. You then look at the five deals currently in your pipeline.

Lead Scoring Method

This technique requires you to have lead scoring in place. With lead scoring, you profile your ideal customers based on attributes (like industry, size, and location) as well as behavior (such as whether they have recently raised capital or whether the contact person has requested a demonstration of your product). 

You then classify future leads based on how closely they match your ideal customer. You can label the categories with distinctions such as A, B, or C or hot, warm, or cold, or you can assign numbers up to one hundred using formulas that add and subtract points for different attributes and behaviors. (For example, “They requested a demo, which adds 15 points, but they are not in your ideal industry, which subtracts 10 points.”)  

To create your forecast, you then look at the historical close rate for leads in each category and multiply that by the value of the opportunities currently in the group. 

Here is an example of the lead scoring method in action: Your company sells textbooks for advanced math and science. Your ideal customer is a university with at least 25,0000 students that has an engineering school and is located on the east coast. These are your A prospects. B prospects have at least 10,000 students. C prospects have at least 10,000 students, but are located elsewhere in the country.

You then look at the close rates and potential deal values for each lead score. Finally, you multiply the close rate by the potential value of the deals in the category or by your average sales value.

Lead Source Method

This model forecasts future sales based on how you acquired the lead, using the behavior of previous leads as a benchmark.

For example, say your company sells a software application. Some leads come from search traffic to your website; some originate with demonstration requests at conferences, and some are referrals from existing customers. 

Look at your historical data to track the percentage of leads who converted to sales for each lead source. In addition, calculate the average value of a sale for each source. Then, by using the conversion probability and sales values, you can forecast the sales that the leads at the top of your funnel are likely to generate. 

Here is an example of the lead source method in action: Based on source, you compile your historical data and discover the following conversion rates and sales value for leads.

One advantage of this sales forecasting method is that you can project how many leads of each type you would need to generate in order to hit a target. Suppose you have a conference coming up where participants will be able to request demonstrations of your product, and you would like to win an additional $30,000 in sales from the demo leads. Based on the average lead value of $600, you know you will want to generate 50 leads who request demos at the conference. 

One drawback to lead source forecasting is that the method does not account for potential differences in the length of the sales cycle for the lead types. That makes it difficult to pinpoint the period in which the revenue will occur. Therefore, you should do a separate analysis of time to purchase in order to allocate sales to the right period.

Another challenge is that sometimes you may not be sure of the lead source. For example, suppose that another customer has recommended your product to a contact and that that contact decides to first check you out on your website. You might very well assign a lower lead value to this prospect, assuming they will behave like our web-originated leads, when, in reality, they will probably behave more like the customer referral leads. 

Lastly, remember that this method won’t account for changes in your marketing or pricing that influence conversion rates and customer behavior.

Sales by Row Method

This method is a good fit for small businesses that sell different products or services. Rather than forecasting sales for each individual product type, you project sales for categories. 

Each row in your forecast will cover different physical products (such as pick-up trucks, heavy trucks, and delivery vans) and service units (such as hours of labor or service types like replacing a faucet, unclogging a drain, or installing a toilet). 

You can employ this method to forecast units and then factor them by average prices to arrive at revenue. Or, you can look exclusively at revenue. If you sell a subscription service, you can calculate recurring revenue for each product type.

For each row, you would look at how much you sold in the same period a year earlier and then adjust for factors such as inflation, organic growth, new products, increased workforce, or special circumstances.

Here is an example of the sales by row method: You operate a combination fuel station and mini-market. Your forecast would cover the broad categories of your business, such as sales of gasoline, diesel, food, beverages, and sundries.

For March’s forecast, you take into account that the new housing development near your business, which was under construction last year, is now almost completely sold and that there are many more commuters filling up. Your gas sales have been growing by almost 15 percent year over year. Also, in March, there will be a special event at the nearby fairgrounds that could draw thousands of additional vehicles to your area. 

On the downside, a new retail complex with a full-service grocery store has opened nearby, so your sales of food and drinks have slipped. Also, increased congestion in the neighborhood has caused some long-haul truckers who used to stop for fuel to reroute.

Regression or Multivariable Analysis Method

Regression or multivariable analysis is one of the most sophisticated forecasting methods, and allows you to build a custom model combining any factors that you feel are relevant to your sales.

For regression analysis, you need accurate historical data on all the variables under consideration, expertise in statistics, and, for practical purposes, an analytics solution or application that can perform the analysis. 

Because this method incorporates a multitude of influences on your sales, the resulting forecast is the most accurate. But, the costs tend to be high because of the data collection, expertise, and technology requirements.  

Regression analysis looks at the dependent variable (the factor that you are trying to predict, in this case, the amount of future sales) and independent variables (the factors that you believe affect sales results, such as opportunity stage or lead score). 

In a simple example, you would create a chart, plotting the sales results on the Y axis and the independent variable on the X axis. This chart will reveal correlations. If you draw a line through the middle of the data points, you can calculate the degree to which the independent variable affects sales. 

This line is called the regression line , and, by calculating the slope of the line, you can use numbers to represent the relationship between the variable and sales. The equation for this is Y = a + bX. Excel and other software will perform this analysis and calculate a and b for you. In more sophisticated applications, the formula will also include a factor for error to account for the reality that other variables are also at work.

Going further, you can look at how multiple variables interplay, such as individual rep close rate, customer size, and deal stage. Making these kinds of calculations becomes increasingly difficult with simple charts and demands more advanced math knowledge. 

Remember that correlation is not the same as causation. Bear in mind that while two variables may seem closely related to each other, the reality may be more subtle. 

Here is an example of the regression method in action: You want to look at the relationship between the amount of time a prospect has progressed in your sales cycle and the probability of the deal closing. 

So, plot on a chart the probability of close for past deals when they were at various stages of your sales cycle, which lasts an average of 100 days. Deals early in the sales cycle have a low probability of closing compared to those that occur in the later stages of negotiation and contract signing on day 85 and up. (Be sure to eliminate any prospects that stall or disengage at any stage.)

By drawing a line through those points (i.e., the intersection between the sales close probability and the percentage of the average sales cycle), you can see that there is a nearly one-to-one relationship between percentage point increases in time elapsed relative to the average sales cycle and percentage point increases in the probability of closing.

This calculation becomes more complex when you consider multiple variables. Let’s say you have two sales reps working with prospects. Gloria, your best closer, is giving a product demonstration to a new Fortune 500 account. Leonard, a strong performer, whose close rate is a little lower than Gloria’s, is negotiating with a repeat customer, a mid-sized company. 

Your multivariable analysis of these situations could take into account each rep’s average close rate for an opportunity, given the following factors: the specific stage; deal size; time left in the period; probability of close for a repeat customer versus a new customer; and time to close for an enterprise customer with more than 10 people involved in decision making versus a mid-sized business with a single decision maker.

Time Horizons in Sales Forecasting

Choosing the time period for your sales forecast is an important step. Depending on your business, the purpose of your forecast, and the resources you can devote to making forecasts, the time frame you target will vary. 

A short-term forecast will help set sales rep bonus levels for next quarter, but you need a long-term forecast to decide whether you should plan to build a new factory. A startup that has been doubling revenue every year will have more difficulty making a 20-year forecast than a century-old concern in a mature industry. Here are the three time frames for forecasts: 

• Short-Term Forecasts: These cover up to a year and can include monthly or quarterly forecasts. They help set production levels, sales targets, and overhead costs.
• Medium-Term Forecasts: These range from one to four years and guide product development, workforce planning, and real estate needs.
• Long-Term Forecasts: These extend from five to 20 years and inform capital investment, capacity planning, long-range financing programs, succession planning, and workforce skill and training requirements.

Getting Started with Sales Forecasting: What You Need to Know

Regardless of the sales forecast method you use, you generally need to have certain pieces of information and conditions in place. These include the following:

• Well-Documented and Defined Sales Process: You need to understand your customer journey and have an established sequence for nurturing each prospect. Without this, you cannot predict which opportunities are getting closer to purchasing. This structure creates accountability. 
• Consensus on Pipeline Stages: Your sales team needs to have a clear and shared understanding of what you mean by lead, prospect, qualified, possible, probable, committed, and other relevant terms. 
• Definition of Success: Communicate clearly what your sales team is striving for in terms of sales quotas or goals; include these quotas and goals for each individual rep, for the team as a whole, and for conversion through each stage of your pipeline.
• Historical Data: You require benchmarks for data points, such as average time to close, conversion rates, average deal size, lifetime customer value, win-loss ratio, and seasonal sales trends. These sales metrics and KPIs are often critical pieces of your forecast.
• Current Status: Up-to-date knowledge of your pipeline is essential, including how many opportunities are at each stage and the potential value of these sales.
• Forecasting Tools: This will almost always include a CRM application and may also include financial management or accounting software, analytics solutions, and spreadsheets.

Influences and Assumptions in Sales Forecasting

Sales forecasting should not happen in a vacuum. Take into account changes in the business environment and question assumptions, such as that past growth will continue. Also, be sure to factor in your ideas about global economic trends and competitor behavior.

Here are some common factors to consider regarding your sales forecast. Many of these can have either a positive or negative influence on sales. For example, changing reps’ account assignments may reduce sales, because members of your team will have to familiarize themselves with customers that are new to them. However, sales could increase if your new hotshot gets your biggest opportunity.

• Economic Trends: Inflation, growth, consumer sentiment, risk appetite, and purchasing power
• Regulation: Trade policies such as tariffs, duties, and quotas; health, safety, and environmental rulings on products or processes; court decisions; intellectual property disputes; and competition policy
• Seasonal Trends: Cyclical demand fluctuation, production patterns, and variation in raw material availability 
• Competitor Behavior: New product innovations, pricing changes, and market entries and exits
• Business Economics: Selling prices, direct prices, unit costs, gross margins, and the impact of accrual versus cash accounting on when you can book a sale
• Staffing and Compensation: Hiring or firing new reps, changes in leadership, policies on commissions and bonuses, and training
• Territory Management: Redrawing of territories and changes in account assignments
• Products and Services: Product lifecycle, new products and services, user experience, defects, ticket resolution, changes in distribution, and market entries and exits
• Marketing: Demand generation, advertising, pricing, special campaigns, social media activity, and prospecting

Sales Forecasting for New Businesses and Products

If you are starting a new business or launching a new product, your sales forecasts are crucial because they will determine how much you can spend in order to break even. However, when dealing with a new entity, you lack the advantage of historical data, which you need for almost every forecasting technique. 

If you don’t have historical data, you can use industry benchmarks from trade publications, industry associations, and consultants. For example, if you are launching a new recipe app, look at market research on how other cooking apps have performed. 

Dining establishments can look at number of tables, hours of service, and menu prices to estimate average order amounts and table turnover. Retail outlets use square feet, foot traffic, and average selling prices to forecast sales.

If you are adding a new product to your line, you can forecast sales by looking at how your most similar existing product performed at launch. Then, you can make tweaks based on other relevant information, such as that the new product is harder to master than its predecessor, that it is a later entrant into a crowded space, or that it already has a backlog of orders before launch.

New service businesses can base forecasts on capacity, such as number of staff and service hours and how much to charge for the most popular services. Once you have this data, you can make adjustments accordingly.

Michael Barbarita, President of Next Step CFO , works as a contracted CFO to produce sales forecasts for companies. He likes to tie the sales forecast for service businesses to a metric called sales per direct labor hour , which you can calculate this by dividing sales by the working hours of people in the field performing customer work. For example, an electrical contractor would calculate the sales per direct labor hour of its electricians and multiply that figure by the number of electricians and the hours they work.  

For instance, you may decide that operating at half capacity is a good estimate for your first six months in business. Then, you may operate at three-quarters capacity for the second six months. Therefore, you would multiply maximum capacity by average revenue and then multiply that resulting figure by 0.50 and 0.75, respectively.

Quick-Start: Sales Forecasting Formulas

If you are eager to dive in and want to generate some simple sales forecasts, you can make use of basic equations. Here are a few easy ones:

• Simple Forecast with No Organic Growth: This formula assumes that this period will duplicate the prior period, except for the impact of inflation.  Revenue Prior Period) + (Revenue Prior Period x Inflation Rate) = Sales Forecast  
• Historical Plus Growth: This formula helps you reflect current trends.You look at the prior year and then factor it by your recent growth rate. (Last Year Revenue x Percentage Growth Rate) + Last Year Revenue = Sales Forecast
• Partial Year: In this method, you project the rest of the year based on historical patterns and early results. Imagine that you know your sales for the first two months of the year and that last year these months represented seven and nine percent of your sales respectively and totaled $100,000. Using the formula below, you would forecast sales of $625,00 for the year: ($100,000 x 100) ÷ 16 = $625,000. (Current Period Revenue x 100) ÷ Percent That Equivalent Period Represented Last Year = Forecast Sales
• Pipeline Formula: This formula replicates the opportunity stage method that we discussed earlier. You calculate the value of deals at each stage of your pipeline by multiplying the potential deal value by the close probability and adding up the result for each stage. (Deal Amount x Close Probability) + (Deal Amount x Close Probability) etc. = Sales Forecast

How to Make a Basic Sales Forecast Step by Step

Here are step-by-step instructions for a manually generated sales forecast:

• Pick Your Time Period: The way in which you will use your forecast determines the most appropriate time interval, whether that be monthly, quarterly, annually, or on an even longer timeline. If you are making your first forecast, estimating on a monthly or quarterly basis for the upcoming year is a good starting point. Experts suggest doing monthly estimates for the first year and then doing annual forecasts for years two through five. 
• List Products or Services: Write down the items or services that you sell. If you have a lot of them, group them into categories. For example, if you sell clothing, your rows might include shirts, pants, and shoes. Match these revenue streams to the way you organize your accounting. So, if your books look at women’s and men’s clothing separately, do the same for your sales forecast. That way, you can pair your sales forecast with information on your cost of goods sold and overhead to project profit.  
• Estimate Unit Sales: Predict how many units you will sell in the selected time period. If you have historical data, use that and then factor in assumptions about demand for the upcoming period. For example, is your business growing? Is the economy in recession? Did you launch a big promotion? Use the answers to these questions to make downward or upward adjustments to the historical figure. You can also interview some customers to get insights into their likely purchasing plans. Lastly, don’t forget to factor in seasonal fluctuations. 
• Multiply by the Selling Price: Multiply the unit sales numbers by the average selling price (ASP). Determine the ASP by analyzing historical sales and adjusting for inflation and other factors. To obtain this figure, you also need to consider discounts, free trials, and unsold inventory. 
• Repeat for Each Forecast Period: Go through the same calculation for each category and time interval. As you forecast more distant periods, your estimates are likely to be less accurate, so you may want to make a range of forecasts, such as for best, worst, and average scenarios. As time passes, add the actual values and fine-tune your forecast. For instance, you may see that for the first few months of the year, you underestimated sales by 12 percent. Therefore, you decide to increase your forecasted sales amounts in the upcoming months.

How to Forecast Sales in Excel

Here is a step-by-step guide to building your own sales forecast in Excel:

• Enter Historical Data: Open a worksheet and enter your past date data in the first column. Then, in the second column, enter the corresponding sales values. If possible, make sure you space the dates consistently (e.g., the first day of every month). 
• Create Forecast: In the date column, fill out the next date cell with the future date you are forecasting. Select the corresponding sales value cell and in the function field, type: =(FORECAST( A10, B2:B9, A2:A9)), where A10 is the future date cell, B2 to B9 are the historical sales amounts, and A2 to A9 are the historical dates. Hit enter and the forecast sales amount will appear.
• Repeat: Continue the pattern for your remaining future dates. Remember that the formula uses only known variables, so do not add forecasted amounts to the cell ranges. This function is a linear forecasting method.
• Power Up: If you have Excel 2016, you can use the forecast sheet function, which automates forecasting and adds a chart. To use this function, select both data columns, and, on the data tab, click the forecast sheet. In the create forecast worksheet box, select whether you want a line or bar chart. In the forecast end field, choose an ending date and then click create. Excel will create a new worksheet that contains both historical and forecast sales data as well as a visual representation. 

For a pre-made basic sales forecast, download this template that projects product sales with both units and sales amount.

Basic Sales Forecast Sample Template

Excel | Google Sheets | Smartsheet

For a wide range of pre-built sales forecast templates in a variety of formats, see this comprehensive collection .

How to Choose the Right Sales Forecasting Methodology

Your goal is to build the most reliable forecast possible, with the minimum amount of resources you need to be effective. To choose the method that fits best, consider these seven questions:

• Is the Time Frame Short, Medium, or Long Term? Qualitative methods are a good choice for short-term horizons, but they generally underperform quantitative methods for periods beyond a few months. Similarly, consider where you are in your business or product lifecycle. If you are ramping up or in a high-growth phase, you may be making costly investment decisions, so you need a method with a high degree of accuracy, but also relatively quick production time. When you are in a mature phase of your business, decisions about production and marketing are more routine. 
• How Much Data Do You Have? The less data you have, the more likely you will be to select a qualitative technique. If you have limited data, you will turn toward more simplistic models. A company that has collected a lot of data and has great confidence in its reliability can choose sophisticated quantitative models. 
• How Relevant Will History Be in Predicting the Future?  If your business has undergone big changes, such as launching major new products, experiencing large growth in the sales force, or introducing a different pricing structure, your past results will have less value as a guide to future performance. So, methods that diminish the weight put on historical data and qualitative techniques are a better choice.  
• In Terms of Time and Money, How Much Does It Cost to Produce the Forecast? How Does This Cost Compare to the Value of the Potential Benefits?You will need to make tradeoffs between the time and cost to build your forecast and the potential benefits, such as cost savings. Also, consider the potential cost of error. For example, suppose you are contemplating a high-cost sales-forecasting technique (one that takes a lot of data gathering, the creation of a custom model, and expensive staff and technology to produce). The forecast could allow your company to reduce the amount of inventory it holds. Weigh the value of inventory savings against the forecasting cost. If you reduce inventory and the forecast proves inaccurate, what are the potential costs of lost sales — because you did not stock adequately or because you did not cut back enough?  
• What Degree of Accuracy Do You Need?  Forecast accuracy rises with the cost and complexity of the methodology. Depending on how you will use the forecast, the size of your company, and the variability of your business, you may feel that it’s not cost effective to produce a maximum-accuracy forecast. If you are a giant global company, a fraction of a percentage point error in your sales forecast could represent many millions. So, the bigger the dollar values, the more meaningful every degree of enhanced accuracy becomes.
• How Complex Are the Factors That Will Drive the Forecast?   If your sales dynamic is straightforward — the more sunny days there are, the more beach umbrellas you sell at your beach kiosk — then building a sophisticated, AI-driven forecasting model will be overkill. “It's important not to spend time and energy developing a complex model, when a much simpler one will do the job,” says Nicholas. But when you are facing a subtle and complex interplay of variables, you need a technique that accounts for them. Suppose you have new products, changes in your marketing, and additional sales reps. A sophisticated model would allow you to forecast the net effects and also try out different scenarios in which the variables fluctuated.

Why Accuracy Is Important in Sales Forecasts

According to CSO Insights, 60 percent of forecasted deals do not close and 25 percent of sales managers are unhappy with the accuracy of their forecasts. Inaccuracy in sales forecasts causes problems for businesses and impacts performance. 

People throughout your company depend on your forecasts to make a multitude of decisions — from pay raises to real estate acquisitions. Let’s look at some of the important reasons to strive for accuracy:

• Early Warning: Your sales forecast helps you spot trouble early, like when revenues are not materializing as expected; the forecast also allows you to intervene and problem solve before this underperformance becomes a crisis.
• Decision Making: The forecast gives leaders confidence and a sound basis for deciding how much and where to spend or invest. Production planners, HR, and others will use the forecast.
• Goal Setting: You set achievable targets for sales reps when you have an accurate forecast. Goal setting prevents sales reps from getting discouraged by unrealistic expectations. Following this strategy also ensures that your commission and bonus scale are calibrated appropriately. 
• Customer Satisfaction: When you are prepared for the right level of demand, your company can improve its record of fulfilling orders on time and in full.
• Inventory Management: You will be more likely to have the right level of inventory if your sales forecasts are accurate. Making accurate predictions allows you to better manage your supply chain and order raw materials or parts in a timely fashion. You also gain more control over your pricing if you have the right amount of inventory. When you have to resort to discounting to get rid of excess inventory, your profitability suffers.

How to Improve Sales Forecast Accuracy and More Best Practices from Experts

Producing high-quality forecasts takes organizational commitment and long-term effort, and best practices will help improve accuracy.

”Sales forecasting is both an art and a science. Where companies tend to go wrong is relying too heavily on one or the other. You need a consistent process and reliable data,” says Charlene DeCesare, CEO of sales training and advisory firm Charlene Ignites .

She emphasizes five best practices:

• Ensure that the pipeline feeding the forecast is accurate. You don't need historical data to predict the future when you have a well-defined sales process.
• Everyone must use the CRM, and should enter notes and coding opportunities in a clear, consistent way. 
• Buyer behavior is a much more reliable predictor of future sales than gut feel. Challenge optimism that doesn't align with the applicable stage in the sales cycle or isn't supported by clear, mutually agreed-upon next steps.
• In general, buyer/seller behavior is the leading indicator to rely upon. Too many companies rely on results, which is actually the lagging indicator.
• Sales leadership can have a huge impact. Sales reps must be rewarded for both honesty and accuracy. Sales forecasting must be an individual, team, and company priority. 

Rob Stephens, a CPA whose firm CFO Perspective advises businesses on forecasts, adds: “A big planning mistake is spending too much of your precious time trying to find the one right scenario… Start with a range of reasonable forecasts based on solid fundamentals. For example, you may project from historical growth rates, customer indications of future sales, or projections of market growth. A company with a new product may need to extrapolate from existing products or early indications from potential customers. Use a higher-probability scenario as a beginning base scenario, but identify why the future may deviate from it.”

Common Mistakes and Pitfalls in Sales Forecasts

Sales pros say they see the same sales forecasting errors on a regular basis and that these often relate to letting the discipline of the forecasting process lapse. 

“The most common operational mistakes are basing forecasts on hope rather than evidence, ignoring repeated close date slippage, failing to take into account the historic forecast accuracy (or inaccuracy) of the salesperson concerned, and failing to hold salespeople accountable for the relative accuracy of their forecasts,” notes Bob Apollo, Founder of Inflexion-Point Strategy Partners, a sales training firm.  

“The most common cultural mistake is when sales leaders press salespeople to forecast a target number without any evidence or confidence that it will actually be achieved," he notes.

Evan Lorendo , Director of Revenue Accelerator, which advises service companies on revenue strategies, says he sees companies with monthly recurring revenue (MRR), such as software as a service (SaaS), frequently make mistakes in sales forecasting.

He gives the example of a company with an MRR product that wants to generate $120,000 in revenue a year. How much in new sales do they need each month? “Most of my clients say $10,000/month, but that is wrong. Because a client is paying on a monthly basis, a client that signs up in January is actually paying 12 times during the year. On the flip side, a client signing up in July will make six payments during the year,” he explains. 

That means there are a total of 78 potential payment configurations per year, not 12. The customer who buys in January will make 12 payments, but November’s buyer will make two. (12 + 11 + 10 + 9 + 8 + 7+ 6 + 5 + 4 + 3 + 2 + 1 = 78.)

“If you want to know how much you need to sell in new sales each month to hit that $120,000 goal, the answer is $1,539 ($120,000/78). That actually seems much more manageable, doesn't it? Based on poor forecasting, a miscalculation can turn off good salespeople who can't hit their quota,” he says.

KPIs for Sales Forecasting

As your sales forecasting improves, you reap bigger benefits, such as better planning and higher profits. So, you will want to assess and monitor your forecasting effort by using key performance indicators (KPIs).

