Sales forecasting is an important predictive metric for the day-to-day operations of a business. This method of predicting how a business will operate on a daily basis can be a huge help to business owners as an aid in financial planning.
If you are a founder working on getting your idea greenlit by investors, sales forecasting can make a major positive impression.
The process of forecasting starts with using historical financial data to predict future financial events. This means pulling from reliable data sources to back up your hypotheses about how sales will look for your company in the future. The way you go about sales forecasting for your business is largely dependent on the stage of development your business is in, though you can make use of sales forecasting techniques regardless of where your business is. Additionally, the way business owners go about forecasting can vary from company to company.
Choosing a forecast based on business stage
The way you approach sales forecasting can look different from other businesses in your industry. One of the biggest determining factors that will influence your approach to sales forecasting is the developmental stage your business is in.
The younger your business is, the less data you will have to draw from to create projections for future sales. In contrast, if your business is already well-established and you have a couple of years to compile data from, you can create much more comprehensive and accurate sales forecasts based on your previous financial periods.
Below is a guide to how businesses in different stages of development can make use of sales forecasting. Every founder should know how to use sales forecasting to serve their company in whatever stage of life it is in, from startup to well-established.
Forecasting for startups
Startups are unable to use conventional forecasting techniques because they rely on a history of financial records. If your business is still in its early stages, you may need to take a different approach to sales forecasting, especially if you want to win over prospective investors.
A qualitative technique is recommended when there is a lack of historical financial statements. If your business does not yet have a sales history that you can look back on for forecasting purposes, you can still forecast by comparing your business to similar companies. This type of sales forecasting may not be as accurate as forecasting done by more established companies, but it can still make a difference in your ability to predict your business’s future.
For startups, comparative forecasting models utilizing records from established similar companies at a similar stage is the way to go. You can make a convincing case for your startup by comparing your business model to the successful models of similar companies that have a reliable history of financial growth.
Forecasting for early-stage businesses
Once your business has sufficient financial records, you can turn to more quantitative analysis to predict month-to-month financial forecasts. For a business in its early stages that has financial records to draw from, you can use these records as a point of reference for what your business’s trajectory of growth will look like.
For early-stage businesses, sales forecasting uses the growth rate from the previous financial period to predict the growth rate in the future. In this stage of development, you have a better point of reference as a business owner for what future sales will look like based on the way your product or service has been performing so far.
The longer your business is up and running, the more accurate your sales forecasting strategies can become. The early months and years of running your own business can come with some difficulties and obstacles in the realm of managing and analyzing sales data. Fortunately, as your pool of sales data grows, predicting future sales can become easier and more intuitive.
Forecasting for established business
When your business has years of financial data on a given product, you can implement more sophisticated forecasting methodologies. Once your business has been up and running for years, you can trace sales patterns and predict future sales much more easily. The larger the data set, the more accurate the predictions. This means the more established your business is, the easier it will be to accurately forecast future sales.
With enough data from past financial periods, you can use sales forecasting to predict yearly patterns. This type of forecasting allows you to make specific changes to your business strategy based on previous sales records. Established businesses can use sales forecasting to make changes such as increasing production before the holiday season or cutting back on production during non-peak times, giving business owners the ability to be more efficient and plan ahead for what’s to come.
As your business grows, so will your ability to use sales forecasting techniques to optimize your business strategy.
Choosing a forecast indicator based on product type
Another key factor that influences a business’s use of sales forecasting is the type of products or services they offer. Certain companies may benefit more from pulling certain types of data from previous financial periods to compile an accurate sales forecast. If your company is service-based, for example, your forecasting strategy will differ from a company that sells a physical product.
Below is a list of guidelines for making use of sales forecasting based on the type of goods and services that your company sells.
Sales forecasting for service-based companies
Service-based companies focus their energy on customer retention, customer recruitment, and customer flight. These companies want to pull in as many customers as possible, keep them for as long as possible, and lose as few of their existing customers as possible.
Sales forecasting helps service-based companies know how to recruit new customers, maintain current customers, and prevent established customers from defecting to competing companies, building a thriving business that keeps growing as time goes by.
