How to do the sales forecast of your online business
How to do a sales forecast is usually an issue for beginners entrepreneurs.
The truth is that while new entrepreneurs are often optimistic about the future of their new business, most are not sure how to forecast future sales and how much money they can make.
Why is sales forecasting important?
Looking into the future is an intimidating but necessary task, especially when it comes to the future of something in which you are investing your time and money.
Your sales forecast is the foundation of the financial history you are creating for your business. After you complete this projection, you can easily create your profit and loss statement, cash flow, and balance sheet.
But far beyond just getting a complete financial forecast, making a sales forecast is important to help you set goals for your company by answering a few questions like: What do you expect to achieve? How many customers do you want to conquer next month and next year? How much will each customer spend with your business?
The data you will get will also be your guide on how much you should spend.
You get your sales forecast to guide how much you should invest in marketing to acquire new customers and how much you should spend on operations and administration.
How detailed my sales forecast should be?
When you are predicting your sales, the first thing you should do is figure out what exactly to create a forecast for.
You do not want to be too generic and just predict sales for your entire company. On the other hand, you do not want to create a forecast for each individual product or service you sell.
For example, if you are starting an online course, you do not need to create predictions for each course or module in your course. Instead, focus on broader categories such as beginners and advanced learners.
The best option is to have three to ten categories for the types of sales you make.
But do not worry too much about it at first, after all you can always go back and adjust your categories later. Just pick a few to get started and move on.
Top to bottom or bottom to top?
A common mistake in many startups is to make a “top-down” sales forecast. What does that mean? Figure out the full size of the market and decide to capture a small percentage of that total.
For example, a course instructor discovers that in 2018 1 million online math courses were sold in the US. It is very tempting for a startup to say that it will get 1% of that total market. After all, 1% is such a small number, it has to be believable, right?
It may even seem correct in a superficial analysis, but you have to dig deeper. What is driving these sales? How are people finding out about these courses? Of the people who discovered the new company, how many will make a purchase?
So instead of predicting “top-down,” make a “bottom-up” forecast. As the name suggests, the bottom-up prediction is more of a guess.
Start thinking about how many leads you can reach by marketing strategies such as emails, social networks, etc. The result of this analysis is your target market, ie the 1% market you will realistically achieve, especially in the early years of your business.
Of the people you reach, how many do you think you can persuade to get on your site? And, of these, how many will buy your product / service?
See the example below:
- 5,000 people see your online course announcement
- 1,000 people click on the ad and are directed to your website
- 50 people end up making a purchase
Obviously, these numbers are just an example, but give you an idea of how the bottom-up sales forecast works.
The last step is to think about the average amount that each of these 50 people ends up spending. On average, do they spend $ 20? $ 100? It’s okay to guess here, and the best way to refine your guess is to go out and talk to your prospects. You’ll be amazed at the accuracy of a number you can get with some simple interviews.
Units or dollars?
Let’s start talking about unit sales.
A “unit” is simply a denomination for what you are selling. A lunch in a restaurant would be a unit. An hour of consulting work is also a unit. The word “unity” is a generic way of talking about what you are selling.
The units help you think about the number of products you are selling. It’s easier to think of sales this way than in dollars.
With a money-based forecast, you see only the total amount you’ll earn in a given month, instead of the number of units you’re selling and the average price of each.
To predict unit-based sales, you predict how many units you will sell each month and determine the average price for each. Then multiply these two numbers and you’ll have the total sales you plan to make each month.
For example, if you plan to sell 1,000 units for $ 20 each, you will earn $ 20,000.
When you predict units, you get a few different variables to play with: What if I can sell more units? What if I raise or lower my prices?
In addition, there is another advantage: at the end of a month of sales, you can do a retrospective and see how it went compared to your forecast.
Did you meet your goals because you sold more units? Or sold for a higher price than you thought to do? Did you not reach your goal? Why?
This detailed analysis helps guide your business so that it has solid and organized growth.
How far should my sales forecast go?
It is recommended that you make a monthly forecast for 12 months in the first year of your business and then only annually for another three to five years.
It’s no use making a prediction that will go a long way in the future, because the less you know, more hunches you will have to give and less benefit it will bring to your business.
After all, the world will change, your business will change and you will have to update your forecast to reflect these changes.
And do not forget, all the predictions are wrong – and that’s fine. Your sales forecast is just your best estimate of what’s going to happen.
As you learn more about your company and your customers, you can change and adjust your projection without stress.
Tip: visually represent your monthly sales with a chart.
A chart makes it easy to see how your sales may decline during a slow period of the year and then grow again during your high season.
Remember to Track Your Progress
Your sales forecast is a management tool that will help you better manage your business.
Smart companies use their forecasts to measure their progress and ensure they are on track.
The easiest way to convert your sales forecast into a management tool is by doing a monthly financial review meeting to analyze your company’s finances.
Compare your accounting numbers with your forecast and see if you are on the right track.
Are you exceeding your goals? Or maybe it’s falling down a bit. In any case, knowing whether you are meeting your goals or not will help you determine if you need to make some strategic changes. That way, your numbers drive your strategy.
Predicting sales to optimize your business
Remember that sales forecasting does not have to be difficult. Anyone can do this and you are the most qualified person to do this projection of your business.
You know your customers and know your market, now just organize the information following the method explained.
Do not worry if your data is not accurate, as the name says, it’s a sales forecast, it starts out based on guesses and is taking shape and consistency over time.
The important thing is that at the beginning of a new business, when everything seems too uncertain, this prediction helps to create a reality and a more solid path for your company to tread.
For those who create online courses, this is a good way to help price your course and determine how you will sell it (modules, monthly fees, categories, etc.).
Based on your sales forecast, determine your goal to know how many courses you need to sell and what the best value to charge.
Make a monthly sales analysis during the first year to align your strategy and make changes if necessary.
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