Below are the main KPIs for sales forecasting. Some of them draw from statistics concepts, such as standard deviation, and computer applications and statistics guides can help you calculate them.

• Bias or Variance: This KPI tells how much the actual results deviated from the forecast over a given period of time. Calculate bias as an absolute number of dollars or units or as a percent of sales. A positive number means sales exceeded projections and a negative number indicates underperformance. Actual Units - Forecast Units = Bias
• Mean Absolute Deviation (MAD): This metric describes the size of your forecast error in total units or dollars. You calculate how much the actual results deviated from the forecast average, add the deviations, and divide the result by the total number of data points.   
• Mean Absolute Percentage Error (MAPE): This is similar to MAD, but gives the forecast error as a percent of sales volume. 
• Tracking Signal: This is another expression of forecast error and looks at how the error rate varies among forecast values. Normally, you expect all forecast amounts to be wrong by about the same degree. If, from one data point to another, there is a large variation in the error rate, you need to rework your model.  Tracking Signal = Accumulated Forecast Errors ÷ Mean Absolute Deviation
• Forecast Value Added: This metric measures how much better the forecast was than simply using unadjusted historical data. If your forecasting effort got you closer to actual than the so-called naive forecast (i.e., using historical figures as your forecast), you have added positive value. You calculate this metric by comparing the MAPE of your forecast to the naive forecast.
• Linearity: This looks at how sales are paced over the course of the period. As your reps seek to meet quota, you might see a flurry of deals at the end of the quarter. Or, deals might be spread evenly across the time period. The most stable situation is a deal cadence or velocity that is constant. If expressed as a trend line, this stable situation would appear visually as a flat line. This pattern is called highly linear .

Application of Sales Forecasting

Your sales forecast obviously gives you an idea of how much you will sell in the future, but sales forecasting has other important use cases. Here are five ways you can apply your forecast to business questions:

• Sales Planning: As noted earlier, your sales plan encompasses your goals, tactics, and processes for achieving your sales forecast. As part of this plan, your sales forecast helps you decide if you need to hire more sales reps to achieve your forecast and if you need to put more energy and resources into marketing.
• Demand Planning: Demand planning is the process of forecasting how much product your customers will want to buy and making sure inventory aligns with that forecast. In ideal conditions, forecast demand and sales would be virtually the same. But, consider a scenario in which your new product becomes the hot gift of the holiday season. You forecast demand of 100,000 units (the number consumers will want to buy). A large shipment turns out to be defective, and the product is unsellable. So, you forecast sales of just 75,000 units (how much you will actually sell.)   
• Financial Planning: Your sales forecast is vital to the work of your finance department. The finance team will rely on the forecast to build a budget, manage overhead, and figure out long-term capital needs. 
• Operations Planning: The unit-sales numbers in your forecast are also important for operations planners. They will look at the production required to meet those sales and confirm that manufacturing capacity can accommodate them. They will want to know when sales are likely to rise or fall, so they can avoid excess inventory. A big increase in sales will also require operations managers to make changes in warehousing and distribution. Retailers may change the product mix at individual stores based on your sales forecast.
• Product Planning: The trends you foresee in sales will have big implications for product managers too. They will look at products that you forecast as top sellers for ideas about new products or product modifications they should introduce. A forecast of declining sales may signal it is time to discontinue or revamp a product.

Levels of Maturity in Sales Forecasting

Sales forecasts can be simply scribbled-down estimates, or they can be statistical masterpieces produced with the aid of the most sophisticated technology. The style you pursue relates in large part to your level of forecasting maturity (as well as the size and history of your business). 

Below is a description of the four levels of the sales forecasting maturity model:

• Level One: In the beginning stages of sales forecasting, the estimates are usually not very accurate and take a lot of time to produce. The forecasting process depends on reps’ best guesses, and sales managers spend a lot of time gathering these guesses by interviewing each rep. Then, they roll them up into a consolidated forecast. Inconsistent data collection and personal bias can skew the results. Sales managers use spreadsheets, which quickly become outdated, and the forecasts often reflect little more than intuition.
• Level Two: As your forecasting culture grows, you are probably still inputting data by hand, and the forecast is often inaccurate or outdated. But, a CRM solution is enabling your team to have a shared repository for contacts, sales activity, and deal status. Reps don’t see value in spending time contributing to the forecast, and quality is weak. Your CRM automatically aggregates those results, so you can start to examine trends and anomalies. But, your system is not very flexible, and forecasting remains unwieldy and resource intensive.
• Level Three: At this point, automation starts to offer radical improvements in sales forecasting. Solutions backed by artificial intelligence automatically bring together data from a multitude of sources, including email, CRM, marketing platforms, chat logs, and calendars. There is no more manual data entry, and sales managers gain increased visibility into the sales pipeline. KPIs become reliable and an important tool for monitoring performance.
• Level Four: Technology ensures sales that data is accurate and timely. AI and machine learning find patterns and correlations in your historical data, and predictive analytics offer robust forecasting. The forecasting model is continually refined. Forecast accuracy rises, and sales managers can focus more of their time on supporting reps and developing opportunities. These tools make it apparent when reps are sandbagging or being too optimistic, and accountability increases.

Advances in Sales Forecasting Methodologies

While sales forecasting has been around as long as private enterprise, the field continues to evolve, and researchers are looking at ways to improve sales forecasting methodologies. 

Indiana University Professor Douglas J. Dalrymple performed an influential study in 1987 that surveyed how businesses prepared sales forecasts. He found that qualitative and naive techniques predominated, but that early adopters were reducing errors by using computer analysis. At this time, PCs were starting to proliferate and come down in price. 

By 2008, Zhan-Li Sun and his researchers at the Institute of Textiles and Clothing at Hong Kong Polytechnic University were experimenting with an advanced AI-driven technique called extreme learning machine to see if they could improve forecasts for the volatile retail fashion industry by quantifying the influence of factors such as design on sales.  

Scholars F.L. Chen and T.Y. Ou at the National Tsing Hua University in Taiwan took this further with a 2011 study. The study documented sales forecasting advances when combining extreme learning-machine, so-called Taguchi statistical methods for manufacturing quality with novel analysis theories that work on variables with imperfect information.

Features to Look for in a Sales Forecasting Tool

Paper forecasts and Excel spreadsheets quickly become cumbersome. Sales forecasting capability is available in CRM software, sales analytics and automation platforms, and AI-driven sales technology. These capabilities often overlap among these applications.

Here are some of the features to look for when evaluating a sales forecasting tool:

• Integrations with other software, such as ERP, CRM, marketing suites, contact management, calendars, and more
• Automated collection of data and sales rep activity
• Real-time reporting
• Robust data security
• Analytics and automated scoring of deals
• Insights on most promising deals
• Scenario modeling
• Lead scoring
• Automated forecast roll-ups or summaries by category and team
• Dashboards and graphic displays of KPIs
• Benchmarking
• Customizable forecasting algorithms
• Forecast auditing and error analysis

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Sales Forecasting: A Guide to Grow Your Business

Discover sales forecasting methods and how calculating a sales forecast can benefit your business.

Sales forecasting is in demand worldwide, particularly with the growing use of predictive analytics and Big Data, which is increasing opportunities for those with relevant skills. What is sales forecasting, exactly? 

Sales forecasting is the process of estimating a company’s projected revenue during a specific period, such as a month, a quarter, or a year, usually based on past sales data. It can include predictions of a sales team’s performance regarding the number of sales the team will make and how a market will respond to go-to-market efforts. 

Like weather predictions, sales forecasts aim to prepare an audience for what to expect in the future. They rely on a variety of qualitative and quantitative data streams used by companies of every size.

Sales forecasting is important at all levels of business operations and can help an organisation make informed decisions. Sales managers can use representatives’ forecasts to estimate the number of deals that will close. Department directors can use forecasts to predict team performance. Company leaders can share forecasts with board members, stockholders, and stakeholders to inform them of the company’s health.

Benefits and challenges of sales forecasting

Whether you’re a business owner, a salesperson, a product leader, or a company leader, mixing sales forecasting into your workflow can deliver benefits. Accurate sales forecasts help create efficiencies and allow for planning. In addition, you may be able to: 

Gain insight into customer behaviour. 

Understand your organisation’s health in numbers. 

Plan business moves more strategically.

Predict how much inventory or supply is necessary for an upcoming sales cycle. 

However, sales forecasting also presents a wide range of challenges. For example, one obstacle to implementing a sales forecasting system is convincing decision-makers to use it. According to a Gartner survey, only 45 percent of respondents have confidence in the accuracy of their organisation’s sales forecasts [ 1 ].   

Other challenges include:

Changes to your sales team, such as when people leave, or new hires join, necessitate a period of adjustment.  

New competitors entering the market necessitate new sales or marketing tactics.

Supply chain shocks.

Updating your current products or introducing new ones that need new go-to-market strategies.

Sales forecasting methods

Many different sales forecasting methods and models exist. Choosing a suitable method will depend on your resources and your goals. 

Opportunity stage forecasting

Accounts for where a deal is in the sales process at any given time.

Assumes that the further along a deal is, the likelier it will be to close. 

Works best when you are not changing your messaging, products, or sales tactics.

Consists of multiplying each deal’s potential value by the likelihood it will close and can be used at any point of the sales process. 

Length of sales cycle forecasting method

Accounts for how long sales cycles typically last for different types of prospects. For example, a sales cycle for a referral prospect may be shorter than a prospect who just subscribed to your newsletter. 

Uses the time a prospect has been in a sales cycle and the type of prospect to determine the likelihood the deal will close.

Works best when you can categorise the different types of prospects your business interacts with and know the typical cycle length for each type.

Intuitive forecasting method

Accounts for the opinions of sales representatives with the most direct interaction with prospects. 

Assumes that sales reps’ close relationships with prospects allow them to intuit how likely a deal is to close. 

Works best during later phases of the sales process, when sales reps have gathered more information about prospects’ questions, challenges, hesitations, and needs.

Historical forecasting method 

Accounts for sales performance from a timespan in the past.

Assumes that sales in a future period will resemble those of a past period.

Works best when markets and buyer demand are steady.

Multivariate analysis forecasting method

Combines other methods, such as sales rep performance, opportunity stage, and historical forecasting. 

Requires that you update data regularly to track deal activity. 

Works best when you use sales forecasting software.

Pipeline forecasting method

Considers details of each deal, including the opportunity value, the sales rep’s closing rate, and any fluctuations in the sales pipeline.

Relies on accurate, timely data.

Use these simple formulas, alongside the methods above, to quantify sales forecasts: 

Average monthly sales = total sales revenue/number of months

Possible sales for the rest of the year = average monthly sales x months left in the year

Annual sales forecast = total sales revenue + possible sales for the rest of the year

How to forecast sales for your business 

Use the following process to begin or improve a sales forecasting process. 

1. Establish a sales process for your team. 

When everyone on your team uses the same process, it’s easier to predict the likelihood that opportunities will close and pinpoint troublespots in the sales pipeline. The sales process should tell team members what actions to take at each stage of the buyer’s journey, from prospecting to closing. 

2. Set team goals.

Having goals for the whole team and each member will provide a basis for measuring success and predicting the likelihood of success. What do you want to achieve in sales every month, quarter, and year? 

3. Select sales forecasting software.

Invest in software that will measure different factors and help you track sales activity to create the most accurate and valuable sales forecasts. Here are some software programmes to investigate:

Hubspot Forecasting Software

Salesforce Sales Cloud  

4. Select a forecasting method.

Once you have a sales process, goals, and software, your next step is to settle on a forecasting method corresponding to your business or team’s establishment.

For example, if your business or sales team is new and you have minimal sales history, you might use the intuitive sales forecasting method while recording and tracking sales activity in your software. In contrast, established businesses with forecasting software, an entire sales team, and historical data might use multivariate or pipeline forecasting methods. 

5. Review prior sales forecasts. 

Review any sales forecasts from prior sales periods to set your team up for accurate sales forecasting. Where did actual sales match projections? Where did discrepancies occur? What factors contributed to either, including sales team performance, use of forecasting software and methods, or seasonal fluctuations in sales? 

6. Request data from other teams. 

Gathering information from marketing, product, and finance teams to inform your sales forecast is a sound strategy.  

What insights can marketers offer on prospects’ needs and what inspires them to make a purchase? 

What new product developments or offerings might affect sales volume in an upcoming sales period? 

How does the financial health of the company align with sales goals? 

7. Create forecasts and discuss them with your team. 

Use all the information you’ve gathered in steps one through six and data from your forecasting software to create your sales forecasts. Then, discuss sales quotas and strategies with sales reps. Communicate important learnings to your employer’s decision-makers. For example, it might be necessary to return to step one and adjust sales processes to account for an expected fluctuation in sales. 

Build sales skills with Coursera.

Online courses can be a great way to build sales skills, including forecasting, and explore career possibilities. Check out the Sales Training for High Performing Teams Specialisation on Coursera to cultivate the knowledge and skills you need to get started.

Article sources

Gartner. “ Use Sales Analytics to Improve Pipeline Management and Forecasting , https://emtemp.gcom.cloud/ngw/globalassets/en/sales-service/documents/trends/sales-analytics-improve-pipeline-management-forecasting.pdf.” Accessed August 23, 2024. 

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How to create a sales forecast for your small business

May 21, 2024 | 7 minute read

What you know about tomorrow can help you make better decisions about running your small business today. A sales forecast can be a helpful tool in estimating future sales, so you can take that information into account in your planning. Simply put, a sales forecast estimates the quantity of goods and services you can reasonably expect to sell over a specified period, the cost of those goods and services and the potential profit. It’s based on your sales in the past, industry benchmarks and market conditions. 

A sales forecast is an invaluable tool for better  managing your cash flow , spending, staffing and more. Once you complete your forecast, you’ll have a better sense of what’s driving your revenues and profits, know where to put your time and resources and be able to identify efforts that are not fueling growth so you can consider eliminating them. 

Why sales forecasting is important

A sales forecast helps you understand your financial position. It can be a good starting point for setting goals and provides guidance in many areas of your business, such as planning for new hires, purchasing inventory and equipment, knowing when to preserve cash, increasing your marketing budget or alerting you that you need to find new  ways to make more money . It can also help you illustrate your business’s potential to investors.

What factors impact a sales forecast?

A forecast is really an educated guess. There are any number of conditions that might shake up your projections, such as new laws and regulations. A downturn in the economy could mean a change in business conditions, making it harder to get credit. A dip in consumer confidence could lead to less spending on your company’s goods and services. New competition in your market, a drop in customer satisfaction or extreme weather (a major storm that essentially shuts down a city for a few days, for example) could all make a difference in what you thought was going to happen. Something like seasonality can also impact your forecast. Internal factors like new production processes and procedures can also keep you from hitting your target. 

Sales forecasting methods

There are several methods to creating a sales forecast. Here are three that many small businesses use:

Historical forecasts

This method is based on your business’s past performance. If you’ve been in business for a year or more, you can look back at data by the week, month, quarter or year. If you’ve launched your business recently, this option won’t work well because you won’t have enough data available. 

Bottom-up forecasts

To come up with these forecasts, you must project the number of units you will sell, then multiply that figure by the average cost per unit. If you run a larger small business, you can also include metrics like the number of locations, sales representatives or online interactions. The rationale behind a bottom-up sales forecast is to begin with the smallest components of the forecast and build up from there. The advantage of this type of forecast is that if any variables change (like cost per item or number of reps), the forecast is easy to adjust. 

Top-down sales forecasts

Start with the total size of the market and estimate what percentage of the market the business can capture. If the size of a market is $20 million, for example, a company may estimate it can win 10% of that market, making its sales forecast $2 million for the year. If you’re a natural optimist, it’s a good idea to ask an advisor to provide a reality check on the percentage of customers in your market that you can reasonably expect to attract and serve so that your projections are more accurate. 

How to create a sales forecast

Once you’ve selected a sales forecasting method, you’ll want to take several steps.

1. List the goods and services you sell

In a sales forecast, you’ll want to account for each product or service that you are selling so your forecast is accurate. 

2. Quantify your sales

Each sales forecasting method has its own way of estimating future sales: 

In  historical forecasting , you will need to project the quantity of each product or service you will sell and multiply the unit price by that number. In this type of forecasting, you can base your estimate on the sales figure you brought in last month as long as nothing major has changed in the marketplace. So, if you sold $50,000 worth of your product in July, you might estimate selling $50,000 worth in August. 

In  bottom-up forecasts , you must first estimate the total number of orders that customers will place for your products or services through your website, social media channels and other places you make sales. Then you estimate the average price minus any discounts you offer. Finally, you must multiply the estimated number of orders for each item by the average price to get estimated revenue. 

In  top-down forecasts , you start by estimating the total market for each item you sell. For example, if you were lucky enough to capture 100% of the sales, how much would you have sold? Then project how much of that market you can realistically capture. So, for instance, if the total addressable market for what you sell is $1 million, and you capture 7% of that with your product, your estimated sales will be $70,000. 

3. Make adjustments

Some owners adjust their forecasts to reflect projected market conditions, regulatory changes, new marketing efforts and other variables.

4. Subtract costs

Business owners will typically subtract the costs of creating each good or service they sell from their estimated sales forecast to understand how much profit would be generated from sales. Let’s say you sell a backyard game you invented by outsourcing the manufacturing to a local factory. You might subtract  overhead expenses , such as paying the factory and buying materials, from your projected revenue to anticipate how much money would be left over as profit. Or if you run a social media agency that has taken on new clients who’ve hired you on retainer, you might subtract costs, such as paying freelancers to write social media posts and subscribing to a website that provides stock photos, to get a clearer picture of future profits. 

Tools for sales forecasting

If you haven’t done so already, you might want to consider software to help with sales forecasting. 

Sales forecasting software

Sales forecasting software can use historical business data and trends to create a report of expected sales revenue. Forecast reports can compare sales targets with actual sales. 

Ideally, sales software can help you answer questions like: 

What is your expected revenue? 

Which forecasting method produces the most accurate forecast for your business? 

How did actual sales compare with expected sales?

Sales pipeline forecasting software

With sales pipeline forecasting software, you’ll get an analysis of existing opportunities and a calculation of your success rate in pursuing them, helping you prioritize your efforts. This method focuses on pipeline management and calculates a historical win-rate percentage based on the value and age of the opportunity and the sales representative working on it. Some software programs include features that will give you the ability to view pipeline activity and internal sales data or save you time, letting you integrate information from third-party sales software, for instance. You can create sales forecasts using software such as QuickBooks, Salesforce Sales Cloud, Zoho CRM and Pipedrive.

Historical sales forecasting software

Historical sales forecasting software analyzes previous company performance to calculate a mean (or average) sales level you can expect for the following month, quarter or year. It emphasizes historical trends and seasonality of products and services sold, but it does not consider the opportunities in your pipeline. This software is ideal for small businesses that don’t have big swings in their monthly sales. 

Bottom line

Your sales forecast can be a vital tool as you make plans to grow your business or adjust to challenges. By comparing your actual performance to your forecasts, you’ll be able to get a clear handle on your success and failures, fine-tune your strategies and capitalize on what is working for you so you can keep your business moving to the next level. 

Explore more

Cash flow management basics for small businesses

How to write an effective business plan

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How to Create a Sales Forecast: Methods & Examples

Sales forecasting is how businesses attempt to predict the future. A methodical, effective forecast provides invaluable insights to inform your business decisions. Whether you're new to sales forecasting or seeking to refine your approach, this guide will introduce you to essential methods and tools to enhance your B2B forecasting efforts.

What is sales forecasting?

At its core, a sales forecast is a projection of the sales a company expects to achieve within a specified period. It can be based on historical data, market trends, and various sales forecasting methods and models.

Why is sales forecasting important?

Your organization’s sales forecast is vital to:

• Allocate resources efficiently
• Identify potential challenges and opportunities
• Form the foundation for business strategies
• Drive budgeting and financial planning

Methods and Models of Sales Forecasting

There are a variety of sales forecasting models and methods. The choice depends on the nature of your business, available data, and desired outcomes. Here are some of the most common methods:

Historical Data Forecasting

This method leverages past sales data to predict future sales. The assumption is that history will, to some extent, repeat itself.

Pros: Simple and straightforward, especially if you have consistent and reliable historical data.

Cons: Doesn't account for sudden market changes or anomalies. Might not be suitable for new products or markets without historical data.

Ideal for: Stable industries or businesses with consistent sales patterns.

Top Down Forecast

This begins with a general market or industry prediction. After identifying the total market potential, businesses estimate the percentage they can capture.

Pros : Provides a broad overview, which can be helpful for startups or entering a new market.

Cons : Can be overly optimistic if businesses overestimate their market share. Might not consider ground-level challenges.

Ideal for: New businesses or products, or when entering new markets.

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Predictive Sales Analysis

Utilizes big data, machine learning, or AI to analyze vast amounts of data and identify patterns, making predictions based on these patterns.

Pros: Can be more accurate due to the breadth of data and variables considered. Adapts to changing conditions and data inputs.

Cons: Requires sophisticated technology and expertise. Might be overkill for small businesses with limited data.

Ideal for: Larger enterprises or industries where multiple variables influence sales.

Sales Potential Analysis

This evaluates the maximum sales opportunities available in a given market. By assessing the ceiling of potential sales, businesses can set realistic targets.

Pros: Keeps forecasts grounded in reality. Helps in identifying market saturation points.

Cons: Determining true sales potential can be challenging and may require market research.

Ideal for: Businesses looking to expand or assess if they've saturated their current market.

While each method has its merits, the best approach often involves a combination of multiple methods. Factors to consider when you are choosing a forecasting method include the type of product or service, the maturity of the business, the stability of the market, available data, and the tools in your company’s tech stack.

In any case, the aim of sales forecasting isn't necessarily to pinpoint an exact number but to give businesses a clear direction and actionable insights. Whether you're basing predictions on historical patterns or cutting-edge predictive analytics, the value lies in the strategic decisions that these forecasts empower you to make.

Sales Forecasting Examples

To further understand, consider these sales forecasting examples:

Historical Data Forecasting Example: B2B SaaS Company

The past 5 years of sales data indicates that license renewals have grown by an average of 15% annually. By filtering and analyzing opportunities with close dates set for the next year, the sales team predicts a 15% increase over the current year's figures. Using reports and dashboards, the team should also account for any anomalies, like a one-time bulk purchase by a large corporation in the previous year.

Top-Down Forecasting Example: Cloud Services Provider

The company is introducing a new cloud solution tailored for SMEs. Research indicates a total market worth of $10 billion for SME cloud solutions. The revenue operations team tracks the company’s historical market capture rate for new products, which stands at 0.5% for the first year. The potential revenue from the new product is forecasted at $50 million ($10 billion x 0.5%). Analytics can provide insights into how other products were adopted over time, helping refine this top-down estimate.

Predictive Sales Analysis Example: Financial Services

The firm wants to promote a new investment package to its clientele.The sales team analyzes data from similar past campaigns, current economic trends, client demographics, and interaction histories. Predictive analytics suggest that they are likely to secure investments from 10% of their existing clientele for the new package. For predictive analytics tools to be effective, their sales database must be clean and current, as AI-driven predictions are heavily dependent on the quality and recency of data.

Sales Potential Analysis Example: Medical Equipment Manufacturer

The manufacturer has developed a new type of diagnostic machine for hospitals. The revenue operations team reviews the number of hospitals they've historically sold to, as well as hospitals in their pipeline that have shown interest in innovative diagnostic solutions. They determine that, of the 1,000 hospitals they've engaged with, 30% might be interested in the new diagnostic machine, indicating a sales potential of 300 units. The team can further segment potential buyers based on hospital size, budget, and past purchase behaviors.