Sales forecasting also gives service-based business owners the ability to gain key insights into the trajectory their company is on, whether toward financial growth or decline. Looking at the numbers of customers that are signing up for your service or canceling their memberships or subscriptions in a specific financial period can give you a sense of what the next financial period will look like.
In addition, forecasting can be used in tandem with the company’s user analytics to determine the best demographics to market a service to in order to increase sales. If you look back at previous financial periods and see significant numbers of subscribers of your service dropping in a certain demographic, you can use this data to revamp your marketing strategy so that it is better tailored to reach the demographic that you are losing.
When able to accurately forecast, a service-based business can adjust the number of sales agents and create incentives to lure new customers in. It’s all about how you make use of data and how reliable and long-running your sales records are.
It’s all about how you make use of data and how reliable and long-running your sales records are.
M13 Team
Sales forecasting for companies that sell physical products
Product-based companies focus attention on units sold, units sold per interaction, where sales come from, inventory, and operating costs for manufacturing. Drawing from prior financial records allows a product-based company to make practical improvements to its marketing strategy.
Sales forecasting can help a product-based company refocus its energy toward the most lucrative business strategies. Looking back at previous sales data gives business owners insight into which marketing strategies worked better than others, allowing for future advertising and marketing to be improved.
Takeaways
If you are a founder struggling to trace patterns in your company’s performance and predict its future, sales forecasting is a powerful technique that can help you get on track and stay on track.
The longer your business is active, the easier it will be to make accurate predictions of what its financial future will be like—unfortunately, this means that newer businesses will have less to work with when it comes to accurate forecasting. Thankfully, the process of predicting your sales gets easier with time as you collect more data from prior financial periods.
When your goal is to improve the accuracy of your predictions of future sales, patience and diligence are the keys to success. Carefully monitoring your sales data and knowing how to use analytics can make a major difference in your company’s ability to succeed.
If you are just getting started, you can still make use of sales forecasting techniques by making use of qualitative sales forecasting techniques. Forecasting your company’s performance based on the performance of similar companies can help you get a sense of where your business is going and what to do to keep it growing as quickly and effectively as possible.
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Sales forecasting is an important predictive metric for the day-to-day operations of a business. This method of predicting how a business will operate on a daily basis can be a huge help to business owners as an aid in financial planning.
If you are a founder working on getting your idea greenlit by investors, sales forecasting can make a major positive impression.
The process of forecasting starts with using historical financial data to predict future financial events. This means pulling from reliable data sources to back up your hypotheses about how sales will look for your company in the future. The way you go about sales forecasting for your business is largely dependent on the stage of development your business is in, though you can make use of sales forecasting techniques regardless of where your business is. Additionally, the way business owners go about forecasting can vary from company to company.
Choosing a forecast based on business stage
The way you approach sales forecasting can look different from other businesses in your industry. One of the biggest determining factors that will influence your approach to sales forecasting is the developmental stage your business is in.
The younger your business is, the less data you will have to draw from to create projections for future sales. In contrast, if your business is already well-established and you have a couple of years to compile data from, you can create much more comprehensive and accurate sales forecasts based on your previous financial periods.
Below is a guide to how businesses in different stages of development can make use of sales forecasting. Every founder should know how to use sales forecasting to serve their company in whatever stage of life it is in, from startup to well-established.
Forecasting for startups
Startups are unable to use conventional forecasting techniques because they rely on a history of financial records. If your business is still in its early stages, you may need to take a different approach to sales forecasting, especially if you want to win over prospective investors.
A qualitative technique is recommended when there is a lack of historical financial statements. If your business does not yet have a sales history that you can look back on for forecasting purposes, you can still forecast by comparing your business to similar companies. This type of sales forecasting may not be as accurate as forecasting done by more established companies, but it can still make a difference in your ability to predict your business’s future.
For startups, comparative forecasting models utilizing records from established similar companies at a similar stage is the way to go. You can make a convincing case for your startup by comparing your business model to the successful models of similar companies that have a reliable history of financial growth.
Forecasting for early-stage businesses
Once your business has sufficient financial records, you can turn to more quantitative analysis to predict month-to-month financial forecasts. For a business in its early stages that has financial records to draw from, you can use these records as a point of reference for what your business’s trajectory of growth will look like.