Sales Forecast Formulas

There are various sales forecasting formulas that can be used depending on the specific information available and the nature of the business. Here are some example sales forecasting formulas:

Weighted Pipeline Forecasting

This method considers the number of sales opportunities, the average value of each opportunity, and the likelihood of closing each sale.

Formula: Forecast = (Number of Opportunities x Value of Each Opportunity x Probability of Closing)

Moving Average Forecasting

This formula averages sales over a specific number of months (n) to predict the next month's sales. Useful when sales numbers fluctuate but don’t have a clear trend.

Formula: Forecast = (Sales of Month 1 + Sales of Month 2 + ... + Sales of Month n) / n

Exponential Smoothing

This approach gives more weight to recent sales data. The smoothing factor, usually between 0 and 1, determines the weight.

Formula: Forecast = (Last Actual Sales x Smoothing Factor) + (Last Forecast x (1 - Smoothing Factor))

Linear Regression Forecasting

This formula predicts sales based on a trend over time. The 'a' is the y-intercept, and 'b' represents the slope of the line. This method is useful when sales data displays a consistent upward or downward trend.

Formula: Forecast = a + b x Time Period

Decomposition of Time Series

This approach breaks down sales data into trend, seasonal, and random factors. By analyzing each separately, you can forecast sales more accurately for businesses with pronounced seasonal fluctuations.

Formula: Forecast = (Trend Component + Seasonal Component) + Random Component

Growth Rate Forecasting

This simple formula multiplies the sales of the last period by a projected growth rate.

Formula: Forecast = Last Period Sales x (1 + Growth Rate)

Market Growth Rate Adjustment

This approach adjusts the baseline sales forecast (could be based on historical data) with the projected industry growth rate.

Formula: Forecast = (Baseline Sales Forecast) x (1 + Industry Growth Rate)

While formulas provide a structured way to calculate forecasts, it's essential to approach them with a critical mindset. No single formula can capture all the intricacies of a market, and external factors can always introduce variability. Using a blend of quantitative formulas and qualitative insights will usually yield the most accurate forecasts.

Tips for Effective Sales Forecasting

Effective sales forecasting is a critical element in driving a business forward, as it impacts budgeting, inventory management, marketing strategies, and more. Let's dive deeper into the tips for ensuring that your sales forecasting is as accurate and beneficial as possible:

Stay Updated

The business environment is dynamic. External factors like market trends, economic shifts, and competitor actions can significantly impact sales. Regularly review industry news, attend webinars, and participate in trade conferences. Schedule monthly or quarterly reviews of your forecasts to adjust them based on the latest information.

Utilize Technology

Technological advancements, especially in AI and machine learning, can offer more nuanced and adaptive forecasting models. Invest in sales forecasting software that aligns with your business size and needs. Many tools integrate with CRM systems, automatically updating forecasts based on real-time data.

Consistency

Keeping the forecasting process consistent ensures that data remains comparable across periods, revealing trends and deviations. Set specific guidelines and standards for how forecasts are to be conducted. Whether you're looking at weekly, monthly, or yearly forecasts, use the same metrics, time frames, and methods for each period.

Regular Review

Comparing forecasted sales against actual sales can reveal discrepancies, helping refine future forecasting efforts. Set up a post-mortem review at the end of each forecasting period. Identify areas where predictions were off-mark, analyze why, and adjust your models or data sources accordingly.

Collaboration

Sales forecasts shouldn't be created in a vacuum. Input from sales, marketing, customer support, and even production can provide different perspectives that refine the forecast. Organize regular cross-departmental meetings to discuss the forecast. Encourage open communication and feedback loops between teams. This collaboration can provide insights into front-line challenges or opportunities that might not be evident in raw data.

Factor in External Variables

Apart from internal data, many external factors, such as economic conditions, political stability, or even weather patterns, can impact sales. Incorporate external data sources into your forecasting model. This could be industry reports, economic indicators, or even social sentiment analysis, depending on your business.

Scenario Planning

It's beneficial to forecast multiple scenarios, especially in volatile markets. This approach prepares businesses for best-case, average, and worst-case scenarios. After creating your primary sales forecast, adjust some of the variables to see how changes might affect outcomes. This could be changes in market demand, alterations in marketing spend, or new competitor entries.

Continuous Learning and Training:

As with any skill, the accuracy and effectiveness of sales forecasting can improve with ongoing learning and training. Invest in training programs for your team, focusing on the latest forecasting techniques, tools, and best practices. Encourage a culture of continuous learning.

Remember, the goal isn't just to predict the future but to use those predictions to inform strategy and decision-making.

How to Create a Sales Forecast Step-by-Step

Creating a sales forecast requires a systematic approach to ensure accuracy and reliability. Here's a step-by-step guide to walk you through the process:

What you need to get started:

• Current sales pipeline
• Historical view + analysis
• Lead scoring if used
• Market research/competitive analysis

Define the time period

Determine the time frame for which you want to forecast sales. This could be monthly, quarterly, or annually. The chosen period should align with your business's planning cycle.

Understand Your Sales Goals

Establish clear sales targets. Are you aiming for market penetration, product launch success, or just maintaining current sales levels?

Objectives can vary from one company to another, such as targeting a specific revenue, acquiring new clients, selling a set number of products, or achieving consistent customer renewals.

At an early-stage growth company, or an established company moving into new geography, your top priority might be closing new clients to establish brand credibility and gain insight into a new market, regardless of size or monthly or annually recurring revenue. At an established B2B company with diverse product lines, your top priority might be closing deals for a particular product category or a specific market.

Annual Recurring Revenue (ARR)

ARR is a common metric in SaaS and any long-term subscription business. It reflects all of the revenue a company expects to take in during the fiscal year, including both new clients and upsells. If a company commits to a three-year enterprise package for $1.2 million, the yearly revenue from this deal would be $400,000.

New Clients

New bookings are crucial for a growing business. Drawing in these first-time customers can help build a loyal client base, generate referrals and testimonials, and establish credibility in the market. In a business where new bookings are the key objective, the size of the contract may be less important to the sales forecast.

Product Sales Quantity and Variety

The number of products sold across different solutions or verticals is a valuable metric in determining strategic decisions. For example, a SaaS fintech that serves both small business and mid-market customers are likely to see that ARR per customer is lower for their SMB product than for their mid-market product. This information informs not only the sales forecast across segments, but also product roadmaps, marketing campaigns, and R&D investment.

Segment Your Sales

Based on your goals, break down your sales forecast by product, region, sales team, or any other relevant category. This granularity will allow for more detailed analysis and precision.

Review Historical Sales Data

Analyze past sales records to understand patterns, growth rates, and seasonality. Adjust for any anomalies like one-off bulk purchases or events that won't recur. Companies that base their forecasts on black swan events, like a competitor going out of business, are likely to miss targets or poorly allocate resources.

Consider Market Conditions

Research current market trends, potential economic shifts, and industry reports. Assess how external factors, like regulatory changes or global events, might impact your sales.

Analyze Your Sales Funnel

Use your CRM to assess the current state of leads and prospects. By evaluating the conversion rates at each stage of your sales funnel, you can project how many leads will become paying customers.

Account for Seasonality

If your business has predictable fluctuations during the year (e.g., retail businesses often see a spike during holiday seasons; corporations may evaluate their financial tech stack in the 4th quarter), adjust your forecast accordingly.

Determine Sales Forecast Maturity

Evaluate how sophisticated your forecasting methods are. Effective CRM reporting and automations serve as powerful tools for a RevOps teams, significantly streamlining the sales forecasting process. Enhanced CRM reporting can provide real-time insights into sales activities, customer behaviors, and deal progressions, eliminating the need for manual data extraction and reducing potential errors. Meanwhile, automations can further expedite routine tasks such as data entry, lead assignment, and creating new opportunities. By automating these processes, your RevOps team can focus more on analyzing trends, predicting outcomes, and strategizing for the future. Optimized CRM functionalities free up valuable time, enabling the team to produce more accurate and timely sales forecasts, thereby driving informed business decisions.

Review and Adjust Regularly

Continuously compare your forecasted figures with actual sales to identify any discrepancies, data issues, or leaks in your funnel. Adjust your forecasting methods based on these learnings to improve accuracy over time and keep your team on target.

Creating an accurate sales forecast is a blend of art and science. With the variety of sales forecasting methods, from top-down forecasts to the use of historical data, businesses have multiple avenues to project their future sales.

Whether you are leveraging a sales projection template or a sophisticated revenue forecast model, remember that the primary objective is to provide a roadmap for your business's growth. Stay flexible, learn from past sales forecast examples, and adjust as you gather more data and insights.

Remember, an accurate forecast isn't just about predicting the future—it's about shaping it. Armed with insights from your forecasting efforts, you can proactively address challenges, seize opportunities, and steer the business towards continued success.

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Jonathan Costet

Written by Jonathan Costet

Sales forecasting is a crucial activity for high-performing sales teams. It helps them create concrete action plans to close more deals in any given quarter.

The problem is there doesn’t seem to be a whole lot of consensus on  how  to actually do a sales forecast.

Teams of all sizes use a bunch of different methods, making it difficult for those of us looking to put together our first sales forecast to understand what steps to take.

In this article, we’re going to look at six different sales forecast examples using different forecasting methodologies so you can understand and decide which calculation makes the most sense for your organization.

What is sales forecasting? 

Before we get into the examples, let’s all get on the same page:

What is sales forecasting anyway?

Sales forecasting is the process of looking forward and projecting what your sales revenue will look like in the coming financial period (usually monthly or quarterly). 

While some financial forecasts might look at a year or even two in the future, sales forecasts are much more tangible and shouldn’t look any further than three months ahead.

There are a number of different ways to forecast sales (we’re going to look at six of them shortly), but most of them look at a combination of historical data (previous sales), current information ( pipeline reviews  and salesperson judgment), and forward-looking estimates (such as new products that are about to hit the market).

Generally speaking, sales leaders are responsible for sales forecasting duties, though they often involve their sales team in this process, particularly if they’re using a pipeline-based methodology.

Sales leaders then forward their sales forecasts up the chain to senior leadership and finance leaders to make important decisions that inform changes to the  sales strategy , investments, and resourcing choices.

What’s important when creating a sales forecast? 

Sales forecasting should be largely data-driven.

Yes, it’s okay to rely a little on your own intuition and the judgment of your sales reps (they’ll need to tell you how likely it is that a certain deal will close, for instance), but hard data should be your foundation.

So, you’re going to need:

• A clean and up-to-date sales pipeline.  Push your reps to keep it updated with deal probabilities loaded in and all lead cards in the  correct pipeline stages .
• An understanding of previous performance.  Pull your numbers from the past few quarters and analyze growth trends that may be applicable to your forecast.
• Lead scoring/rankings.  If your sales team uses a lead scoring or ranking system, this data may prove helpful in formulating a forecast.
• Industry/competitive analysis . It will be important to know of any major changes in your industry. For example, a new market entrant may disrupt sales, as might a legislative change relevant to your vertical. 

Gather the above information, then dive into your sales forecast, using the below examples as a reference.

Still need more guidance?

Get our expert tips on how to create your sales forecast .

6 sales forecast examples 

Ready to create your own sales forecast but not sure where to start?

Explore six different sales forecast examples below, each using a different methodology for projecting sales revenue.

Note the differences, and choose the sales forecasting methodology that best suits your organization.

1. Historical data forecast 

A historical data sales forecast is exactly as it sounds.

You’re going to look at historical sales records (i.e., sales volumes and revenue figures for previous quarters) and use them to estimate future sales.

A smarter historical data forecast would take into account growth trends. Note that in the above example, sales revenue is growing at $20k per quarter. So, we could assume that if our quarter four sales revenue was $290k, quarter one of the following year should be $310k.

Historical forecasting is great because it’s easy, but that’s about it.

As your stockbroker will tell you (if they’re honest): ”past performance is not indicative of future results.”

That’s the major drawback of relying solely on historical data for sales forecasts; you’re not taking into account what’s happening right now (in your pipeline and in the market).

2. Opportunity stage probability forecast 

This kind of sales forecast looks at the deals you have in your sales pipeline right now and builds a projection based on:

• The probability of closing at each stage of the sales process
• The expected revenue from each deal

This type of forecast obviously depends on you having that data available, meaning your sales reps need to be proactive with adding deal amounts to each card, and you need to have deal stage probabilities loaded in based on historical performance.

Let’s say you have the following deal stage probabilities: 

• Prospecting – 10% 
• Qualification – 25%
• Proposal – 40%
• Negotiation – 60%
• Closing – 90%

First, analyze each sales opportunity and add up the expected future revenue from each deal. Let’s say yours looks like this:

• Prospecting – $2.5m 
• Qualification – $1.2m
• Proposal – $800k
• Negotiation – $700k
• Closing – $450k

For this sales forecasting model, you’ll simply multiple the revenue projections for each deal stage by the average sale probability at each stage, for example:

• Prospecting – $2.5m x 10% = $250k
• Qualification – $1.2m x 25% = $300k
• Proposal – $800k x 40% = $320k
• Negotiation – $700k x 60% = $420k
• Closing – $450k x 90% = $405k

Your sales forecast, in this case, is the total across all deal stages (in this case, $1.695m).

Deal stage probability is one of the more accurate sales forecasting methods, plus it’s pretty easy to pull together (at least if you use a  revenue intelligence platform ).

It does have a couple of drawbacks, however.

First neglects to include the age of each deal. A 3-month-old deal sitting in Qualification doesn’t have the same likelihood of closing as a 3-day-old deal, right?

Secondly, the opportunity stage probability forecast assumes that conversion rates remain constant from one period to the next. We know this isn’t always the case, and thus can lead to wide gaps in the accuracy of your forecasts.

Looking at the above example, if we were to lose 10% conversion rate in the Closing stage, the forecast would be around $45k off.

3. Sales cycle forecast 

The sales cycle method covers what the previous sales forecasting process missed: the age of each sales opportunity.

Busy sales pipelines often include old deals (even though that’s commonly a sales manager no-no), so the  sales cycle  forecasting method takes this into account.

With this method, you compare the age of the deal to the average sales cycle length. You’ll need to come up with a weighting system based on deal age.

Let’s say, for example, that the average period of time for a deal to close at your organization is 62 days, and we’re going to weight deals into five categories:

• Over 62 days – 10% close likelihood
• 45-62 days – 30% close likelihood
• 31-44 days – 45% close likelihood
• 18-30 days – 35% close likelihood
• 0-18 days – 25% close likelihood

Then, you’ll multiply each deal’s relevant close likelihood by its expected revenue, add it all up, and there’s your sales forecast.

The sales cycle forecasting method is similar to the deal stage probability forecast in that it has a drawback. It pays attention to the age of each opportunity but ignores historical probability based on the pipeline stage that deal is in.

For more accurate sales forecasts, consider using both approaches and then taking an average figure.

Need a refresher on sales cycles? Here’s our complete guide to understanding the sales cycle .

4. Bottom-up forecast 

The pipeline-based sales forecast is probably the most commonly used method for creating sales projections.

It’s one of the best ways to build an accurate forecast because it’s purely based on the deals your team has in play right now.

Of course, you’ll need to rely on what your reps say about the likelihood of each deal closing, but you trust them, right?

With this methodology, sales organizations perform a thorough pipeline review, going through each deal on the table and asking:

• What’s likely to close (and what isn’t?)?
• Why or why not?
• What’s the dollar value of each of these sales deals?
• What time periods are we looking at? (i.e., are they going to close in the upcoming months that we’re currently forecasting for?

Then, you simply add up the total value of each of the deals, and there’s your forecast.

If you want to get a little more sophisticated, you can combine other types of forecasts, using actual sales data from previous periods and historical deal stage probabilities to supplement sales rep intuitions.

Or, you can just jump straight in with your  Bottom-Up Sales Forecast Template for Excel .

5. Top-down sales forecast

Top-down sales forecasts don’t look at what you’ve got in the pipeline now. Instead, they assess the total revenue value of the target market (which we call the total addressable market) and your company’s ability to capture that revenue.

Here’s how it works:

First, you need to determine what the TAM dollar value is. Let’s say in your industry, it’s $250m.

Then, you look at your market share. Maybe you own 10% of the market.

From here, it’s just a bit of simple math: $250m x 10% = $25m. What’s your annual sales forecast?

As you’re probably thinking, this isn’t the most accurate forecasting method. It relies on a knowledge of your available market, but that doesn’t mean they’re ready to buy.

Plus, it doesn’t take into account:

• Your sales team’s ability to close deals
• Your marketing team’s developments for the coming period
• Changes to the business plan which may impact monthly sales

The top-down sales forecast is best used by those who are new to the market and who can’t analyze a sales pipeline or review historical sales data.

6. Multi-variable forecast 

Multi-variable sales forecasts are a little complicated, but they’re the most accurate around.

More typically used by larger organizations, multi-variable forecasts combine the approaches we’ve looked at above.

For instance, you might start with a pipeline review led by your sales reps, based on their own intuition and understanding of what opportunities are likely to turn into sales.

Then, you’ll check out the historical sales trend. How fast is sales revenue growing? 3% a quarter? How does that align with the pipeline-based forecast?

You may also compare sales rep predictions with deal stage probabilities to assess accuracy (or maybe your probabilities need updating).

On the whole, there is no single way to perform a multi-variable sales forecast. Each organization uses a different formula.

We’d recommend experimenting with each of the above methods and assessing which are the most accurate for your company.

Then, you can build a multi-variable calculation that makes sense.

Dive into sales forecasing with Gong

Sales forecasting can be a painful, long-winded process that takes a large team of reps, managers, and sales leaders days of meetings and dredging through reports. 

Notice, though, that we said  can .

That’s because if you’re savvy with a bit of tech, you can get your  sales forecasting software  to take care of the whole thing for you or at least help you get there  much  faster.

Ready to dive in?  Get our free sales forecasting template here  and start making more accurate revenue projections.

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How to Do a Sales Forecast for Your Business the Right Way

Posted june 8, 2021 by noah parsons.

New entrepreneurs frequently ask me for advice about forecasting their sales . These entrepreneurs are always optimistic about the future of their new company. However, when it comes to the details, most aren’t sure how to predict future sales and how much money they’re going to make.

It’s an intimidating task, looking into the future. The good thing is, none of us are fortune tellers and none of us know any more about your new business than you do. (If you do happen to be able to see into the future, please just skip the whole startup thing and go play the stock market. It’ll be much easier and make you richer!)

So, my advice is always to just take a deep breath and relax. You’re as well equipped as everyone else to put together a credible, reasonably accurate forecast. Let’s dive right in and figure it out.

What is sales forecasting?

Sales forecasting is the process of estimating future sales with the goal of better informing your decisions. A sales forecast is typically based on any combination of past sales data, industry benchmarks, or economic trends. It’s a method designed to help you better manage your workforce, ash flow, and any other resources that may affect revenue and sales

It’s typically easier for established businesses to create more accurate sales forecasts based on previous sales data. Newer businesses, on the other hand, will have to rely on market research, competitive benchmarks, and other forms of interest to establish a baseline for sales numbers. 

Check out our detailed guide on creating a full financial forecast without historical data for more.

Why is sales forecasting important?

Your sales forecast is the foundation of the financial story that you are creating for your business. Once you have your sales forecast complete, you’ll be able to easily create your profit and loss statement , cash flow statement , and balance sheet.

Sales forecasts help you set goals

But beyond just setting the stage for a complete financial forecast, your sales forecast is really all about setting goals for your company . You’re looking to answer questions like:

• What do you hope to achieve in the next month? Year? 5-years? 
• How many customers do you hope to have next month and next year?
• How much will each customer hopefully spend with your company?

Your sales forecast will help you answer all of these questions and potentially any others that involve the future of your business.

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Sales forecasts inform investors

Having a solid sales forecast also provides a picture of your performance and performance milestones for potential investors. Like you, they want to be sure you have established goals and a firm trajectory for your business laid out. The more detailed, organized, and up-to-date your forecast is, the better you explain the position of your business to third parties and even employees.

How to use your sales forecast for budgeting

Your sales forecast is also your guide to how much you should be spending. Assuming you want to run a profitable business, you’ll use your sales forecast to guide what you should be spending on marketing to acquire new customers and how much you should be spending on operations and administration. 

Now, you don’t always need to be profitable, especially if you are trying to expand aggressively. But, you’ll eventually need your expenses to be less than your sales in order to turn a profit.

How detailed should your forecast be?

When you’re forecasting your sales , the first thing you should do is figure out what you should create a forecast for. You don’t want want to be too generic and just forecast sales for your entire company. On the other hand, you don’t want to create a forecast for every individual product or service that you sell.

For example, if you’re starting a restaurant, you don’t want to create forecasts for each item on the menu. Instead, you should focus on broader categories like lunch, dinner, and drinks. If you’re starting a clothing shop, forecast the key categories of clothing that you sell, like outerwear, casual wear, and so on.

You’ll probably want between three to ten categories covering the types of sales that you do. More than ten is going to be a lot of work to forecast and fewer than three probably means that you haven’t divided things up quite enough.

You really can’t get this wrong. After all, it’s just forecasting and you can always come back and adjust your categories later. Just pick a few to get started and move on.

Which forecasting model is best? Top-down or bottom-up?

Before they have much historical sales data, lots of startups make this mistake—and it’s a big one. They forecast “from the top down.” What that means is that they figure out the total size of the market (TAM, or total addressable market) and then decide that they will capture a small percentage of that total market.

For example, in 2015, more than 1.4 billion smartphones were sold worldwide. It’s pretty tempting for a startup to say that they’re going to get 1 percent of that total market. After all, 1 percent is such a tiny little number, it’s got to be believable, right?

The problem is that this kind of guessing is not based on any kind of reality. Sure, it looks like it might be credible on the surface, but you have to dig deeper. What’s driving those sales? How are people finding out about this new smartphone company? Of the people that find out about the new company, how many are going to buy?

So, instead of forecasting “from the top-down,” do a “bottom-up” forecast. Just like the name suggests, bottom-up forecasting is more of an educated guess, starting at the bottom and working up to a forecast.

Start by thinking about how many potential customers you might be able to make contact with; this could be through advertising, sales calls, or other marketing methods. This is your SOM (your “share of the market”), the subset of your 1 percent of the market that you will realistically reach—particularly in the first few years of your business. This is your target market .

Of the people you can reach, how many do you think you’ll be able to bring in the door or get onto your website? And finally, of the people that come in the door, get on the phone, or visit your site, how many will buy?

Here’s an example:

• 10,000 people see my company’s ad online
• 1,000 people click from the ad to my website
• 100 people end up making a purchase

Obviously, these are all nice round numbers, but it should give you an idea of how bottom-up forecasting works.

The last step of the bottom-up forecasting method is to think about the average amount that each of those 100 people in our example ends up spending. On average, do they spend $20? $100? It’s O.K. to guess here, and the best way to refine your guess is to go out and talk to your potential customers and interview them. You’ll be surprised how accurate a number you can get with a few simple interviews.

How to create a sales forecast

Keep in mind that your sales forecast is an estimate of the number of goods and services you believe you can sell over a period of time. This will also include the cost to produce and sell those goods and services, as well as the estimated profit you’ll come away with.

We’ll dive into specific methods, assumptions, and questions you’ll need to ask in order to build a viable sales forecast. But to start, here are the general steps you’ll need to take to create a sales forecast:

• List out the goods and services you sell
• Estimate how much of each you expect to sell
• Define the unit price or dollar value of each good or service sold
• Multiply the number sold by the price
• Determine how much it will cost to produce and sell each good or service
• Multiply this cost by the estimated sales volume
• Subtract the total cost from the total sales

This is a super basic rundown of what is included in your sales forecast to give you an idea of what to expect. For example, you may find the need to aggregate similar items into unified categories, if you sell a large variety of items. And if at all possible, try to keep your forecasted items grouped similarly to how they appear on your accounting statements to make updates easier.

Check out this video for a quick overview of how to forecast sales:

Now let’s dive into some specific elements of your forecast you’ll need to define ahead of time.

Should you forecast in units or dollars?

Let’s start by talking about “unit” sales.

A “unit” is simply a stand-in for whatever it is that you are selling. A single lunch at a restaurant would be a unit. An hour of consulting work is also a unit. The word “unit” is just a generic way to talk about whatever it is that you are selling.

Now that’s out of the way, let’s talk about why you should forecast by units.

Units help you think about the number of products, hours, meals, and so on, that you are selling. It’s easier to think about sales this way rather than to think just in dollars (or yen, or pounds, or rand, etc.).

With a dollar-based forecast, you are only thinking about the total amount of money that you’ll make in a given month, rather than the details of the number of units that you are selling and the average price you are selling each unit for.

To forecast by units, you predict how many units you’re going to sell each month—using the bottom-up method of course. Then, you figure out what the average price is going to be for each unit. Multiply those two numbers together and you have the total sales you plan on making each month.

For example, if you plan on selling 1,000 units at $20 each, you’ll make $20,000.

When you forecast by units, you have a couple of different variables to play with: What if I’m able to sell more units? What if I raise or lower my prices?

Also, there’s another benefit: At the end of a month of sales, I can look back at my forecast and see how I did compared to the forecast in greater detail. Did I meet my goals because I sold more units? Or did I sell for a higher price than I thought I would? This level of detail helps you guide your business and grow it moving forward.

Sales forecast assumptions

One thing to remember is that your sales forecast is built on assumptions. You’re not predicting the future, but aggregating information to help define your future outlook. These assumptions are always changing, meaning that you’ll need to have a pulse on the following:  

Market conditions

Having a general understanding of the macro effects on your business can help you better predict overall growth. A growing or shrinking market can either provide a low or high ceiling for potential sales increases. So, you need to understand how your business can react to any changes.

What does the broader market look like? Is the economy slowing or growing? Is the industry you operate in seeing an influx of competition? Maybe there’s a labor or material shortage? Are there new customers you now have access to?

Products and services

You may find yourself making regular changes to your products and services. This can be sales factors that impact the customer, or production factors that impact the overall cost. 

Are you making any changes or updates to current offerings? Are you launching a new product or service that compliments or disrupts your existing sales? Are you adjusting prices or sales channels? Are you able to decrease the cost of production? Or are expenses rising due to material, labor, or other production costs?

Seasonality

Depending on what you’re selling, you may find dips or increases in sales at specific times during the year. This seasonality may have to do with the weather, holidays, product/feature releases, or a number of other predictable factors. 

If you have been operating for a while, you can likely look at your accounting data to identify any trends. If you’re a new business look to your competitors to see how they act during specific times of the year to help you identify these trends earlier on.

Marketing efforts

How much you spend on marketing, and even your messaging may have an impact on your overall sales. Make sure that you connect any performance changes to marketing efforts that may affect your performance.

Are you launching a new marketing campaign? Are you spending more or less on advertising? Are you adjusting your targeting for digital ads? Are you branching out or removing specific marketing channels from your overall strategy?

Regulatory changes

You may find that specific laws or regulations directly impact your industry. It’s difficult to anticipate what legislation will provide a negative or positive impact, and just how often this type of regulatory change may occur. The best thing you can do is keep your ear to the ground, and be ready to adjust expenses or sales when any changes appear to make traction.

How far forward should you forecast?

I recommend that you forecast monthly for 12 months into the future and then just develop an annual sales forecast for another three to five years.

The further your forecast into the future, the less you’re going to know and the less benefit it’s going to have for you. After all, the world is going to change, your business is going to change, and you’ll be updating your forecast to reflect those changes.

12 months from now is far enough into the future to guess. You’ll have to update your forecasts regularly with actual performance to help keep them accurate. 

And don’t forget, all forecasts are wrong—and that’s O.K. Your forecast is just your best guess at what’s going to happen. As you learn more about your business and your customers, you can change and adjust your forecast. It’s not set in stone.

Why using visuals will make forecasting easier

My final word of advice is to make sure that you graph your monthly sales with a chart.

A chart will make it easy to see how your sales might dip during a slow period of the year and then grow again during your peak season. A chart will also highlight potentially unreasonable guesses at your sales growth. If for example, you show a big jump in sales from one month to the next, you should be able to back this up with a strategy that’s going to deliver those sales.

Adjust your forecasts based on actual results

Your sales forecast isn’t done when you start sharing it with lenders and investors. Instead, smart businesses use their sales forecast to measure their progress and ensure that they’re on the right track. Their sales forecast becomes a live forecast . An up-to-date management tool that helps them run their business better.

The easiest way to convert your sales forecast into a management tool is to have a monthly financial review meeting where you look at your business’s finances. You shouldn’t just look at your accounting system, though. You should compare the numbers from your accounting software to your forecast and see if you’re on track. 

Are you exceeding your goals? Or maybe you’re falling a little bit short. Either way, knowing if you’re meeting your goals or not will help you determine if you need to make some shifts in strategy. This way, your business numbers drive your strategy.

Forecasting is easier with LivePlan

Sales forecasting tools like LivePlan can help with this. LivePlan uses a smart dashboard to automatically compare your forecast to your numbers from your accounting system—no cutting and pasting or complicated spreadsheets required. And with LivePlan’s LiveForecast feature , you can update the forecasts within your Profit and Loss Statement, with the push of a button. 

This allows you to spend less time updating and more time analyzing performance to make better decisions. In fact, the LiveForecast feature allows you to expand the details of your performance and identify the variance in performance within your statements. You’ll know your current cash position and the impact on projected year-end totals at a glance. It provides you with enough information to then explore the dashboard with questions and potential steps in mind.

Sales forecasting isn’t as difficult as you think

Just remember that sales forecasting doesn’t have to be hard. Anyone can do it and you, as an entrepreneur, are the most qualified to do it for your business. You know your customers, and you know your market, so you can forecast your sales.

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How to create a sales forecast: Methods and examples

A sales forecast allows you to estimate future revenue by predicting sales over time. Learn the benefits of forecasting and how to create one.

17 June 2024

Creating an effective sales forecast for your business lets you "see into the future", helping you optimise your supply chain and inventory, staff appropriately, and plan for sustainable growth. 

In this guide, we'll look at different types of forecasting, the benefits and challenges, and how to manage forecasting in your business. 

What is a sales forecast? 

A sales forecast is a way to project future sales of a product or service using past sales data and other inputs.

You can use a forecast to predict sales for the coming week, month, quarter, year or more. 

What is the purpose of a sales forecast? 

The purpose of a sales forecast is to help you predict and plan for future revenue.

Sales forecasts give you clarity around likely sales volumes, so you can plan your spending and manage cash flow , optimise inventory levels and staffing, and even open new locations or expand your business. 

Who is responsible for creating a sales forecast?

The person who creates a sales forecast differs depending on the size and structure of your business .

Sales forecasting is part of sales management , which means it's usually done by the sales manager or head of the sales team. If you own a smaller business, sales forecasts may be your responsibility. 

Sales forecasting methods

There are several common sales forecasting methods, including multivariable forecasting which combines elements of different forecasting methods. 

Opportunity forecasting 

This method, sometimes called opportunity stage forecasting, involves breaking your sales cycle into stages, then calculating the likelihood of conversion at each stage.

Opportunity forecasting can help you identify the most important parts of your sales cycle and where you should focus your energy. 

Historical forecasting

This relatively simple forecasting method uses data from previous sales periods, including sales volume (the amount of product sold) and velocity (the rate of increase in sales over time).

By multiplying sales volume from the previous period by sales velocity, you can work out how much your sales are likely to increase in the next period. 

Pipeline forecasting 

This method uses data from your sales pipeline , individual salespeople or locations to predict the success of a particular sales period. Data about the value of each potential sale and the win rate of each salesperson or team helps you estimate revenue for the upcoming week, month or year. 

Intuitive forecasting

This type of forecasting uses human inputs as well as hard data.

It starts with asking your salespeople or teams how confident they are about specific sales — because they're the ones most involved with the sales process, it makes sense that they would know best.

From there, you can use other metrics to forecast sales for the upcoming sales period.  

Length of sales cycle forecasting

This method of forecasting is based on the length of your sales cycle, making it more specific to your business and industry.

For example, if you're in an industry where closing a sale can take multiple meetings over months, a short-term forecasting method isn't likely to be useful.

With length of sale forecasting, you use the average length from prospect to conversion, look at how long potential sales have been in the pipeline, and predict upcoming sales using that information. 

Multivariable analysis forecasting

This method combines elements of the previous forecasting frameworks. As the name suggests, multivariable analysis uses data from a range of sources to deliver a detailed — and accurate — picture of future sales.

Inputs can include the length of your sales cycle, the win rate of sales teams or people, the volume of sales for previous months, and outside factors such as competitor sales or market changes.

Of course, the accuracy of any multivariable analysis depends on the accuracy and currency of your data. 

Benefits of a sales forecast 

The benefits of sales forecasting include improving inventory management , optimising costs against income, planning for growth, and ensuring you've enough staff on hand when you need them. 

Improve management of inventory and supply chains 

If you know how much stock you're likely to sell in the coming weeks and months, it's much easier to manage inventory levels so you can avoid high carrying costs , lost sales and unhappy customers from understocking.

A good sales forecast lets you know how much to buy, so you can order ahead of time, make stock available when and where you need it, and optimise your supply chain to ensure reliable delivery. 

Manage costs against income

Forecasting is also useful when it comes to managing costs against income. Insight into future revenue can help you balance costs against income and plan major expenses to coincide with rising revenue. 

Plan for growth 

If you're planning to expand your operations, open new locations, buy new equipment or find more space for manufacturing, accurate forecasting is a useful tool.

If you know demand is likely to rise in the next few months or years, you can make informed decisions around expansion and growth. 

Manage staff volumes

Like inventory, staff volumes need to match demand. Overstaffing is wasteful while understaffing can lead to lost sales and frustrated customers.

Forecasting helps you get staffing ‘just right' by projecting sales for specific periods and seasons, so you can roster or hire appropriately. 

Challenges of creating a sales forecast 

The challenges involved with creating a sales forecast include inaccurate data, lack of sales history, assumptions about performance and over-reliance on a key supplier.

Of course, no matter how accurate your forecasts, unexpected events can also have an impact on sales results. 

Data accuracy 

The accuracy of your forecast is tied to the accuracy of your data. If you're using disconnected systems and have data silos , your numbers aren’t likely to be up-to-date and error-free, so your forecasts won’t be very helpful. 

Sales history 

Most forecast methods rely on past sales data — if your business hasn't been around long enough to build a sales history or if you've not been keeping accurate or detailed records, it could be difficult to forecast accurately. 

Assumptions on business performance

Forecasts require you to make some assumptions about business performance. For example, you may use a fixed rate to project increases in revenue over time.

However, real life doesn't always match up to those assumptions. Sales can slow for any number of reasons — from competitors entering the market to weather events or roadworks impacting foot traffic to your store. 

Reliance on suppliers

Your forecast shows promising sales, but if your suppliers can't keep up with demand, then those sales can't happen.

If supplier issues or stock shortages are eating into potential sales, you may need to look for alternate suppliers. 

Unexpected events

Even the most accurate forecast can be turned on its head by an unexpected event — a natural disaster, sudden loss of key staff members or changes in your industry. 

How to create an effective sales forecast

Creating an effective sales forecast starts with choosing the right method, gathering data, and looking at wider trends in your sector. 

Choose a forecasting method

There's no single forecasting method that works for every business. The right option depends on what your business does, how your sales process works, the software and data you have on hand, and how much time you can devote to forecasting.

For example, straightforward historical forecasting works well for many retail businesses, while length-of-cycle forecasting would be more appropriate for a real estate agency or B2B software business with less frequent sales. 

Define your sales objectives

What are your sales goals? These could be increasing sales month-by-month, boosting average sale value or shortening your sales cycle.

Once you've created your sales forecast, you can check against your goals to ensure you're being realistic. 

Establish a clear sales process

A deep understanding of your sales process is crucial for accurate forecasting. If you don't have a clear, consistent sales process, it's more difficult to estimate potential sales and project revenue over time. 

Invest in a CRM 

A CRM not only helps you track sales and understand your sales process, but many have built-in forecasting tools and dashboards that can save significant time and effort. 

Analyse market trends 

Forecasting isn't just about what's happening inside your business — it's also important to look at wider market trends, competitor sales and processes, and economic changes that could impact your business. 

Review historical data 

Past sales data is a vital piece of the forecasting puzzle. If your business has only been operational for a short time, you may not have a lot of historical data, but it's still worth looking at the numbers as you move forward. 

Review previous sales forecasts 

If you've used forecasts in the past, reviewing those numbers compared to real-time outcomes can be a helpful way to gain more insight.

If there's a major disconnect between projections and revenue, it could indicate a problem with your forecasting process or your business data. 

Monitor and update regularly 

Forecasting is an ongoing process, with regular monitoring, tweaks and updates needed to ensure it's working for your business.

Some businesses forecast day by day, some run a sales report with projections every week or month, and others forecast quarterly — it all depends on your sales turnaround time and goals. 

If you have a CRM or accounting software with built-in forecasting or analytics tools, it's relatively straightforward to make forecasting part of your day-to-day business.

You may be able to check metrics like sales, growth and velocity through a simple dashboard, then set goals for the following sales period immediately. 

Sales forecasting best practices 

Best practices for sales forecasting include using clean, accurate data, considering both internal and external factors, and choosing the right forecasting framework.

Ensure the data you're using is clean and concise 

Whether you're pulling data from your CRM, accounting software, ecommerce platform or other business management tools, clean, concise data is key.

Errors, double-ups and missing data will affect the accuracy of your forecast. 

Account for external and internal factors 

Consider external factors like market conditions, competitors, season and internal sales results. 

Select the correct forecasting method 

Picking the right forecasting method can be the difference between a valuable forecast and an inaccurate waste of time.

For example, a small retail store probably doesn't need to run a complex multivariable analysis just to project sales for the next 6 months — a simpler historical forecast would offer enough information. 

Example of a sales forecast 

Here's an example of a basic historical forecast:

Hannah's Pet Supplies 

Monthly revenue (Jan 2024): $150,000 Growth rate: 12% per month Average churn: 1% per month February 2024 (forecasted): $166,500

Calculations:  Sales forecast = Current revenue x (1 + growth rate) - Current revenue x churn rate

So, sales forecast = ($150,000 X 1.12) – ($150,000 X 0.01) = $166,500

Sales forecast FAQs

How do you create a 12-month forecast.

Follow these steps to create a basic 12-month forecast: 

Divide your revenue for the previous year by 12 to find your monthly average sales. 

Compare month-by-month sales to find the average percentage increase in revenue – if any. 

Multiply average sale value by expected growth to find projected sales for the next month. Then calculate using that figure for the following month – and so on. 

Add monthly figures to find your projected revenue total for the coming year. 

Is Excel good for forecasting?

Excel can be a useful forecasting tool because it's endlessly flexible — you can input almost any calculation and customise it to fit your business.

However, if you're not an Excel expert, it can be an overly complicated and time-consuming way to create sales forecasts. If you're not prepared to create and manage your own forecast spreadsheets, a simpler, user-friendly app or purpose-built online tool could be a better option. 

What is the number one rule of forecasting?

The number one rule of forecasting is: your forecast is only as accurate as your data. If you're working with old, inaccurate or inaccessible data, it's very difficult to create a useful sales forecast. 

Fast, simple forecasting with MYOB 

A sales forecast is a powerful tool for small business owners, helping you keep the right products in stock at the right times, staff appropriately, and plan for future income and ongoing growth.

MYOB's financial reporting software helps you track and record sales, growth and ongoing costs. Smart, simple and effective, it's the best way to make sure your business has accurate, up-to-date sales numbers on hand to create useful sales forecasts. Get started today .

Disclaimer: Information provided in this article is of a general nature and does not consider your personal situation. It does not constitute legal, financial, or other professional advice and should not be relied upon as a statement of law, policy or advice. You should consider whether this information is appropriate to your needs and, if necessary, seek independent advice. This information is only accurate at the time of publication. Although every effort has been made to verify the accuracy of the information contained on this webpage, MYOB disclaims, to the extent permitted by law, all liability for the information contained on this webpage or any loss or damage suffered by any person directly or indirectly through relying on this information.

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How to Create a Sales Forecast Business Plan

Sales forecasting is a powerful way to improve decision-making and make smarter choices as a business. But the reality is, many organisations don’t get it right.

Accurate sales forecasts rely on astute insights driven from robust, holistic data. If your business has struggled to accurately predict future sales revenue in the past, our guide could help you get it right in the future.

Ready to get started? Use the links below to navigate or read on for our full guide to accurate sales forecasting.

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What is a Sales Forecast?

Why is sales forecasting important, what factors can affect sales forecasting, how to create a sales forecast, tools to help with sales forecasting.

A sales forecast is an estimate of what a company will sell in a week, month, quarter or year. It’s used to predict future revenue, accounting for the number of units an individual, team or company is likely to sell over a set period.

Sales forecasting offers many benefits when leveraged as part of a broader business strategy. At all levels and across all functions within a business, forecasting can facilitate shrewd decision-making, whether that’s setting goals and budgets, prospecting for new leads, deciding on the best time to hire new staff, or effective stock management to help maximise cashflow.

Accurate sales forecasting is a projection of where a company will stand in the future. And that’s important, not only for business continuity and growth, but for cultivating credibility, trust and advocacy with key stakeholders – be it partners, investors, clients or customers.

Let’s take a look at some of the reasons why sales forecasting matters:

• Bolsters decision-making – accurate predictions about future revenue can facilitate improved decision-making across all business functions, from hiring managers tasked with recruiting new talent, to procurement teams discerning when and how much stock to source.
• Adds value to all business functions – sales forecasting defines the value brought by different departments across the business. It highlights how different functions and channels contribute to revenue generation, helping businesses manage their resources.
• Accurate sales and buying for reduced costs – a sales forecast simplifies inventory management, with accurate stock predictions reducing costs and freeing up valuable resources, like warehouse space.
• Allocation of sales and marketing budget – Forecasting helps account for peaks and troughs in sales, so you can assign marketing budgets and determine which products and services need attention.
• Guarantees timely recruitment and outsourcing to drive business growth – understanding the areas of your business that drive the most revenue can make for seamless recruitment. Reinvesting revenue in personnel is a seismic driver of business growth, and sales forecasting can help you decide where to make hires and when. Not only that, but it can help companies decide whether they should look at outsourcing or whether to bring outsourced activities back in-house, e.g., the use of courier companies versus investing in your own delivery fleet.
• Provides valuable revenue expectations to outside stakeholders, like investors – sales forecasting quantifies your revenue predictions, making it easier and less risky to attain outside support from investors and stakeholders.
• Allows for simple company benchmarking against competitors – where your business ranks against competitors is important, and sales forecasting highlights how your trajectory compares to your closest rivals.
• Offers a powerful means of motivating sales personnel – a sales forecast is the best way of benchmarking the performance of salespeople within your business. It’s also a great motivator, particularly for staff incentivised by the promise of commission.

Many internal and external factors can impact the accuracy of your sales forecasts. You’ll need to account for all sorts of influences when predicting sales activity, including:

• Economic uncertainty and conditions
• Competitor changes
• Market trends and seasonality
• Product changes and future innovations
• Internal pricing or policy changes
• Available marketing spend and budgets
• Staff levels (more or fewer sales personnel will affect figures, for example)
• Future business plans e.g., expansion or diversification plans

This isn’t an exhaustive list of factors that can affect sales forecasting, but it does provide a steer for the types of influences that you’ll need to factor into your predictions.

Sales forecasting isn’t rocket science, but it does require a methodical approach to guarantee accuracy. Here, we’ll demonstrate how to make accurate sales predictions in five easy-to-follow steps.

Step 1: Consider Sales History

The first step to accurate sales forecasting is to look not to the future, but the past. By examining sales data over the past 12 months, you’ll glean insights that you can use as the basis of your future sales predictions, noting things like volumes, trends, and seasonality changes that caused peaks and troughs in demand.

When exploring historic sales data, be mindful of your ‘sales run rate’ – the number of projected sales for a particular period. For example, sales data may reveal a large disparity between quarterly sales figures, affecting the overall run rate; you’ll need to factor this into your forecasts for the future.

Step 2: Anticipate Changes and External Influences

While historic sales data provides a clear view of when and where sales typically happen over a year, it doesn’t guarantee the same sales figures for the future. Depending on a plethora of external and internal influences, next year’s sales could be up or down – so how do you accurately predict future revenue?

Start by taking each influence in turn and assess how such a force would have impacted last year’s sales figures. For example, do you plan to increase prices over the next 12 months? If so, how might this affect sales in relation to previous figures?

Here are some of the factors you should consider when predicting future sales performance:

• Pricing changes – will your prices change? How might this affect custom?
• Customer changes and trends – are consumer trends turning in your favour, or going the other way? Market awareness is crucial for accurate sales forecasting.
• Promotions – do you have any sales or promotions lined up to increase demand? How might these affect sales targets?
• Product alterations – are you improving your products and services?
• Sales channels – do you plan to expand into additional sales channels in the near future or acquire new branches?

Step 3: Lean on the Right Systems for Accurate Data Capture and Analysis

Sales forecasting becomes much simpler and more accurate when the right tools are used to capture and analyse data. Integrated ERP software, for example, collates sales data from every channel of your business – including trade counter or EPOS sales, telesales, sales rep orders, ecommerce etc. – so you can make data-backed predictions with confidence.

A great example of the types of tools you can use for accurate sales forecasting is predictive stock management. Automating the forecasting process, it presents the user with a forecast prediction aligned to their stock preferences, e.g., how much buffer stock you want to carry, as well as stock lead times.

Presented with this data, the procurement team can then use their insight and knowledge to tweak this forecast where necessary. It’s a great example of the marriage of automation to reduce manual work, whilst still allowing people to have input on the end result.

Elsewhere, utilising customised dashboards or control desks, instead of static reports, to differentiate pipeline value by rep, branch, prospect customer etc., can give businesses dynamic information to adjust their forecasts and be agile around expectations and demand.

What’s more, clever use of the CRM in conjunction with opportunity probability management enables you to allocate an estimated percentage chance that you think you will win a sales deal. By giving each sales opportunity/quotation a probability, you can produce a sales weighting forecast that will give you a fairly accurate idea of what your sales will be.

This will give you a better chance of forecasting the revenue and stock position of months and years ahead.

Step 4: Align Sales Predictions with Your Business Strategy

Many businesses have a five-year plan, a strategy that looks to drive business growth and profitability. But remember, such a plan will impact sales in one way or another, so it’s important that you align your sales forecasts with your short and long-term business objectives.

Say, for example, your business plan sets out a period of growth in the form of new hires or the creation of a whole new department. How will this affect sales? And to what extent should it be factored into your revenue forecasts?

Aligning your business strategy and sales forecasts is a crucial step. It helps prioritise business activity, ensuring that the right decisions are made to drive the business forward.

Step 5: Set Out Your Sales Forecasts in the Right Way

Charts, graphs and annotations can all be used to set out your sales forecasts for the year ahead. These should be included in your business plan, providing an accessible means of sharing forecasts with key stakeholders, personnel and investors.

As well as charting forecasts in number terms, you should set out your sales strategy, including how you arrived at the quoted figures. This not only quantifies your reasoning, but serves as a reminder of the market position at the time of writing – something that could prove useful if you need to refer back to where the figures came from at a later date.

Sales forecasting can be a laborious process, particularly if you want to guarantee accuracy. There are, however, a range of tools and software which can be leveraged to automate some elements of the process, removing some of the legwork associated with sales forecasting.

At Intact, we’re well aware of the importance of sales forecasting – and the arduous nature of it. That’s why we offer specialist expertise and solutions to help automate and simplify the process, from ERP software and predictive stock management to data analytics tools designed to improve data-driven decision-making.

We hope this guide helps you take stock of sales forecasting. If you’d like to optimise this area of your business, the Intact team can help. For more information or to speak to a member of our specialist team, visit the homepage . Alternatively, for more help and advice on ways to manage your inventory, take a look at our free guide to effective stock management .

Fiona McGuinness

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The beginner’s guide to sales forecasting

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Learn how to create an accurate sales forecast with key features and step-by-step examples in our sales forecasting guide

Sales forecasting  is the process of estimating future revenue by predicting how much of a product or service will sell in the next week, month, quarter, or year. At its simplest, a sales forecast is a projected measure of how a market will respond to a company’s go-to-market efforts.

Whether you’re new to sales forecasting or a seasoned pro in need of a refresher, use this blog as your sales forecasting guide.

Why is sales forecasting important?

Forecasts are about the future. It’s hard to overstate how important it is for a company to produce an accurate sales forecast. Privately held companies gain confidence in their business when leaders can trust forecasts. For publicly traded companies, accurate forecasts confer credibility in the market.

Sales forecasting adds value across an organization. Finance relies on forecasts to develop budgets for capacity plans and hiring, and production uses sales forecasts to plan their cycles. Forecasts help sales operations with territory and quota planning, supply chain with material purchases and production capacity, and sales strategy with channel and partner strategies.

There are many types of sales forecasts depending on your go-to-market strategy such as:

• Opportunity forecasting
• Retail sales forecasting
• E-commerce sales forecasting
• Services forecasting
• Consumption-based forecasting
• Run-rate forecasting

These are only a few examples. Unfortunately, at many companies these methodologies stay disconnected, which can produce adverse business outcomes. If information from a sales forecast isn’t shared, for example, product marketing may create demand plans not aligned with sales quotas or sales attainment levels. This leaves a company with too much inventory, too little inventory, or inaccurate sales targets — all mistakes that hurt the bottom line. Committing to regular, quality sales forecasting can help avoid such expensive mistakes.

Close the gap between how you run your business and how you plan for it. Check out our guide for more reliable sales forecasting.

How to accurately forecast sales

To create an accurate sales forecast, follow these five steps:

Assess historical trends

Examine sales from the previous year. Break the numbers down by price, product, rep, sales period, and other relevant variables. Build those into a “sales run rate,” which is the amount of projected sales per sales period. This forms the basis of your sales forecast.

Incorporate changes

This is where the forecast gets interesting. After you have your basic sales run rate, you want to modify it according to several changes you see coming. For example:

• Pricing:  Are you changing the prices of any products? Are there competitors who may force you to modify your pricing schemes?
• Customers:  How many new customers do you anticipate landing this year? How many did you land the previous year? Have you hired new reps, gained quantifiable brand exposure, or increased the likelihood of gaining new customers?
• Promotions:  Will you be running any new promotions this year? What is the ROI on previous promotions, and how do you expect the new ones to compare?
• Channels:  Are you opening any new channels, locations, or territories?
• Product changes:  Are you introducing new products or changing your product suite? How long did it take for previous products to gain traction in the market? Do you expect new products to act similarly?

Anticipate market trends

Now is the time to project all the market events you’ve been tracking. Will you or your competitors be going public? Do you anticipate any acquisitions? Will there be legislation that changes how your product is received?

Monitor competitors

You’re likely doing this already, but take into account the products and campaigns of competitors, especially the major players in the space. Also check around to see if new competitors may be entering your market.

Include business plans

Add in all your business’s strategic plans. Are you in growth mode? What are hiring projections for the year? Are there any new markets you’re targeting or any new marketing campaigns? How might all this impact the forecast?

Once you’ve quantified these things, build them into your forecast. You want everything to be itemized, so you can understand the forecast in as granular a level as possible. Different stakeholders in the company will likely want to understand different aspects of the forecast, so it behooves you to be able to zoom in or out as far as needed.

Keys to success in sales forecasting

Improving the accuracy of your sales forecasts and the efficiency of the forecast methodology depends on multiple factors, including strong organizational coordination, automation, reliable data, and an analytics-based process. Ideally, sales forecasts should be:

• Collaborative.  Leaders should synthesize input from a variety of sales roles, business units, and regions. Frontline sales teams can be of great value here, providing a perspective on the market you hadn’t considered before. 
• Data-driven.  Predictive analytics can reduce the impact of subjectivity, which is often more backward-looking than forward-looking. Using common data definitions and baselines will foster alignment and save time. 
• Produced in real time.  Investing in the real-time capability to course-correct or reforecast allows sales leaders to quickly gain insight so they can make more informed decisions. This enables them to quickly and accurately update the forecast based on demand or market changes.
• Single-sourced with multiple views.  Generating the forecast as a single source of data gives you great visibility into rep, region, and company performance, and helps align different business functions across the organization. 
• Improved over time.  Use the insights provided by an improved sales forecasting process to create more refined future forecasts where accuracy improves over time against a set of accuracy goals.

Companies with more advanced forecasting processes and tools perform better than their peers because they more deeply understand their business drivers and can shape the outcome of a sales period before the period closes.

Top sales forecasting challenges

It can be difficult to produce a consistently accurate sales forecast. Here are some of the top sales forecasting challenges to avoid:

Accuracy and mistrust

When companies use spreadsheets for sales forecasting, they can run into issues with accuracy, which in turn creates a less trustworthy forecast.

Subjectivity

Although producing a quality sales forecast does rely to a small degree on the forecaster making good decisions about how to use the data, in general, companies rely more on judgment and less on credible predictive analytics than they should.

When a sales forecast isn’t generated in a way useful for stakeholders across the company, it becomes far less effective than it should be. A good forecast should produce relevant and understandable data for multiple teams.

Inefficiency

Sales forecasts can be especially difficult to produce when inefficiencies are built into the forecasting process. For example, when a forecast has multiple owners, or the forecast process is not clearly spelled out with a standard set of rules, there can be disputes about how the forecast will be produced.

Company forecasts across the enterprise

To forecast across the enterprise, a company needs different elements from each business function. Here’s what different functions can contribute to the sales forecast:

• Sales:   Provides the bottom-up view, using data from the CRM and PRM, building in judgment from sales leaders. Sales can manage this process through the sales operations function, using the right tools and reporting. 
• Finance:   Provides macroeconomic guidance and works with the product teams. Finance can help integrate the forecast with their financial planning software. 
• Marketing:   Provides macro-market guidance, especially in industries like telecom, retail, and CPG. Marketing can also provide finance teams with market data. 
• Supply Chain:   Provides input on supplies and production. 
• HR:  Assists with sales capacity planning and headcount forecasting based on attrition and staffing needs across every function that touches revenue such as contact centers, professional services, and retail stores.
• IT:  Assists sales forecasting by providing platforms, data, integration, and technical support.

Features to look for in sales forecasting software

Best-in-class sales forecasting software should be able to immediately improve the accuracy of your forecasts and make the forecasting process more efficient.

• Execute sales forecast simulations and outcomes.  Make changes to drivers and execute sales forecast simulations to project future impact on sales performance. 
• Analyze trends, changes, and seasonality of the sales forecast over time.  Develop time-based dashboards and key performance indicators (KPIs), such as velocity calculations, trending analytics, and seasonality fluctuations. 
• Model and analyze “what-if” scenarios . Create “what-if” scenarios and modeling to analyze the impact to the sales forecast if a specific business, economic, or competitive situation were to occur.
• Build sales forecasting calculations with familiar formulas . Apply an easy-to-use formula builder to configure sales forecast benchmarks using familiar formulas and syntax. 
• Snapshot Salesforce CRM accounts and opportunities to compare period-over-period . Compare week-over-week, month-over-month, and year-over-year changes to current periods. 
• Compare forecasts based on multiple modeling techniques.  Create sales forecasts based on qualitative, time series analysis and projection, and casual modeling techniques while determining the degree of uncertainty. 
• Forecast across geographies, products, and accounts.  Develop sales forecasts by geographic locations, product lines, and accounts, or change any of these dimensions to analyze the sales forecast at any granularity of these hierarchies.
• Analyze performance with data visualization.  With built-in dashboards, reporting, and analytics with data visualization you can analyze sales forecast and sales performance metrics to make better decisions with actionable insights.

Why use Anaplan for sales forecasting?

The Anaplan platform is uniquely configured to improve sales forecasting . By putting all relevant employees — salespeople, sales leaders, ops teams, finance, supply chain, marketing, and executives — on the same platform, companies can do the following:

• Increase accountability and ensure the sales team reports sales pipeline activity more accurately.  Identify sales deals at risk, eliminate “sandbaggers,” and reduce overcommits. 
• Standardize sales forecasting and pipeline management.  Provide a single line of sight across the entire organization so everyone has a view into revenue projections, sales projections, and operational insight. 
• Create accurate and trusted sales forecasts.  Enable functional leaders to make better and more informed decisions by providing accurate and trusted sales forecasting to all business units, including sales, finance, operations, HR, and marketing.
• Access data-driven sales benchmarking and trend analysis.  Enable sales leaders to use historical and current sales performance as a benchmark to predict future sales results. Make changes to functional plans and implement these changes across all other business models.

By adopting a  Connected Planning  approach, bringing together people, data, and processes from across the enterprise, companies can produce an accurate sales forecast that connects teams throughout the company. 

Additional sales forecasting resources

Looking for more sales forecasting guidance. Check out these insightful resources:

• White paper: The finance leader’s guide to reliable sales forecasting
• Case study: DocuSign transforms sales forecasting with the Anaplan platform
• Webinar: Increase forecast accuracy with sales planning optimization

Explore our demo series to learn more about Anaplan for sales forecasting

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Run » finance, how to create a financial forecast for a startup business plan.

Financial forecasting allows you to measure the progress of your new business by benchmarking performance against anticipated sales and costs.

When starting a new business, a financial forecast is an important tool for recruiting investors as well as for budgeting for your first months of operating. A financial forecast is used to predict the cash flow necessary to operate the company day-to-day and cover financial liabilities.

Many lenders and investors ask for a financial forecast as part of a business plan; however, with no sales under your belt, it can be tricky to estimate how much money you will need to cover your expenses. Here’s how to begin creating a financial forecast for a new business.

[Read more: Startup 2021: Business Plan Financials ]

Start with a sales forecast

A sales forecast attempts to predict what your monthly sales will be for up to 18 months after launching your business. Creating a sales forecast without any past results is a little difficult. In this case, many entrepreneurs make their predictions using industry trends, market analysis demonstrating the population of potential customers and consumer trends. A sales forecast shows investors and lenders that you have a solid understanding of your target market and a clear vision of who will buy your product or service.

A sales forecast typically breaks down monthly sales by unit and price point. Beyond year two of being in business, the sales forecast can be shown quarterly, instead of monthly. Most financial lenders and investors like to see a three-year sales forecast as part of your startup business plan.

Lower fixed costs mean less risk, which might be theoretical in business schools but are very concrete when you have rent and payroll checks to sign.

Tim Berry, president and founder of Palo Alto Software

Create an expenses budget

An expenses budget forecasts how much you anticipate spending during the first years of operating. This includes both your overhead costs and operating expenses — any financial spending that you anticipate during the course of running your business.

Most experts recommend breaking down your expenses forecast by fixed and variable costs. Fixed costs are things such as rent and payroll, while variable costs change depending on demand and sales — advertising and promotional expenses, for instance. Breaking down costs into these two categories can help you better budget and improve your profitability.

"Lower fixed costs mean less risk, which might be theoretical in business schools but are very concrete when you have rent and payroll checks to sign," Tim Berry, president and founder of Palo Alto Software, told Inc . "Most of your variable costs are in those direct costs that belong in your sales forecast, but there are also some variable expenses, like ads and rebates and such."

Project your break-even point

Together, your expenses budget and sales forecast paints a picture of your profitability. Your break-even projection is the date at which you believe your business will become profitable — when more money is earned than spent. Very few businesses are profitable overnight or even in their first year. Most businesses take two to three years to be profitable, but others take far longer: Tesla , for instance, took 18 years to see its first full-year profit.

Lenders and investors will be interested in your break-even point as a projection of when they can begin to recoup their investment. Likewise, your CFO or operations manager can make better decisions after measuring the company’s results against its forecasts.

[Read more: ​​ Startup 2021: Writing a Business Plan? Here’s How to Do It, Step by Step ]

Develop a cash flow projection

A cash flow statement (or projection, for a new business) shows the flow of dollars moving in and out of the business. This is based on the sales forecast, your balance sheet and other assumptions you’ve used to create your expenses projection.

“If you are starting a new business and do not have these historical financial statements, you start by projecting a cash-flow statement broken down into 12 months,” wrote Inc . The cash flow statement will include projected cash flows from operating, investing and financing your business activities.

Keep in mind that most business plans involve developing specific financial documents: income statements, pro formas and a balance sheet, for instance. These documents may be required by investors or lenders; financial projections can help inform the development of those statements and guide your business as it grows.

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How to calculate a sales forecast for a new business

Table of Contents

Definition of a sales forecast

The uses of a sales forecast, how to calculate sales forecast for a new business, calculate a sales forecast using the accounts of your competition , calculate a sales forecast using a target market, manage your finances with countingup.

When you’re running a business, you should always keep one eye on the future. If you don’t have a rough idea of what the next week, month, or year might bring, you’ll be at a disadvantage when making business decisions. This means that calculating a sales forecast is essential, especially when you’re just starting a business or beginning to write a business plan . 

Sales forecasting can be tough if you don’t have much business experience, but we’re here to help. This article will cover a range of different topics related to sales forecasting, including:

Creating a sales forecast is the first step in managing your company’s cash flow . Your cash flow is the movement of money in and out of your business. By forecasting your sales, you’ll be able to predict your gro s s profit and net profit , which means you can start anticipating what money you’ll have to spend on running your business for the next month. 

Put simply, a sales forecast is a prediction of how much you’re going to sell in the coming month. This forecast doesn’t need to be a guess — it’s possible to calculate a fairly accurate forecast with some thorough research. The focus of your research will differ depending on which sales forecast method you pick.

Firstly, your sales forecast is important because it helps you set sales goals . Measuring the success of your business is a vital part of deciding its future, and setting sales goals is one of the simplest ways to measure success. 

If you have an accurate sales forecast, you’ll be able to set realistic sales goals. You’ll want your goals to be realistic, as this will give the clearest picture of how well your company is doing and if significant changes are needed.

Similarly, sales forecasts can also help create an accurate budget for your business. As a sales forecast is essential for predicting the money your business will make, it also plays an important part in working out how much money you’ll have to spend. 

Finally, sales forecasts help with finding investors for your business . If you’re looking for financial support to start your business, any investor you approach will likely be interested in the amount of money you expect the business to make. If you’ve created a sales forecast, you’ll be able to provide this information.

Large, well-established businesses rely on the sales figures of previous months to calculate their sales forecasts for the future. While having previous sales figures helps create more accurate forecasts, it’s not essential. There are a couple of methods new businesses can use to calculate their sales forecasts, even if they don’t have a sales history to look back at.

It’s always a good idea to research the competition when you’re setting up a new business. This is also true when calculating a sales forecast, but it depends on the type of businesses that make up your competition.

If any of your competitors are registered with the government as limited companies , they will have to make their accounts publicly available. These accounts will contain things like their monthly expenses, total profits, and (most importantly) the money they’ve made from sales. 

Using this last figure, you can work out how much your competitors are making from sales each month, and get a reasonable estimate of your own sales. You can find these accounts by searching for your competitor’s business on Companies House .

Please note that this method isn’t effective if your competitors are sole traders , as this means they won’t need to publish their accounts publicly. In this instance, you should use the forecasting method below. 

This method is known as ‘bottom-up’ forecasting, as you start at the bottom — your potential market of customers — and then work up to a forecast — the percentage of those customers that make a purchase.

The first step of this method is identifying your target market . This is the section of the population that you think will be interested in your product. With a little market research — things like sending out surveys, or posting polls on social media — you can work out how many people are in your target market. 

Once you have the size of your target market, you need to make realistic estimates of how many people will make a purchase. For example, if 1000 people in the local area are potential customers, you should expect 10% to visit your store or website, and 1% to actually make a purchase.

This method of calculating a sales forecast is good because it’s very adaptable. If you get many more or far fewer sales than you originally calculated, then you can adjust your figures accordingly and record the new forecast. 

It’s also a good idea to categorise this sort of sales forecast. Instead of estimating your overall sales, estimate the sales of each type of product you sell. That way, you can use the forecast to work out how many of each product to make or order each month. 

Creating a sales forecast is a great start, but it’s only the first part of managing your sales revenue. Once you start making sales and money starts coming in, you’ll need to track that cash so you can work out where to spend it. If you think you might have trouble with this, try using a financial software tool like Countingup.

Countingup is the business current account with built-in accounting software that allows you to manage all your financial data in one place. With features like automatic expense categorisation, invoicing on the go, receipt capture tools, tax estimates, and cash flow insights, you can confidently keep on top of your business finances wherever you are. 

You can also share your bookkeeping with your accountant instantly without worrying about duplication errors, data lags or inaccuracies. Seamless, simple, and straightforward!  Find out more here .

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How To Create Financial Projections for Your Business Plan

Building a financial projection as you write out your business plan can help you forecast how much money your business will bring in.

Planning for the future, whether it’s with growth in mind or just staying the course, is central to being a business owner. Part of this planning effort is making financial projections of sales, expenses, and—if all goes well—profits.

Even if your business is a startup that has yet to open its doors, you can still make projections. Here’s how to prepare your business plan financial projections, so your company will thrive.

What are business plan financial projections?

Business plan financial projections are a company’s estimates, or forecasts, of its financial performance at some point in the future. For existing businesses, draw on historical data to detail how your company expects metrics like revenue, expenses, profit, and cash flow to change over time.

Companies can create financial projections for any span of time, but typically they’re for between one and five years. Many companies revisit and amend these projections at least annually. 

Creating financial projections is an important part of building a business plan . That’s because realistic estimates help company leaders set business goals, execute financial decisions, manage cash flow , identify areas for operational improvement, seek funding from investors, and more.

What are financial projections used for? 

Financial forecasting serves as a useful tool for key stakeholders, both within and outside of the business. They often are used for:

Business planning

Accurate financial projections can help a company establish growth targets and other goals . They’re also used to determine whether ideas like a new product line are financially feasible. Future financial estimates are helpful tools for business contingency planning, which involves considering the monetary impact of adverse events and worst-case scenarios. They also provide a benchmark: If revenue is falling short of projections, for example, the company may need changes to keep business operations on track.

Projections may reveal potential problems—say, unexpected operating expenses that exceed cash inflows. A negative cash flow projection may suggest the business needs to secure funding through outside investments or bank loans, increase sales, improve margins, or cut costs.

When potential investors consider putting their money into a venture, they want a return on that investment. Business projections are a key tool they will use to make that decision. The projections can figure in establishing the valuation of your business, equity stakes, plans for an exit, and more. Investors may also use your projections to ensure that the business is meeting goals and benchmarks.

Loans or lines of credit 

Lenders rely on financial projections to determine whether to extend a business loan to your company. They’ll want to see historical financial data like cash flow statements, your balance sheet , and other financial statements—but they’ll also look very closely at your multi-year financial projections. Good candidates can receive higher loan amounts with lower interest rates or more flexible payment plans.

Lenders may also use the estimated value of company assets to determine the collateral to secure the loan. Like investors, lenders typically refer to your projections over time to monitor progress and financial health.

What information is included in financial projections for a business?

Before sitting down to create projections, you’ll need to collect some data. Owners of an existing business can leverage three financial statements they likely already have: a balance sheet, an annual income statement , and a cash flow statement .

A new business, however, won’t have this historical data. So market research is crucial: Review competitors’ pricing strategies, scour research reports and market analysis , and scrutinize any other publicly available data that can help inform your projections. Beginning with conservative estimates and simple calculations can help you get started, and you can always add to the projections over time.

One business’s financial projections may be more detailed than another’s, but the forecasts typically rely on and include the following:

True to its name, a cash flow statement shows the money coming into and going out of the business over time: cash outflows and inflows. Cash flows fall into three main categories:

Income statement

Projected income statements, also known as projected profit and loss statements (P&Ls), forecast the company’s revenue and expenses for a given period.

Generally, this is a table with several line items for each category. Sales projections can include the sales forecast for each individual product or service (many companies break this down by month). Expenses are a similar setup: List your expected costs by category, including recurring expenses such as salaries and rent, as well as variable expenses for raw materials and transportation.

This exercise will also provide you with a net income projection, which is the difference between your revenue and expenses, including any taxes or interest payments. That number is a forecast of your profit or loss, hence why this document is often called a P&L.

Balance sheet

A balance sheet shows a snapshot of your company’s financial position at a specific point in time. Three important elements are included as balance sheet items:

• Assets. Assets are any tangible item of value that the company currently has on hand or will in the future, like cash, inventory, equipment, and accounts receivable. Intangible assets include copyrights, trademarks, patents and other intellectual property .
• Liabilities. Liabilities are anything that the company owes, including taxes, wages, accounts payable, dividends, and unearned revenue, such as customer payments for goods you haven’t yet delivered.
• Shareholder equity. The shareholder equity figure is derived by subtracting total liabilities from total assets. It reflects how much money, or capital, the company would have left over if the business paid all its liabilities at once or liquidated (this figure can be a negative number if liabilities exceed assets). Equity in business is the amount of capital that the owners and any other shareholders have tied up in the company.

They’re called balance sheets because assets always equal liabilities plus shareholder equity. 

5 steps for creating financial projections for your business

• Identify the purpose and timeframe for your projections
• Collect relevant historical financial data and market analysis
• Forecast expenses
• Forecast sales
• Build financial projections

The following five steps can help you break down the process of developing financial projections for your company:

1. Identify the purpose and timeframe for your projections

The details of your projections may vary depending on their purpose. Are they for internal planning, pitching investors, or monitoring performance over time? Setting the time frame—monthly, quarterly, annually, or multi-year—will also inform the rest of the steps.

2. Collect relevant historical financial data and market analysis

If available, gather historical financial statements, including balance sheets, cash flow statements, and annual income statements. New companies without this historical data may have to rely on market research, analyst reports, and industry benchmarks—all things that established companies also should use to support their assumptions.

3. Forecast expenses

Identify future spending based on direct costs of producing your goods and services ( cost of goods sold, or COGS) as well as operating expenses, including any recurring and one-time costs. Factor in expected changes in expenses, because this can evolve based on business growth, time in the market, and the launch of new products.

4. Forecast sales

Project sales for each revenue stream, broken down by month. These projections may be based on historical data or market research, and they should account for anticipated or likely changes in market demand and pricing.

5. Build financial projections

Now that you have projected expenses and revenue, you can plug that information into Shopify’s cash flow calculator and cash flow statement template . This information can also be used to forecast your income statement. In turn, these steps inform your calculations on the balance sheet, on which you’ll also account for any assets and liabilities .

Business plan financial projections FAQ

What are the main components of a financial projection in a business plan.

Generally speaking, most financial forecasts include projections for income, balance sheet, and cash flow.

What’s the difference between financial projection and financial forecast?

These two terms are often used interchangeably. Depending on the context, a financial forecast may refer to a more formal and detailed document—one that might include analysis and context for several financial metrics in a more complex financial model.

Do I need accounting or planning software for financial projections?

Not necessarily. Depending on factors like the age and size of your business, you may be able to prepare financial projections using a simple spreadsheet program. Large complicated businesses, however, usually use accounting software and other types of advanced data-management systems.

What are some limitations of financial projections?

Projections are by nature based on human assumptions and, of course, humans can’t truly predict the future—even with the aid of computers and software programs. Financial projections are, at best, estimates based on the information available at the time—not ironclad guarantees of future performance.

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How to do a Sales Forecast: All you need to know

• EntrepreneursGateway.com Team
• November 3, 2018

It is much easier than you think!

Preparing a sales forecast is much easier than you think – and even more useful than you could ever imagine! It’s all about expectations, drivers, assumptions, management, and tracking.

Forecasts help you manage your business and budget. They help you map out your assumptions so you’ll know how to manage sales and direct costs.

This guide will teach you all you need to know about preparing a sales forecast…

And why you need one!

This article is part of the Business Planning Hub where you’ll find lots of guides and resources to help you create the perfect business plan!

Table of Contents

#1 Introducing a Sales Forecast

The sales forecast is the backbone of a business plan. After all, the growth of a business is measured by its sales volumes. A sales forecast sets the bar for profits, expenses, and growth .

The first set of numbers that you will track in your business for plan versus use will usually be the sales forecast.

Even if you do nothing else, a simple forecast of sales versus actual results will already constitute business planning.

You need a sales forecast to be able to manage effectively any changes in your business, because you’ll find that actual sales and direct costs will be different from what you expected.

A sales forecast will be an invaluable tool to improve upon your business, as you will know which adjustments to make to take care of what’s not working.

#2 – Plan your Revenue Streams

You need to plan out how many revenue streams you are going to have.

Let’s use a restaurant as an example:

Rather than forecasting sales for every item sold on the menu, why not forecast lunches, dinner, and drinks?

Another example…

A book store shouldn’t forecast its sales by book, but rather by sub sections – such as fictional books, non fictional books, etc.

Try to set your revenue streams so that they match your accounting. This is great for business planning as it makes reviewing your plan a lot easier.

#3 – Row by Row

There are several ways you can adopt to forecast a row of sales.

The method depends on which business model you use

The main methods are:.

• Unit sales : Sales = Units times price. This is where you set the average price, then forecast the units. You can change the projected pricing whenever you want. I prefer this method, as you have two factors you can act on… Your unit sales or your price.
• Service units : Most services sell billable units – for example, billable hours for a web designer or an accountant, etc. In that case, you might prefer this method.
• Recurring charges : This is where you offer subscriptions. So, whether it be monthly or annually, you need to forecast new members signing up and any monthly charges – as well as cancellations.
• Revenue only : This is for people who prefer to forecast the revenue just as money. In this case, you don’t break it down into units and prices.

Simple Maths

Sales forecasts for business plans should be made for the following twelve months, then each year for two years.

It’s easier to imagine a forecast as made of rows and columns.

Estimate your unit, the price per unit – then multiply to get the total sales.

If you don’t sell in units, simply do not include them. However, time can be considered as a unit (think of lawyers and accountants), or even trips (think of airlines and taxis).

This makes forecasting much easier.

#4 What numbers should you include in a Sales Forecast?

Don’t attempt to accurately guess the figures for the future months. Instead make clear assumptions as to what drives sales, like conversions and web traffic.

Each month, review the results and amend the forecast accordingly.

Be guided by past results

If your business has past results, use them. Begin by inputting the previous year’s numbers into the next year’s forecast, then look at what could be different between this year and the next . 

If you think you will have new opportunities that could improve sales or new promotions and activities, then increase the forecast. If, however, new competition will be an issue, then the focus may need to change and costs may need to be cut.

Look for drivers

What does this mean? Think of it this way. If a restaurant was to forecast sales, it might begin by drawing a map detailing the chairs and tables; then estimating, at capacity, how many meals are served per mealtime. 

The figure given will show how many people come in, rather than being just some random number.

Estimate direct costs

Direct costs are also referred to as the Cost Of Goods Sold (COGS), and costs per unit. 

These help calculate gross margin, which can then be used as a foundation for comparison within financial benchmarks (which are also an instant measure of the underlying profitability).

Some businesses don’t have direct costs. For example, supposedly service businesses don’t, which means their gross margin will be 100%. This is generally true for professionals such as lawyers and accountants.

However, as a rule, most services do have direct costs.

Normal sales forecasts include:

• Price per unit
• Direct cost per unit
• Direct costs.

This means that the price per unit relates to the total sales, in a similar way that the unit direct costs relate to the total direct costs. 

Multiplying the number of projected units across any time period by the unit direct costs will then give you the direct costs total.

The sales should refer to when the ownership has changed hands or when a service is performed. Orders, promises of orders, or contracts don’t count as sales.

Accrual accounting means that, even if the product/service hasn’t been paid for, it is still classed as a sale; whereas with cash-based accounting a product/service isn’t classed as a sale until it has been paid for.

The bottom line is that sales forecasting is about mapping out your assumptions in order to manage sales and direct costs – even if they differ from what was expected. 

Don’t be afraid to adjust your sales forecast and make amendments to balance out what is and isn’t working.

#5 Conclusion

Sales forecasting is simply laying out the assumptions, not guessing the future . You do this so you’re able to manage any changes effectively, because both sales and direct costs will not be what you first expected!

You can use this to improve upon your business, and make the correct adjustments to deal with what’s working and what’s not working.

For more on small business financials, check out these resources:

• 5 Financial Plan Must Haves & How to Write one
• How to Build a Profit and Loss Statement (Income Statement)
• How to Forecast Cash Flow
• Building Your Balance Sheet
• The Difference Between Cash and Profits
• Balance Sheet Template [Free Download]
• Cash Flow Template [Free Download]
• Profit and Loss Template [Free Download]

Now, over to you...

Now I’d love to hear from you:

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Maybe you have written a business plan and would like us to review it?

Leave any comments below and I will be sure to answer as soon as they come in!

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Forecast and plan your sales

Accurately forecasting your sales and building a sales plan can help you to avoid unforeseen cash flow problems and manage your production, staff and financing needs more effectively.

A sales forecast is an essential tool for managing a business of any size. It is a month-by-month forecast of the level of sales you expect to achieve. Most businesses draw up a sales forecast once a year.

Armed with this information you can rapidly identify problems and opportunities - and do something about them.

While it's always wise to expect the unexpected, a well-constructed sales plan, combined with accurate sales forecasting, can allow you to spend more time developing your business rather than responding to day-to-day developments in sales and marketing.

This guide shows you how to put together a sales forecast and a sales plan.

A basis for sales forecasts

Your sales assumptions, developing your forecast, avoiding forecasting pitfalls, creating a sales plan.

Sales forecasts enable you to manage your business more effectively. Before you begin, there are a few questions that may help clarify your position:

• How many new customers do you gain each year?
• How many customers do you lose each year?
• What is the average level of sales you make to each customer?
• Are there particular months where you acquire or lose more customers than usual?

Existing businesses

The starting point for your sales forecast is last year's sales.

Before you factor in a new product launch, or an economic trend, look at the level of sales for each customer last year. Do you know of any customers who are going to buy more - or less - from you next year?

In the case of customers who account for a significant value of sales, you may want to ask them if they plan to change their purchase level in the foreseeable future.

New businesses

New businesses have to make assumptions based on market research and good judgement.

Every business can also add in the new customers that it expects to attract without actually knowing who they are, or what they will buy. Simply enter "new customer" on your forecast.

Depending on your type of business, you may want to specify the volume of sales in the forecast - for example, how many 3.78-litre cans of paint you sell - as well as the value of sales. By knowing the volume, you can plan the necessary resources in areas such as production, storage and transport.

Every year is different so you need to list any changing circumstances that could significantly affect your sales. These factors - known as the sales forecast assumptions - form the basis of your forecast.

Wherever possible, put a figure against the change - as shown in the examples below. You can then get a feel for the impact it will have on your business. Also, give the reasoning behind each figure, so that other people can comment on whether it's realistic.

Here are some typical examples of assumptions:

• The market you sell into will grow by 2 per cent.
• Your market share will shrink by 2 per cent, due to the success of a competitor.

Your resources

• You will double your sales force from three people to six people, halfway through the year.
• You will spend 50 per cent less on advertising, which will reduce the number of enquiries from potential customers.

Overcoming barriers to sale

• You are moving to a better location, which will lead to 30 per cent more customers buying next year.
• You are raising prices by 10 per cent, which will reduce the volume of products sold by 5 per cent but result in a 4.5 per cent increase in overall revenue.

Your products

• You are launching a range of new products. Sales will be small this year and costs will outweigh profits, but in future years, you will reap the benefits.
• You have products that are newly established and that have the potential to increase sales rapidly.
• You have established products that enjoy steady sales but have little growth potential.
• You have products that face declining sales, perhaps because of a competitor's superior product.

For new businesses , the assumptions need to be based on market research and good judgement.

Start by writing down your sales assumptions. See the page in this guide on your sales assumptions.

You can then create your sales forecast. This becomes easy once you've found a way to break the forecast down into individual items.

• Can you break down your sales by product, market, or geographic region?
• Are individual customers important enough to your business to warrant their own individual sales forecast?
• Can you estimate the conversion rate - the percentage chance of the sale happening - for each item on your sales forecast?

For example, you might predict that a customer will purchase $1,000 worth of products. If you estimate that there's a 70 per cent chance of this happening, the forecast sales for this customer are $700, i.e. 70 per cent of $1,000.

Selling more of your product to an existing customer is far easier than making a first sale to a new customer. So the conversion rates for existing customers are much higher than those for new customers.

You may want to include details of which product each customer is likely to buy. Then you can spot potential problems. One product could sell out, while another might not move at all.

By predicting actual sales, you're forecasting what you think will be sold. This is generally far more accurate than forecasting from a target figure and then trying to work out how to achieve it.

The completed sales forecast isn't just used to plan and monitor your sales efforts. It's also a vital part of the cash flow.

There is a wide range of sales forecasting software available that can make the whole process much simpler and more accurate. This software generates forecasts based on historical data. If you are considering buying software, get advice from an IT expert, your trade association, your business advisors and businesses of a similar size and in similar markets.

Five common forecasting pitfalls are:

Wishful thinking

It's all too easy to be over-optimistic. It's a good idea to look back at the previous year's forecast to see if your figures were realistic. New businesses should avoid the mistake of working out the level of sales they need for the business to be viable, then putting this figure in as the forecast.

You also need to consider if it is physically possible to achieve the sales levels you're forecasting. For example:

• one taxi can only make a certain number of airport trips each day
• a machine can only produce a given number of components on each shift
• a sales team can only visit a certain number of customers each week

Ignoring your own assumptions

Make sure your sales assumptions are linked to the detailed sales forecast, otherwise you can end up with completely contradictory information. For instance, if you assume a declining market and declining market share, it's illogical to then forecast increased sales. For more information, see the page in this guide on your sales assumptions.

Moving goalposts

Make sure the forecast is finalised and agreed within a set timescale. If you're spending a lot of time refining the forecast, it can distract you from focusing on your targets. Avoid making excessive adjustments to the forecast, even if you discover it's too optimistic or pessimistic.

No consultation

Your sales people probably have the best knowledge of your customers' buying intentions, therefore:

• ask for their opinions
• give them time to ask their customers about this
• get the sales team's agreement to any targets that will be set

No feedback

Having built your sales forecast, you need someone to challenge it. Get an experienced person - your accountant or a senior sales person - to review the whole document.

The questions you should answer in your sales plan are:

• What are you going to focus on?
• What are you going to change?
• In practical terms, what steps are involved?
• What territories and targets are you going to give each salesperson or team?

The sales plan will start with some strategic objectives . Here are some examples:

• break into the municipal market by adapting your product for this market
• open a store in an area that you believe has the potential for generating lots of sales
• boost the average sale per customer

You can then explain the stepping stones that will allow you to achieve these objectives. Use objectives which are SMART - Specific, Measurable, Achievable, Realistic, Time-bound.

Using the example of breaking into the municipal market, the stepping stones might be to:

• hire a sales person with experience of the municipal market on a salary of $48,000 by the beginning of February
• fully train the sales person by mid April
• ensure that any changes the product development team has agreed to make are ready to pilot by the beginning of April

As well as planning for new products and new markets, explain how you're going to improve sales and profit margins for your existing products and markets. It is often helpful to identify how you will remove barriers to sales:

• Can you increase the activity levels of the sales team - more telephone calls per day, or more customer visits per week?
• Can you increase the conversion rate of calls into sales - through better sales training, better sales support materials or improved sales incentives?

Original document, Forecast and plan your sales , © Crown copyright 2009 Source: Business Link UK (now GOV.UK/Business ) Adapted for Québec by Info entrepreneurs

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How to Write the Financial Section of a Business Plan

An outline of your company's growth strategy is essential to a business plan, but it just isn't complete without the numbers to back it up. here's some advice on how to include things like a sales forecast, expense budget, and cash-flow statement..

A business plan is all conceptual until you start filling in the numbers and terms. The sections about your marketing plan and strategy are interesting to read, but they don't mean a thing if you can't justify your business with good figures on the bottom line. You do this in a distinct section of your business plan for financial forecasts and statements. The financial section of a business plan is one of the most essential components of the plan, as you will need it if you have any hope of winning over investors or obtaining a bank loan. Even if you don't need financing, you should compile a financial forecast in order to simply be successful in steering your business. "This is what will tell you whether the business will be viable or whether you are wasting your time and/or money," says Linda Pinson, author of Automate Your Business Plan for Windows  (Out of Your Mind 2008) and Anatomy of a Business Plan (Out of Your Mind 2008), who runs a publishing and software business Out of Your Mind and Into the Marketplace . "In many instances, it will tell you that you should not be going into this business." The following will cover what the financial section of a business plan is, what it should include, and how you should use it to not only win financing but to better manage your business.

Dig Deeper: Generating an Accurate Sales Forecast

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How to Write the Financial Section of a Business Plan: The Purpose of the Financial Section Let's start by explaining what the financial section of a business plan is not. Realize that the financial section is not the same as accounting. Many people get confused about this because the financial projections that you include--profit and loss, balance sheet, and cash flow--look similar to accounting statements your business generates. But accounting looks back in time, starting today and taking a historical view. Business planning or forecasting is a forward-looking view, starting today and going into the future. "You don't do financials in a business plan the same way you calculate the details in your accounting reports," says Tim Berry, president and founder of Palo Alto Software, who blogs at Bplans.com and is writing a book, The Plan-As-You-Go Business Plan. "It's not tax reporting. It's an elaborate educated guess." What this means, says Berry, is that you summarize and aggregate more than you might with accounting, which deals more in detail. "You don't have to imagine all future asset purchases with hypothetical dates and hypothetical depreciation schedules to estimate future depreciation," he says. "You can just guess based on past results. And you don't spend a lot of time on minute details in a financial forecast that depends on an educated guess for sales." The purpose of the financial section of a business plan is two-fold. You're going to need it if you are seeking investment from venture capitalists, angel investors, or even smart family members. They are going to want to see numbers that say your business will grow--and quickly--and that there is an exit strategy for them on the horizon, during which they can make a profit. Any bank or lender will also ask to see these numbers as well to make sure you can repay your loan. But the most important reason to compile this financial forecast is for your own benefit, so you understand how you project your business will do. "This is an ongoing, living document. It should be a guide to running your business," Pinson says. "And at any particular time you feel you need funding or financing, then you are prepared to go with your documents." If there is a rule of thumb when filling in the numbers in the financial section of your business plan, it's this: Be realistic. "There is a tremendous problem with the hockey-stick forecast" that projects growth as steady until it shoots up like the end of a hockey stick, Berry says. "They really aren't credible." Berry, who acts as an angel investor with the Willamette Angel Conference, says that while a startling growth trajectory is something that would-be investors would love to see, it's most often not a believable growth forecast. "Everyone wants to get involved in the next Google or Twitter, but every plan seems to have this hockey stick forecast," he says. "Sales are going along flat, but six months from now there is a huge turn and everything gets amazing, assuming they get the investors' money."  The way you come up a credible financial section for your business plan is to demonstrate that it's realistic. One way, Berry says, is to break the figures into components, by sales channel or target market segment, and provide realistic estimates for sales and revenue. "It's not exactly data, because you're still guessing the future. But if you break the guess into component guesses and look at each one individually, it somehow feels better," Berry says. "Nobody wins by overly optimistic or overly pessimistic forecasts."

Dig Deeper: What Angel Investors Look For

How to Write the Financial Section of a Business Plan: The Components of a Financial Section

A financial forecast isn't necessarily compiled in sequence. And you most likely won't present it in the final document in the same sequence you compile the figures and documents. Berry says that it's typical to start in one place and jump back and forth. For example, what you see in the cash-flow plan might mean going back to change estimates for sales and expenses.  Still, he says that it's easier to explain in sequence, as long as you understand that you don't start at step one and go to step six without looking back--a lot--in between.

• Start with a sales forecast. Set up a spreadsheet projecting your sales over the course of three years. Set up different sections for different lines of sales and columns for every month for the first year and either on a monthly or quarterly basis for the second and third years. "Ideally you want to project in spreadsheet blocks that include one block for unit sales, one block for pricing, a third block that multiplies units times price to calculate sales, a fourth block that has unit costs, and a fifth that multiplies units times unit cost to calculate cost of sales (also called COGS or direct costs)," Berry says. "Why do you want cost of sales in a sales forecast? Because you want to calculate gross margin. Gross margin is sales less cost of sales, and it's a useful number for comparing with different standard industry ratios." If it's a new product or a new line of business, you have to make an educated guess. The best way to do that, Berry says, is to look at past results.
• Create an expenses budget. You're going to need to understand how much it's going to cost you to actually make the sales you have forecast. Berry likes to differentiate between fixed costs (i.e., rent and payroll) and variable costs (i.e., most advertising and promotional expenses), because it's a good thing for a business to know. "Lower fixed costs mean less risk, which might be theoretical in business schools but are very concrete when you have rent and payroll checks to sign," Berry says. "Most of your variable costs are in those direct costs that belong in your sales forecast, but there are also some variable expenses, like ads and rebates and such." Once again, this is a forecast, not accounting, and you're going to have to estimate things like interest and taxes. Berry recommends you go with simple math. He says multiply estimated profits times your best-guess tax percentage rate to estimate taxes. And then multiply your estimated debts balance times an estimated interest rate to estimate interest.
• Develop a cash-flow statement. This is the statement that shows physical dollars moving in and out of the business. "Cash flow is king," Pinson says. You base this partly on your sales forecasts, balance sheet items, and other assumptions. If you are operating an existing business, you should have historical documents, such as profit and loss statements and balance sheets from years past to base these forecasts on. If you are starting a new business and do not have these historical financial statements, you start by projecting a cash-flow statement broken down into 12 months. Pinson says that it's important to understand when compiling this cash-flow projection that you need to choose a realistic ratio for how many of your invoices will be paid in cash, 30 days, 60 days, 90 days and so on. You don't want to be surprised that you only collect 80 percent of your invoices in the first 30 days when you are counting on 100 percent to pay your expenses, she says. Some business planning software programs will have these formulas built in to help you make these projections.
• Income projections. This is your pro forma profit and loss statement, detailing forecasts for your business for the coming three years. Use the numbers that you put in your sales forecast, expense projections, and cash flow statement. "Sales, lest cost of sales, is gross margin," Berry says. "Gross margin, less expenses, interest, and taxes, is net profit."
• Deal with assets and liabilities. You also need a projected balance sheet. You have to deal with assets and liabilities that aren't in the profits and loss statement and project the net worth of your business at the end of the fiscal year. Some of those are obvious and affect you at only the beginning, like startup assets. A lot are not obvious. "Interest is in the profit and loss, but repayment of principle isn't," Berry says. "Taking out a loan, giving out a loan, and inventory show up only in assets--until you pay for them." So the way to compile this is to start with assets, and estimate what you'll have on hand, month by month for cash, accounts receivable (money owed to you), inventory if you have it, and substantial assets like land, buildings, and equipment. Then figure out what you have as liabilities--meaning debts. That's money you owe because you haven't paid bills (which is called accounts payable) and the debts you have because of outstanding loans.
• Breakeven analysis. The breakeven point, Pinson says, is when your business's expenses match your sales or service volume. The three-year income projection will enable you to undertake this analysis. "If your business is viable, at a certain period of time your overall revenue will exceed your overall expenses, including interest." This is an important analysis for potential investors, who want to know that they are investing in a fast-growing business with an exit strategy.

Dig Deeper: How to Price Business Services

How to Write the Financial Section of a Business Plan: How to Use the Financial Section One of the biggest mistakes business people make is to look at their business plan, and particularly the financial section, only once a year. "I like to quote former President Dwight D. Eisenhower," says Berry. "'The plan is useless, but planning is essential.' What people do wrong is focus on the plan, and once the plan is done, it's forgotten. It's really a shame, because they could have used it as a tool for managing the company." In fact, Berry recommends that business executives sit down with the business plan once a month and fill in the actual numbers in the profit and loss statement and compare those numbers with projections. And then use those comparisons to revise projections in the future. Pinson also recommends that you undertake a financial statement analysis to develop a study of relationships and compare items in your financial statements, compare financial statements over time, and even compare your statements to those of other businesses. Part of this is a ratio analysis. She recommends you do some homework and find out some of the prevailing ratios used in your industry for liquidity analysis, profitability analysis, and debt and compare those standard ratios with your own. "This is all for your benefit," she says. "That's what financial statements are for. You should be utilizing your financial statements to measure your business against what you did in prior years or to measure your business against another business like yours."  If you are using your business plan to attract investment or get a loan, you may also include a business financial history as part of the financial section. This is a summary of your business from its start to the present. Sometimes a bank might have a section like this on a loan application. If you are seeking a loan, you may need to add supplementary documents to the financial section, such as the owner's financial statements, listing assets and liabilities. All of the various calculations you need to assemble the financial section of a business plan are a good reason to look for business planning software, so you can have this on your computer and make sure you get this right. Software programs also let you use some of your projections in the financial section to create pie charts or bar graphs that you can use elsewhere in your business plan to highlight your financials, your sales history, or your projected income over three years. "It's a pretty well-known fact that if you are going to seek equity investment from venture capitalists or angel investors," Pinson says, "they do like visuals."

Dig Deeper: How to Protect Your Margins in a Downturn

Related Links: Making It All Add Up: The Financial Section of a Business Plan One of the major benefits of creating a business plan is that it forces entrepreneurs to confront their company's finances squarely. Persuasive Projections You can avoid some of the most common mistakes by following this list of dos and don'ts. Making Your Financials Add Up No business plan is complete until it contains a set of financial projections that are not only inspiring but also logical and defensible. How many years should my financial projections cover for a new business? Some guidelines on what to include. Recommended Resources: Bplans.com More than 100 free sample business plans, plus articles, tips, and tools for developing your plan. Planning, Startups, Stories: Basic Business Numbers An online video in author Tim Berry's blog, outlining what you really need to know about basic business numbers. Out of Your Mind and Into the Marketplace Linda Pinson's business selling books and software for business planning. Palo Alto Software Business-planning tools and information from the maker of the Business Plan Pro software. U.S. Small Business Administration Government-sponsored website aiding small and midsize businesses. Financial Statement Section of a Business Plan for Start-Ups A guide to writing the financial section of a business plan developed by SCORE of northeastern Massachusetts.

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What is Sales Planning? How to Create a Sales Plan

Published: December 06, 2023

Sales planning is a fundamental component of sound selling. After all, you can‘t structure an effective sales effort if you don’t have, well, structure . Everyone — from the top to the bottom of a sales org — benefits from having solid, actionable, thoughtfully organized sales plans in place.

This kind of planning offers clarity and direction for your sales team — covering everything from the prospects you‘re trying to reach to the goals you’re trying to hit to the insight you're trying to deliver on.

But putting together one of these plans isn‘t always straightforward, so to help you out, I’ve compiled this detailed guide to sales planning — including expert-backed insight and examples — that will ensure your next sales plan is fundamentally sound and effective.

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In this post, we'll cover:

What is a sales plan?

Sales planning process.

• What goes in a sales plan template?

How to Write a Sales Plan

Tips for creating an effective sales plan, sales plan examples, strategic sales plan examples.

A sales plan lays out your objectives, high-level tactics, target audience, and potential obstacles. It's like a traditional business plan but focuses specifically on your sales strategy. A business plan lays out your goals — a sales plan describes exactly how you'll make those happen.

Sales plans often include information about the business's target customers, revenue goals, team structure, and the strategies and resources necessary for achieving its targets.

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What are the goals of an effective sales plan?

And if (or more likely when ) those goals change over time, you need to regularly communicate those shifts and the strategic adjustments that come with them to your team.

Your sales strategy keeps your sales process productive — it offers the actionable steps your reps can take to deliver on your vision and realize the goals you set. So naturally, you need to communicate it effectively. A sales plan offers a solid resource for that.

For instance, your sales org might notice that your SDRs are posting lackluster cold call conversion rates. In turn, you might want to have them focus primarily on email outreach, or you could experiment with new sales messaging on calls.

Regardless of how you want to approach the situation, a thoughtfully structured sales plan will give both you and your reps a high-level perspective that would inform more cohesive, effective efforts across the team.

An effective sales org is a machine — one where each part has a specific function that serves a specific purpose that needs to be executed in a specific fashion. That's why everyone who comprises that org needs to have a clear understanding of how they specifically play into the company's broader sales strategy.

Outlining roles and responsibilities while sales planning lends itself to more efficient task delegation, improved collaboration, overlap reduction, and increased accountability. All of which amount to more streamlined, smooth, successful sales efforts.

Sales planning can set the framework for gauging how well your team is delivering on your sales strategy. It can inform the benchmarks and milestones reps can use to see how their performance stacks up against your goals and expectations.

It also gives sales leadership a holistic view of how well a sales org is functioning as a whole — giving them the necessary perspective to understand whether they have the right people and tools in place to be as successful as possible.

Sales planning isn‘t (and shouldn’t) be limited to the actual sales plan document it produces. If that document is going to have any substance or practical value, it needs to be the byproduct of a thorough, well-informed, high-level strategy.

When sales planning, you have some key steps you need to cover — including:

• Gather sales data and search for trends.
• Define your objectives.
• Determine metrics for success.
• Assess the current situation.
• Start sales forecasting.
• Identify gaps.
• Ideate new initiatives.
• Involve stakeholders.
• Outline action items.

When putting this list together, I consulted Zach Drollinger — Senior Director of Sales at edtech provider Coursedog — to ensure the examples detailed below are sound and accurate.

Step 1: Gather sales data and search for trends.

To plan for the present and future, your company needs to look to the past. What did sales look like during the previous year? What about the last five years? Using this information can help you identify trends in your industry. While it's not foolproof, it helps establish a foundation for your sales planning process.

For the sake of example, let‘s say that I’m a new sales director for an edtech company that sells curriculum planning software to higher education institutions. My vertical is community colleges, and my territory is the East Coast.

Once I assume this new role, I‘m going to want to gather as much context as possible about my vertical and how my company has approached it historically. I would pull information about how we’ve sold to this vertical.

How much new business have we closed within it in the past five years? How does that compare to how we perform with other kinds of institutions? Are we seeing significant churn from these customers?

I would also want to get context about the general needs, interests, and pain points of the kinds of institutions I‘m selling to. I’d look for insight into figures like degree velocity, staff retention, and enrollment.

Ultimately, I would get a comprehensive perspective on my sales process — a thorough understanding of where I stand and what my prospects are dealing with. That will ensure that I can deliver on the next step as effectively as possible.

Step 2: Define your objectives.

How do you know your business is doing well if you have no goals? As you can tell from its placement on this list, defining your goals and objectives is one of the first steps you should take in your sales planning process. Once you have them defined, you can move forward with executing them.

To extend the example from the previous step, I would leverage the context I gathered through the research I conducted about both my and my prospect's circumstances. I would start setting both broader goals and more granular operational objectives .

For instance, I might want to set a goal of increasing sales revenue from my vertical. From there, I would start putting together the kind of specific objectives that will facilitate that process — like connecting with administrators from at least 30 community colleges, booking demos with at least 10 schools, and successfully closing at least five institutions.

Obviously, those steps represent a streamlined (and unrealistically straightforward) sales process, but you get the idea — I would set a concrete goal, supplemented by SMART objectives , that will serve as a solid reference point for my org's efforts as the sales process progresses.

Step 3: Determine metrics for success.

Every business is different. One thing we can all agree on is that you need metrics for success. These metrics are key performance indicators (KPIs). What are you going to use to determine if your business is successful? KPIs differ based on your medium, but standard metrics are gross profit margins, return on investment (ROI), daily web traffic users, conversion rate, and more.

I kind of covered this step in the previous example, but it still warrants a bit more elaboration. The “M” in SMART goals (“measurable”) is there for a reason. You can‘t tell if your efforts were successful if you don’t know what “successful” actually means.

The edtech sales example I‘ve been running with revolves mostly around me assuming ownership of an existing vertical and getting more out of it. So it’s fair to assume that sales growth rate — the increase or decrease of sales revenue in a given period, typically expressed as a percentage — would be an effective way to gauge success.

I might want to structure my goals and objectives around a sales growth rate of 20% Y/Y within my vertical. I would make sure my org was familiar with that figure and offer some context about what it would take to reach it — namely, how many institutions we would need to close and retain.

Step 4: Assess the current situation.

How is your business fairing right now? This information is relevant to determining how your current situation holds up to the goals and objectives you set during step two. What are your roadblocks? What are your strengths? Create a list of the obstacles hindering your success. Identify the assets you can use as an advantage. These factors will guide you as you build your sales plan.

Continuing the edtech example, I would use the historical context I gathered and the objectives I set to frame how I look at my current circumstances. I might start by considering my goal of increasing revenue by 20% Y/Y. In that case, I would look at the company's retention figures — ideally, that would give me a sense of whether that needs to be a major area of focus.

I would also try to pin down trends in the colleges that we've already closed — are there any pain points we consistently sell on? I might take a closer look at how we demo to see if we might be glossing over key elements of our value proposition. Maybe, I would use conversation intelligence to get a better sense of how reps are handling their calls.

Ultimately, I would try to identify why we're performing the way we are, the inefficiencies that might be resulting from our current strategy, and how we can best set ourselves up to sell as effectively as possible.

Step 5: Start sales forecasting.

Sales forecasting is an in-depth report that predicts what a salesperson, team, or company will sell weekly, monthly, quarterly, or annually. While it is finicky, it can help your company make better decisions when hiring, budgeting, prospecting, and setting goals.

After the COVID-19 pandemic, economics has become less predictable. Claire Fenton , the owner of StrActGro — a professional training and coaching company — states, “Many economic forecasters won't predict beyond three months at a time.” This makes sales forecasting difficult. However, there are tools at your disposal to create accurate sales forecasts .

In our edtech example, I would approach this step by trying to estimate how my sales org is going to fare with the specific vertical we‘re pursuing in the time window we’ve allotted.

The method I decide to go with will depend on factors like how many concrete opportunities we have lined up — in addition to elements like the kind of historical data we have handy, how the reps working these deals tend to perform, and the degree of insight we have about our potential customers.

Let's say I consider those factors and decide to run something called a multivariable analysis. In that case, I could start by taking stock of the opportunities my reps have lined up. Then, I could look at the reps working those deals, their typical win rates, and the time they have to close — among other factors.

For instance, I might calculate that a rep working with a particularly large institution has a 50% chance of closing within the window we‘ve allotted. Using that insight, we could attribute 50% of the potential deal size to our forecast — we’d repeat that process with all of the opportunities in question and ideally get a solid sense of the revenue we can expect to generate in this window.

Step 6: Identify gaps.

When identifying gaps in your business, consider what your company needs now and what you might need in the future. First, identify the skills you feel your employees need to reach your goal. Second, evaluate the skills of your current employees. Once you have this information, you can train employees or hire new ones to fill the gaps.

Continuing the edtech example, let‘s say my forecast turned up results that weren’t in keeping with what we need to reach our goals. If that were the case, I would take a holistic look at our process, operations, and resources to pin down inefficiencies or areas for improvement.

In my search, I find that our sales content and marketing collateral are dated — with case studies that don‘t cover our product’s newest and most relevant features. I also might see that our reps don‘t seem to have too much trouble booking demos, but the demos themselves aren’t converting due to a lack of training and inconsistent messaging.

And finally, I find that a lack of alignment with marketing has prospects focusing on unrealistic outcomes our sales team can‘t deliver on. Once I’ve identified those gaps, I would start to hone in on ways to remedy those issues and improve those elements.

Step 7: Ideate new initiatives.

Many industry trends are cyclical. They phase in and out of “style.” As you build your sales plan, ideate new initiatives based on opportunities you may have passed on in previous years.

If your business exclusively focused on word-of-mouth and social media marketing in the past, consider adding webinars or special promotions to your plan.

In the edtech example we've been running with, I would likely ideate initiatives based on the gaps I identified in the previous step. I would start a push to ensure that our sales content and marketing collateral are up-to-date and impressive.

I would also consider new training programs to ensure that our coaching infrastructure is prioritizing how to conduct effective demos. Finally, I would start to work on a plan with marketing to ensure our messaging is aligned with theirs — so we can make sure prospects' expectations are realistic and effective.

One way or another, I would take the gaps I found and find concrete, actionable ways to fill them. I would make sure that these initiatives aren't abstract. Just saying, " We're going to be better at demos," isn‘t a plan — it’s a sentiment, and sentiments don't translate to hard sales.

Step 8: Involve stakeholders.

Stakeholders are individuals, groups, or organizations with a vested interest in your company. They are typically investors, employees, or customers and often have deciding power in your business. Towards the end of your sales planning process, involve stakeholders from departments that affect your outcomes, such as marketing and product. It leads to an efficient and actionable sales planning process.

This step is sort of an extension of the previous two — once I‘ve identified the key issues and roadblocks obstructing my edtech startup’s sales org, I would start identifying the right people to fulfill the necessary initiatives I've put together.

In this example, I would tap some stakeholders in charge of our sales content and marketing collateral to produce newer, more relevant case studies and whitepapers we can pass along to the institutions we're working with.

I would also go to middle management and either offer more direction for coaching on demos or bring in a third-party training service to offer more focused, professional insight on the issue.

Finally, I would connect with marketing leadership to align on the benefits and outcomes we generally stress when pitching the schools we sell to. That way, we can ensure that the institutions we're connecting with have realistic expectations of our product or service that we can speak to more clearly and effectively.

Step 9: Outline action items.

Once you have implemented this strategy to create your sales planning process, the final step is outlining your action items. Using your company's capacity and quota numbers, build a list of steps that take you through the sales process. Examples of action items are writing a sales call script, identifying industry competitors, or strategizing new incentives or perks.

In our edtech example, some key action items might be:

• Revamp our prospecting strategy via more involved coaching and re-tooled sales messaging.
• Revamp administrator and college dean buyer personas.
• Conduct new trainings on demoing our software.
• See our new prospecting strategy from ideation to execution.
• Align with our sales enablement stakeholders for new, more relevant case studies and whitepapers.

Obviously, that list isn‘t exhaustive — but those are still the kinds of steps we would need to clarify and take to structure a more effective high-level strategy to produce different (ideally much better) results than we’ve been seeing.

One thing to keep in mind is that sales planning shouldn't end with creating the document.

You‘ll want to reiterate this process every year to maintain your organization's sales excellence.

Now that you‘re committed to the sales planning process, let's dive into the written execution component of sales planning.

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Financial forecast example for new businesses and startups

The financial forecast is an essential step when creating a business plan. The financial forecast allows you to anticipate the revenues and expenses of your new business over a given period.

Even if the exercise is sometimes delicate to carry out, it is nevertheless essential for any entrepreneur. Indeed, it allows you to define quantified objectives, which, if meticulously tracked, will allow you to grow your business in good conditions.

To help you, here's a financial forecast example as well as tools you can use to create yours. 

Financial forecast examples for new businesses

Example of a sales forecast.

The sales forecast is used to estimate the company's turnover. It is generally presented by category of products and services, types of customers, or time slots.

In our financial forecast example, we have included below a sales forecast for a hostel, organised by categories of services with the bed's occupancy forecast broken down based on seasonality:

To ensure a fair and realistic evaluation of your company's revenues, You will need to base your forecast on thorough and reliable market analysis, including an analysis of what your competition offers. You will also need to think carefully about your pricing policy and distribution strategy beforehand.

Examples of financial statements to include in your forecast

Your forecast will need to include 3 financial statements:

• The P&L statement
• The cash flow statement
• The balance sheet

P&L statement

The profit and loss statement enables you to assess:

• the growth of the company by analyzing the evolution of the turnover over several years;
• the profitability of the company by looking at the difference between the expected revenues and the costs which will need to be incurred to generate these sales.

The main shortcoming of the projected income statement is that it does not take into account cash flows. Your profits should turn into cash at some point, but based on when your clients pay you, how much inventory you keep, or when you pay your suppliers, the cash flow could be very different from your profit.

To overcome this shortcoming, we need to look at the forecasted cash flow statement included in our financial forecast example.

Cash flow statement

The cash flow statement shows all anticipated cash movements for a given year.

It enables you to evaluate:

• the ability to generate operating cash flow;
• the company's investment and financing policies.

The cash flow statement is highly complementary to the P&L statement. Together they provide a clear view of the company's profitability, the cash generated by the operations, the investments made and the financing flows.

Balance sheet

The forecasted balance sheet, the last link in the chain, provides an overview of the company's net worth at a given moment in time and is part of our financial forecast example. It enables you to evaluate:

• the value of the company's assets;
• the weight of its working capital;
• the level of financial indebtedness;
• the book value of shareholders' equity.

The forecasted balance sheet complements the other two tables. Nevertheless, it has two weak points:

• It provides a snapshot of the company's net worth at a specific moment in time - giving a very static view of the company. Especially given the balance sheet is usually produced several months after the end of the financial year (and therefore the information it contains is already stale!)
• It gives an accounting vision of the company, based on historical cost, and not a financial vision, based on market value.

Where can I find other financial forecast examples?

At The Business Plan Shop, we offer an online software that includes a financial forecasting tool and helps you throughout the drafting of the business plan on top of financial forecast examples included in our business plan templates . 

Using a software like ours to realize your business plan has several advantages:

• You can easily create your financial forecast by letting the software take care of the calculations and financial aspects for you.
• You are guided in the drafting process by detailed instructions and examples for each part of the plan.
• You get a professional document, formatted and ready to be sent to your bank or investors.

If you are interested in our solution, you can try our software for free here .

Our article is coming to an end. We hope that our financial forecast example has given you a better understanding of what this exercise is all about.

The forecast is a crucial element of a business plan that will be of particular interest to your financial partners if you are looking for financing; but don't forget that it is also a mean for you, as an entrepreneur, to evaluate the viability of your new business idea.

Also on The Business Plan Shop

• How to do financial projections for a new business?
• How to establish a Profit & Loss forecast in your business plan?
• How to do a financial forecast for a restaurant?

Founder & CEO at The Business Plan Shop Ltd

Guillaume Le Brouster is a seasoned entrepreneur and financier.

Guillaume has been an entrepreneur for more than a decade and has first-hand experience of starting, running, and growing a successful business.

Prior to being a business owner, Guillaume worked in investment banking and private equity, where he spent most of his time creating complex financial forecasts, writing business plans, and analysing financial statements to make financing and investment decisions.

Guillaume holds a Master's Degree in Finance from ESCP Business School and a Bachelor of Science in Business & Management from Paris Dauphine University.

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How to Use Business Proposals to Win More Deals

The path to purchase starts with a solid business proposal. Learn tips and techniques to boost sales success.

Kristen Handler

Share article.

It’s Saturday night. You send a text to your friends suggesting you all try a new restaurant. You share its five-star reviews, talk up the cool vibe, and send them the drool-worthy menu to get them onboard. Then, you ask who’s in.

You presented an option, focused on the benefits, and asked for buy-in — nice proposal skills.

While writing a business proposal is a more structured process, the concept is similar. So, what is a business proposal, and how can you use one to win more customers? Read on to learn more.

What you’ll learn:

What is a business proposal, why is a business proposal important, types of business proposals, how to write an effective business proposal, best practices and tips to elevate your business proposal, speed up the sales cycle with trusted ai.

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A business proposal is a document created by a company that outlines the features and benefits of its products or services for a prospective buyer. It seeks to attract potential customers by describing in detail how your offering can help solve their specific problem or need. Business proposals are sent digitally and physically and are often presented in person or via virtual meeting.

A business proposal is a way for sellers to convince a prospect to purchase their product or service. In the sales cycle , a proposal usually comes after the prospecting, qualification, and presentation stages, before negotiation and closing the deal. An effective proposal is personalized to your prospect, clearly articulates why you’re the best solution, and sets you up to close the deal in the final steps of the sales process.

Business proposals are important for the following reasons:

• They consolidate information: During the sales process, prospects can receive a lot of information from sellers. And buying decisions are just one task on their already long to-do list.  This can leave them feeling overwhelmed or even confused. A business proposal summarizes all the details of your offer and presents it in one clear and concise document that prospects can easily refer to later.
• They help leave a good impression: A well-written proposal is a reflection of you and your company. After many interactions in the nurturing phase of the sales cycle, your proposal is a physical reminder for prospects of your company, your relationship with them, and what you have to offer.
• They facilitate buy-in from absent decision-makers: Not everyone involved in purchasing decisions can attend every meeting or hop on every phone call. A business proposal is a way to communicate important information with absent stakeholders and decision-makers, so you can get purchase approval faster.

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A business proposal is either solicited or unsolicited. Unsolicited proposals are sent to prospects who have not requested them. These are less common because they’re broader and can be harder to tailor to the specific needs of your prospect. An example of this is when a toy manufacturer proposes a licensing deal to an animation company to use its cartoon character on their toys.

When a prospect or customer requests a business proposal from your company, it’s known as a solicited proposal. I’ve found these types of proposals to be more prevalent in sales because they are written with a specific recipient or request in mind. Business proposals may be formally solicited through an official process or informally solicited during a sales call or meeting.

Some common types of solicited business proposals — requests from companies looking for products or services — include:

Request for proposal (RFP)

Companies will distribute requests for proposals (RFPs) to potential vendors if they have a large or complex project they need to complete, but lack the internal resources to do so.

RFPs outline the company’s objectives, scope of work, timeline, budget, and other criteria for the desired product, service, or project. Prospective vendors respond with proposals, outlining their solution to the company’s problems or needs based on the RFP criteria.

Example: An AI startup issues an RFP for human resources software that can scale as it adds more employees. A software vendor responds with a proposal detailing the scalability of its software.

Request for information (RFI)

A request for information (RFI) is like an RFP, except it only asks for general information about a vendor’s product or services. An RFI typically precedes an RFP. It’s used by companies to explore options and narrow a list of vendors who may receive an RFP.

Example: An AI startup issues an RFI for human resources software. A software vendor responds with an overview of its product.

Request for quotation (RFQ)

A request for quotation (RFQ) is when a company asks a vendor for the price of its product or service. An RFQ is typically used when a company already knows the product they need and is comparing vendors based on price to make a decision. In addition to price, a vendor’s RFQ proposal may include its product availability, delivery times, and technical requirements.

Example: An AI startup issues an RFQ to a software vendor asking for a price for its human resources software. A software vendor submits a proposal with its pricing tiers, including discounts for annual subscriptions and add-on fees.

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The State of Sales report cites cross-functional alignment as sales leaders’ No. 1 tactic for driving growth. At most companies, sales reps create business proposals with input from leadership, marketing, finance, and sales operations. This alignment ensures the proposal accurately reflects the company’s brand and its prospect’s needs. Let’s walk through the steps of writing a proposal.

Key elements of a business proposal

Make sure you’ve covered everything your prospect is expecting from your proposal. Review the RFP (if applicable) to ensure you’ve met its requirements, read your call notes, and ask the prospect about any areas that need clarification.

Every business proposal should include these components:

• Cover page: This is the first thing a prospect will see and should be personalized to them. Include the proposal title, the prospect’s name and company, your name and company, and your contact information. Include the date you submit the proposal to ensure you comply with any hard deadlines set by prospects.
• Executive summary: This is a critical piece of the proposal. If your executive summary is not concise, accurate, and engaging, you risk the reader abandoning the rest of the proposal. Identify the pain point, as described by the prospect.  Describe how your solution solves their concern. Articulate the expected business outcomes if this investment is made. This section is not about you; it’s about your prospect and how their pain point can be resolved.    
• Table of contents: Include page numbers and hyperlinks (if digital) so the recipient can easily navigate the proposal’s sections.
• Problem statement: This is your “what.” State the prospect’s problem or need in a way that sets up your company as the best solution. Highlight the benefits of your product or service. For example, if a prospect has cybersecurity challenges from malware and phishing and your software excels at malware, focus on that problem area over phishing.
• Proposed solution: This is your “how.” It’s where you explain how your product or service will help solve your prospect’s problem or need. It should include your scope of work, deliverables, methodologies, timeline, and terms and conditions.
• Qualifications: This is your “why.” Here, you’re telling your prospect why your company is the best choice for the job. You should highlight your experience, expertise, previous successes, and value. Consider including your company’s certifications, awards, customer case studies, or testimonials.
• Pricing: Include pricing if the prospect asks for it. Oftentimes,  including tiered pricing options in a proposal can lead to a faster close because there is less back-and-forth price negotiation . An example of tiered pricing for a software subscription model is listing price options for one, two, and three years. Generate quotes quickly and accurately with a configure, price, and quote (CPQ) tool tied to your CRM data.
• Conclusion: Wrap up with a summary of the proposal. Outline the next steps if the prospect were to buy in, such as a project kickoff meeting and estimated start date. Include your contact information for any questions.

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Drafting proposals are a large part of a seller’s role.  But you’re most certainly not the only vendor submitting a proposal. Here are some ways to make your proposal stand out from the competition:

• Be organized: Create an outline of the proposal before you write it. This will help you visualize the information you want to convey. Write your executive summary and conclusion last, since these two sections summarize all the other parts of the proposal.
• Sleep on it: Allow 24 hours to pass between finishing your proposal and submitting it on the deadline. First, you will avoid the anxiety of last minute submissions, or worse, missed deadlines.  You can also use this time to review your proposal with fresh eyes. Proofread for typos and content flow. Consider asking a colleague to review it as well. I like to imagine I’m the recipient and know nothing about my company as I read over it, playing devil’s advocate and looking for flaws.
• Ensure accessibility: Keep accessibility in mind when formatting your proposal, so anyone reading it can understand the text, graphics, and visuals. For example, avoid saying “in the green text below” in case the reader can’t discern colors. Choose legible font styles and point sizes.
• Schedule a follow-up call: Arrange a follow-up call or in-person meeting with the prospect before sending your proposal to ensure you don’t get lost in the shuffle. Use the follow-up call to review your proposal, get feedback, field objections, and answer questions.  Pro-tip: ask for feedback!  Even if you do not win the deal, being open to critical feedback will help you refine the next proposal.

What to look for in a business proposal tool

A business proposal tool can help you create proposals with more efficiency and precision. Many tools come with customizable proposal templates to ensure consistent branding, formatting, and wording across your company’s proposals.

A good tool will also help you generate proposal documents — with configured products, pricing, and discounts — straight from your quoting process. With features like pricing rules, discount controls, approval workflows, and compliance built into the quoting process, you can greatly reduce deal friction and mitigate risk for your business, all from one place.

Look for a tool that can integrate with your customer relationship management (CRM) system. This approach allows you to manage and track your proposals from start to close, give sales leadership insights into deal statuses, and send proposals to prospects straight from your CRM.

Win more business with better business proposals

Your business proposal could be the pivotal factor in convincing a prospect that your company is the solution to their problem. Respond to their needs with a proposal that shows you understand their problem, can solve it with your product or service, and why you’re the best company for the project. Follow the tips and best practices above, and you’ll be on your way to writing effective business proposals that turn prospects into customers.

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Kristen Handler is a Senior Account Manager at Red Argyle, a team of curious people building intentional Salesforce solutions for some of the biggest brands in the world. She fell in love with Salesforce during her time as a Sales Operations Analyst, and is now joyful to be working with customers ... Read More directly in an account management role. She is 3x Salesforce Certified, a Trailhead Ranger, CSPO certified, and an active member of the Salesblazer Community.

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How To Write a Business Plan for a Loan: A Guide

This article contains general information and is not intended to provide information that is specific to American Express, or its products and services. Similar products and services offered by different companies will have different features and you should always read about product details before acquiring any financial product.

Many small business owners know that it can take money to grow. But what does it take to secure that funding? A strong business plan is often a part of the answer. That’s why learning how to write a business plan for a loan may be an important part of setting up a small business for success.

A good business plan helps a lender assess a business’ prospects. There is a standard format that owners may wish to follow. Keep in mind that applying for a loan is an important step that has legal consequences. As you put together your business plan, consult your professional advisers to make sure that you understand the importance of providing accurate information.

Here are some pointers on writing a business plan for a loan to help grow your business .

Why is a business plan important when you’re applying for a loan?

The Small Business Administration (SBA) describes a business plan as a “roadmap to small business success.” Given all the challenges of keeping a small business thriving, a roadmap is a handy thing to have. A business plan helps an owner visualize the future, take the actions needed to get there, and understand when to change strategies.

A business plan is also often required when applying for a business loan. Lenders often use an applicant’s business plan as part of the loan application and approval process. It helps the lender evaluate the likelihood of the small business being profitable.

Knowing how to write a business plan can also be helpful for other purposes. Commercial real estate landlords may ask for a business plan before leasing a space. A thorough business plan may also help with finding investors.

What lenders look for in a business plan

A lender typically evaluates several factors to decide if a small business is likely to repay requested financing. The various sections of the plan will help the lender decide if a market opportunity for the company exists, if the business has access to the organizational and managerial resources it needs, if the product or service appears viable, if a marketing plan exists, and if the small business’ finances are healthy. Simply put, the plan helps the lender review all aspects of the business on paper, so that the lender can make a more informed decision about making a loan.

In addition to the business plan, the lender will likely assess the company’s accompanying business credit reports and business credit scores to determine its creditworthiness.

What does a formal business plan include?

Many business owners have informal business plans from when their small business was just a side hustle. Business ideas written on the back of a napkin are a cliche for a reason: it’s a common way for a small business to take shape.

A formal business plan, however, can’t fit on a napkin. When a growing small business needs a sizable business loan or line of credit , they will likely need to provide something quite detailed to a lender. The need for a formal document doesn’t necessarily mean it will be difficult to secure the loan , however. It just means the lender needs a clear picture of the business.

Small business owners can think of a business plan for a loan application like a resumé when seeking a job. It helps a lender decide if the small business is a good candidate for a loan in an easy-to-read document. Similar to a resumé, the business plan should be professional looking and free of spelling, grammatical, and typographical errors.

The list below follows the naming conventions and structure of how to write a business plan for a loan application according to the SBA . It includes:

• Executive summary
• Company profile
• Market analysis
• Organization and management
• Service or product line
• Marketing and sales
• Funding request
• Financial projections

1. Executive summary: Spark interest in your business

The executive summary may be the first thing a lender will read, but small business owners may be best served by writing it last. Learning how to write a business plan for a loan may help owners understand their own business better. The executive summary will likely be most accurate after the owner has thought through, and learned from, all the sections to follow.

What is the executive summary?

The executive summary is a brief overview of the business plan. It should give readers a high-level description of the business, as well as the high points of the business plan.

What to include in an executive summary

An executive summary should include the following:

• Business name, contact information, and social media profiles : This will help the reader find the business in the real world.
• Mission statement : A mission statement should directly reflect the values of the business to help readers understand why the business exists.
• Product or service description : This highlights what customers can expect from the business.
• Demographic, economic, and financial factors affecting the business : Readers should understand the general environment in which the business operates.
• An analysis of competitors and the primary market : This previews the market analysis section and clarifies the business’ market position.
• Marketing, public relations, and sales plan : Readers should understand how the business plans to attract and retain customers.
• Future revenue and cash flow projections : Financial forecasts help readers understand the business’ potential for growth and profitability.
• Any current assets or capital : Lenders will want to know what potential collateral the business has.

2. Company profile: Define the business

A company profile is a business owner’s opportunity to briefly explain what their business is all about and why it exists. The profile should be heavy on facts, including what the products and services are, the target audience, and what needs the business fulfills. It should be written in a formal tone and explain what, if anything, makes the business unique.

3. Market analysis: Competitors and customers

A market analysis explains the business environment in which the company will operate. Lenders may look at this section to determine if the business has a good understanding of its competition and potential customers. You may want to consider hiring a market research firm to help you prepare a market analysis.

Market analysis elements include:

• An industry analysis : This describes the outlook for the industry to which the business belongs.
• Knowing your competition : A competitor analysis highlights the strengths and weaknesses of similar businesses in the same market to identify challenges and opportunities.
• Know your niche : Explain how the product or service addresses an unmet If your business has a significant social media following, that may help to show how your business is reaching your customers.

4. Organization and management: Talent and experience

Who will run the business? This section is meant to help lenders understand the experience and skills of those operating the business. It’s not uncommon for lenders to ask if the talent that has made a business successful so far will stay with the business as it grows. Including a description of the current and future business structure over the next three to five years may demonstrate room for growth for valuable staff members.

5. Service or product line: What makes the business special?

A description of the small business’ service or products helps highlight what makes the business unique. The nuts and bolts of these offerings are critical, but their intangible qualities are valuable as well. This could include the recent hiring of an up-and-coming chef, the development of a new, patented product, or an innovative production method. This section is an opportunity to drill down on what makes the business unique.

6. Marketing and sales: How do you get the word out?

A great product or service is only valuable if enough potential customers hear about it. A lender will want to know how the business plans to get the word out about its offerings and increase its share of the target market. The plan might include social media platforms, established business partners, and how the company will generate and nurture sales leads.

7. Funding request: How much does the business need?

A business plan is all about clarity. Small business owners may use this opportunity to clarify how much money they need and why they need it. Lenders value a detailed explanation of how the business will use the loan and why it will increase their revenue or net profits.

8. Financial projections: Dollars and cents

Naturally, lenders will want to know about a business loan applicant’s finances. When learning how to write a business plan for a bank loan, business owners should understand the critical role of financial reports.

When preparing financial projections, it may be wise to consult a professional to best help your business prepare your documents accurately. Financial projections may include the following documentation:

• Startup expenses
• Payroll costs
• Sales forecast
• Operating expenses
• Cash flow statements
• Income statements for the first three years of business
• Balance sheet
• Break-even analysis
• Financial ratios
• Cost of goods sold (COGS)
• Amortization and depreciation for your business

9. Appendix: Show instead of tell

The appendix is where a business owner can show their work. The appendix includes supporting documentation, including resumés, financial statements, media clips indicating buzz around a product or brand, or anything else that verifies the information shared in the previous eight sections.

A formal business plan can be important when applying for a business loan

Seeking financing for business growth is a great opportunity to move from an informal business plan to something more structured. Having a business plan ready for lenders is a great first step in securing the funding your business may need to grow or sustain operations.

The material made available for you on this website is for informational purposes only and is not intended to provide legal, tax or financial advice. If you have questions, please consult your own professional legal, tax and financial advisors.

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Money blog: Stamp duty hike on way; 'worrying' increase in energy bills this year

Welcome to the Money blog, a hub for personal finance and consumer news and tips. Today's posts include reaction to Ofgem announcing an energy price cap increase, as well as a warning over stamp duty. Listen to Ed Conway's analysis of UK borrowing and potential tax rises as you scroll.

Friday 23 August 2024 21:14, UK

• Price cap increase 'worrying', energy secretary says
• Warning £2,500 will be added to stamp duty 'overnight' in March
• Nationwide trumps rivals to offer new lowest mortgage rate

Essential reads

• Savings account that could put your child on strong financial footing at 18
• 'I cook with air fryer in living room after kitchen win went wrong'
• Ed Conway : Are tax rises inevitable - or is chancellor considering another way?
• Listen to Conway on the Daily above and  tap here to follow wherever you enjoy podcasts

Tips and advice

• How to get money back when purchase over £100 goes wrong
• What's the best way to buy travel insurance if I have a medical condition?
• Cheap Eats : Top Yorkshire chef shares Yorkshire pudding secrets

Ask a question or make a comment

By Jimmy Rice, Money blog editor

A lot of people have been scratching their chins and wondering whether the new government might be overstating the economic mess left by the previous regime.

The accusation, from the right, is that a narrative is being built to justify tax rises motivated not by necessity but ideology.

Data that's trickled in over the weeks since Rachel Reeves stepped into Number 11 - GDP growth, inflation remaining low - hasn't always helped the Labour story.

But this week, in the words of data and economics editor Ed Conway , "we had the latest public finances numbers and here the picture is considerably closer to the Reeves version than those other bits of data".

Government borrowing for July overshot expectations - and the consequences for public services and the tax burden in the October budget now look "grim", Conway wrote .

He discussed all of this in an episode of the Daily podcast, which you can listen to here or wherever you enjoy podcasts ...

Despite warning about the budget, Conway's sources suggest another route is still being considered by the chancellor, one that involves changing how the public finances are measured and judged. You can read about this here...

We also learned this week of the timeline for new EU visa rules.

UK citizens will need to pay a €7 visa-waiver charge to travel to Europe from next year. The additional charge, which is similar to the US ESTA, is part of a series of new border checks and entry requirements the EU is bringing in.

They'll apply when entering the Schengen area, which includes EU member states, plus Iceland, Liechtenstein, Norway and Switzerland. 

People under 18 or over 70 will be exempt from the charge - as will those travelling to Ireland or Cyprus.

The waiver will last for three years or until your passport expires.

Its official title is the European Travel Information and Authorisation System (ETIAS), and its implementation will follow the introduction of the EU Entry/Exit System (EES). The latter will require people to have their fingerprints registered and their pictures taken on arrival to airports.

Addressing the rollout, EU home affairs commissioner Ylva Johansson said the EES will enter into operation on ­10 November while the ETIAS will follow shortly after that in 2025 - likely May.

However, it is thought there could be a six-month grace period before the visas become compulsory - taking it to November next year.

On Friday morning, it was confirmed that the energy price cap would rise in October, with another hike expected in January.

"Unfortunately, a volatile wholesale market, and a country heavily reliant on imported energy has created a perfect storm for fluctuating household bills," said Dr Craig Lowrey, principal consultant at Cornwall Insight.

He argued that there may be a case for re-examining the price cap system given it's not protecting households from global energy trends.

A typical annual bill will now be £1,717 from the autumn, with £45 forecast to be added to that in the new year.

Here in Money, we examined football shirt prices as the new Premier League season got under way...

For a fuller understanding of this story, watch this explainer put together by our digital video team...

Three more essential reads from Money that are worth checking out are...

We're signing out of regular updates now until after the bank holiday weekend - but do check out our weekend read from 8am on Saturday. This week we're examining whether the Nike trainers bubble has burst.

Lots of stories we've covered in Money over the last week or so prompted a flurry of comments. We'll start with the multiple updates we've done on Gail's...

Some readers were on board with the backlash but more couldn't see what the fuss was about...

Surprised the faux posh in Walthamstow 'village' would baulk at pricey offerings from Gail's. They already seem quite happy to pay up market prices at their existing Spar store without complaint. Pack of sausages with la-de-da ingredients nearly 6-quid. I ask you! Keith

Most places would be thrilled to have Gail's opening. Their food and bread is excellent as is their coffee, they have very attractive décor and bring a touch of class to any high street. Petalin

We also had a fair few who wondered why we were covering this story at all...

Who or what is Gail? Alangillie

When did Walthamstow become a 'leafy suburb'. Thought it was home to East17? And why does this constitute national news? Shops open and close all the time in areas all over the country. Does one of your editors live there and opposes it? I don't see how this is news at all. City boy

Sometimes our posts prompt questions rather than comments - such as the one below following our feature on Section 75 consumer rights...

I want to buy a car for £7,000 from a dealership. Have I got credit card consumer protection if I pay half cash and half on a credit card? Clive Blackpool

The answer is that, yes, you would be protected - even if you just pay 1p of it on credit card. Everything you need to know is here...

Lots of you got in touch following our Saturday feature on how couples split their finances...

Readers shared how they and their partners split things...

We divide all bills more or less equally. He earns a lot more than I do and keeps his money/savings to himself after 50 years of being together. I have absolutely no idea how much in savings he has and he won't share anything. Yes you are reading this correctly! CP

100% all money going into one account for bills, disposable income etc - we manage it all on one spreadsheet! Never had a disagreement ever after 13 years and we're only 30! Can't ever imagine going for dinner and someone saying 'I'll get this' - how do people do it? abbie s

My partner and I are discussing purchasing a property together. Our rule will be 50% of the mortgage each regardless of income as we are both 50% owners of the asset. Other bills we'll just decide based on income. Adam

I earn a lot more than my partner, so once our relationship was mature enough I put the difference into shared savings. Since having a child all money goes into a joint account except for a small allowance each. Financial equality is so important for a happy relationship. Linda

It's simple. I do not know what my wife earns, she does not know what I earn, we have separate [accounts]. We buy what we need and want, when we go out she pays one time I pay next, we do not even look at the bill. That way you have no problems. Cozy Powell

My partner earns around £60k more than me per year and we split our bills down the middle, however, he buys all the food for us and the pets and generally pays when we go out. I couldn’t ask him for extra, I manage just fine with the current arrangement. LHam

All outgoing were paid from a joint bank account which we paid into from our personal accounts, salary split at the start was roughly 60/40 so I would pay 60% of the total and my wife 40% (plus 10%), any money left in our individual accounts was our own. 58mprl

The post that led to the most consternation this week concerned the hiking of fines for parents taking kids out of school...

You said...

Why are the government not looking at the travel agents? My partner and I both work in a school. We have no children at school but we have to pay extortionate prices for our time away as we have to go in school holidays. Tony

If I choose to take my children out of school to go on holiday, because let's face it parents can save a lot of money when the holiday season is over. I am a single parent with two kids, I'm holding down two jobs. Andy Henderson

As a teacher, I understand the frustration many parents feel about the extortionate prices of holidays. It's disheartening to see families AND teaching staff not being able to afford a holiday. I also understand how difficult it is for a child to catch up on missed work. Mikki

Highly disagree with the term time holiday penalty. There are countries where parents can authorise up to five days of leave per year. A long weekend here and there, or a week-long trip once a year is not going to hinder a child's prospect! TermTimeTravel

Starbucks' incoming chief executive, Brian Niccol, is under fire over the company's offer for him to commute around 1,000 miles by private jet.

Social media users were quick to criticise the world's biggest coffee shop chain over the move in light of its sustainability efforts elsewhere, such as banning plastic straws.

Mr Niccol's job offer said he will not have to relocate to the company's headquarters in Seattle, Washington, from his family home in Newport Beach, California, when he takes up his new role on 9 September.

Read more here...

Storm Lilian is causing disruption to travellers and festival-goers ahead of the bank holiday weekend.

Two stages at Leeds Festival have closed for the day, the BBC Radio 1 Stage and Aux Stage.

British Airways has cancelled 14 flights from Heathrow and delayed others, while two flights from Leeds Bradford Airport were cancelled and three morning arrivals diverted to Liverpool.

The energy price cap increase has led to renewed calls for a winter fuel payment U-turn.

The government plans to means test the payment for pensioners, making it available only to those receiving pension credit.

But Caroline Abrahams, charity director at Age UK, said this was "reckless and wrong" and "spells disaster for pensioners on low and modest incomes" after the latest bad news for energy costs.

Shein found two cases of child labour in its supply chain last year, the fast fashion retailer has said.

The company's 2023 sustainability report, published yesterday, said it suspended orders from the suppliers that had employed children under 16.

Both cases had been "resolved swiftly", it said, with remediation steps including ending underage employees' contracts, arranging medical check-ups, and facilitating repatriation to parents or guardians as necessary.

"We remain vigilant in guarding against such violations going forward, and in line with current policies, will terminate any non-compliant suppliers," Shein said in the report.

Shein has stepped up audits of manufacturers in China to assuage criticisms of its low-cost business model ahead of a planned flotation.

It tightened its supplier policy last October after the child labour cases were found, so that any severe breaches - called "Immediate Termination Violations" - would result in ending the relationship with the supplier immediately.

Previously, suppliers such as those that employed minors had 30 days to resolve the issue, failing which Shein would cut ties.

It's time to check if you have any Tesco Clubcard vouchers close to expiring, as £14m worth are due to run out on Saturday.

Vouchers are only valid for two years from the date they were issued, so it's worth making sure you don't have any hidden away in your account.

To check online, go to the Tesco Clubcard website and select "Clubcard account" and then "Vouchers". 

 You should then be able to see a table listing your available vouchers and their expiry dates.

If you're using the Tesco app, open it up, go to "Clubcard" and then to the "Vouchers" section.

What to do with your vouchers?

You can spend your hard-earned vouchers either online or in person. 

Alternatively, you can double the value of your vouchers by spending them at Tesco's reward partners , including Disney+, RAC and Zizzi.

By James Sillars , business reporter

It's a tentative start to the day's trading on financial markets with the focus firmly on the United States. Jackson Hole in Wyoming, to be exact.

That is where the chair of the US central bank will make an eagerly anticipated speech in which he is widely expected to signal that the first interest rate cut by the Federal Reserve will come next month.

Jay Powell is, however, expected to temper market expectations for several rate cuts by the end of the year.

That could hamper recent progress against the US currency by the pound, which is currently trading at one-year highs versus the dollar at $1.31.

It could also hurt a rate-sensitive stock market, which is desperate for lower borrowing costs.

As such, the FTSE 100 is trading 0.2% up in early deals at 8,304.

Miners and energy stocks are leading the way on upticks in prices.

Brent crude oil stands at $77 a barrel.

The energy price cap limits what utility companies can charge customers for a daily standing charge and each kilowatt-hour of gas and electricity they use.

Regulator Ofgem releases the cap quarterly and estimates how much the average household would typically pay over a year at the new unit price.

This figure, £1,717, assumes a household with 2.4 people living in it consuming 2,700 kWh for electricity and 11,500 kWh for gas.

The real annual cost per customer will be different depending on how much energy you actually use. If you use more gas and electric than £1,717 buys, you will pay more.

With prices fluctuating significantly at each quarterly release over the last four years, the use of a yearly figure is also quite an imperfect basis for medium-term household budgeting.

Here's what is actually capped: 

• Each unit of electricity: 24.5p per kWh (up from 22.36p)
• Each unit of gas: 6.24p per kWh (up from 5.48p)
• Electric standing charge: 60.99p (up from 60.12p)
• Gas standing charge: 31.66p (up from 31.41p)

Ofgem's price cap only applies to people in England, Scotland and Wales on standard variable or default tariffs.

This is most households, whether you pay by direct debit or a prepayment meter.

It doesn't apply to the small numbers of people still on fixed-rate tariffs.

Another quarter, another energy price fluctuation to contend with - another change to make to your household budget.

But there are fixed deals available cheaper than the new price cap, according to Uswitch.

The average household can save £125 against October's price cap with the cheapest 12-month fixed tariff, said Richard Neudegg, director of regulation at Uswitch.

At £1,592 typically per anum, it would also stave off another small increase expected in January, he said. 

It is worth pointing out that it is in Uswitch's favour for people to move, and a fixed tariff could always end up costing you more if the price cap were to drop below that fixed rate in April and June next year.

"Customers staring down the barrel of winter might question whether the current price cap system is really the best way to put real pricing pressure on suppliers," said Mr Neudegg.

"It's important for households looking for certainty to run a comparison to see what's available to them and see personalised prices based on how much energy they are likely to use."

Here are the top 10 fixed energy-only tariffs that could help you beat the price rise, according to Uswitch:

Pensioners are being urged to check if they are eligible for the winter fuel allowance after universal payments were scrapped by new Chancellor Rachel Reeves last month.

Previously, the money was available to everyone above state pension age, but now it will be limited to people over state pension age who are receiving pension credit or other means-tested support.

It means the number of people entitled to the money will drop from 11.4 million to just 1.5 million.

The payment is £200 for households where the recipients are all under 80, and £300 where they are over 80.

While around 1.4 million pensioners are already receiving pension credit, there are up to an estimated 880,000 households eligible for the support who are yet to claim, the Department for Work and Pensions says.

The government's awareness drive will help identify households not claiming the benefit, and encourage pensioners to apply by 21 December - the last date for making a backdated claim for pension credit in order to receive the Winter Fuel Payment.

It will focus on "myths" that may stop people applying, such as how having savings, a pension or owning a home are not necessarily barriers to receiving pension credit.

More information on applying for pension credit can be found on the  government's How to Claim page .

Stockbroker AJ Bell says a price rise at the start of colder months is the "exact scenario" British households hoped was behind them - particularly pensioners.

Combined with the effects of two years of high inflation, residents are set to spend another winter watching "thermostats like a hawk", said head of financial analysis Danni Hewson.

Many pensioners, in particular, have already tried all the tricks available to keep bills down and will be left merely hoping temperatures stay mild, she added.

"For many people having to find an extra £149 a year will be akin to pouring fresh salt on healing wounds," Ms Hewson said.

"For around 10 million older people who are also faced with having to make do without their winter fuel payments, it adds insult to injury. 

"Some pensioners will be able to manage, but others will find the winter months particularly tough."

Energy costs will be £117 below those last Autumn, but will still be £675 higher than October 2020.

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China’s Kaisa Group flags US$1.2 billion first-half loss amid home sales slump, write-down

• The Shenzhen-based developer expects to post a loss of as much as 9.8 billion yuan (US$1.3 billion) for the six months to June, versus a loss of 6.6 billion yuan a year ago

Chinese developer Kaisa Group warned that it expected its net loss to widen for the first half, underscoring the troubles property firms face amid a sector-wide downturn despite government support.

The decline was mainly because of a decrease in revenue as a result of fewer handovers of properties and an increase in impairment provisions, the company said.

Boom, bust and borrow: Has China’s housing market tanked?

Despite a historic rescue package of 300 billion yuan announced by Chinese authorities in May, home sales continue to weaken. Transacted home sales generated by the top 100 Chinese developers dropped to 279 billion yuan in July, a decline of 36.4 per cent compared with June and 19.7 per cent lower than a year earlier, according to China Real Estate Information Corporation.

Kaisa’s profit warning comes amid efforts by the Shenzhen-based developer to convince most of its creditors to support its restructuring. The company on Tuesday unveiled an overdue debt workout for the first time since defaulting on US$12 billion of offshore bonds in 2021 to avoid liquidation during a court hearing next month in Hong Kong.

The developer offered its creditors several payment options, including new notes denominated in US dollars and mandatory convertible bonds that can be exchanged into new shares, according to the restructuring proposal.