For early-stage businesses, sales forecasting uses the growth rate from the previous financial period to predict the growth rate in the future. In this stage of development, you have a better point of reference as a business owner for what future sales will look like based on the way your product or service has been performing so far.
The longer your business is up and running, the more accurate your sales forecasting strategies can become. The early months and years of running your own business can come with some difficulties and obstacles in the realm of managing and analyzing sales data. Fortunately, as your pool of sales data grows, predicting future sales can become easier and more intuitive.
Forecasting for established business
When your business has years of financial data on a given product, you can implement more sophisticated forecasting methodologies. Once your business has been up and running for years, you can trace sales patterns and predict future sales much more easily. The larger the data set, the more accurate the predictions. This means the more established your business is, the easier it will be to accurately forecast future sales.
With enough data from past financial periods, you can use sales forecasting to predict yearly patterns. This type of forecasting allows you to make specific changes to your business strategy based on previous sales records. Established businesses can use sales forecasting to make changes such as increasing production before the holiday season or cutting back on production during non-peak times, giving business owners the ability to be more efficient and plan ahead for what’s to come.
As your business grows, so will your ability to use sales forecasting techniques to optimize your business strategy.
Choosing a forecast indicator based on product type
Another key factor that influences a business’s use of sales forecasting is the type of products or services they offer. Certain companies may benefit more from pulling certain types of data from previous financial periods to compile an accurate sales forecast. If your company is service-based, for example, your forecasting strategy will differ from a company that sells a physical product.
Below is a list of guidelines for making use of sales forecasting based on the type of goods and services that your company sells.
Sales forecasting for service-based companies
Service-based companies focus their energy on customer retention, customer recruitment, and customer flight. These companies want to pull in as many customers as possible, keep them for as long as possible, and lose as few of their existing customers as possible.
Sales forecasting helps service-based companies know how to recruit new customers, maintain current customers, and prevent established customers from defecting to competing companies, building a thriving business that keeps growing as time goes by.
Sales forecasting also gives service-based business owners the ability to gain key insights into the trajectory their company is on, whether toward financial growth or decline. Looking at the numbers of customers that are signing up for your service or canceling their memberships or subscriptions in a specific financial period can give you a sense of what the next financial period will look like.
In addition, forecasting can be used in tandem with the company’s user analytics to determine the best demographics to market a service to in order to increase sales. If you look back at previous financial periods and see significant numbers of subscribers of your service dropping in a certain demographic, you can use this data to revamp your marketing strategy so that it is better tailored to reach the demographic that you are losing.
When able to accurately forecast, a service-based business can adjust the number of sales agents and create incentives to lure new customers in. It’s all about how you make use of data and how reliable and long-running your sales records are.
It’s all about how you make use of data and how reliable and long-running your sales records are.
M13 Team
Sales forecasting for companies that sell physical products
Product-based companies focus attention on units sold, units sold per interaction, where sales come from, inventory, and operating costs for manufacturing. Drawing from prior financial records allows a product-based company to make practical improvements to its marketing strategy.
Sales forecasting can help a product-based company refocus its energy toward the most lucrative business strategies. Looking back at previous sales data gives business owners insight into which marketing strategies worked better than others, allowing for future advertising and marketing to be improved.
Takeaways
If you are a founder struggling to trace patterns in your company’s performance and predict its future, sales forecasting is a powerful technique that can help you get on track and stay on track.
The longer your business is active, the easier it will be to make accurate predictions of what its financial future will be like—unfortunately, this means that newer businesses will have less to work with when it comes to accurate forecasting. Thankfully, the process of predicting your sales gets easier with time as you collect more data from prior financial periods.
When your goal is to improve the accuracy of your predictions of future sales, patience and diligence are the keys to success. Carefully monitoring your sales data and knowing how to use analytics can make a major difference in your company’s ability to succeed.
If you are just getting started, you can still make use of sales forecasting techniques by making use of qualitative sales forecasting techniques. Forecasting your company’s performance based on the performance of similar companies can help you get a sense of where your business is going and what to do to keep it growing as quickly and effectively as possible.
Resources we love
Creating a Data Strategy to Drive Better Decision-Making
A tactical approach can help you understand why you’re collecting data—and what you’ll use it for.
7 min to read
The Finance and Ops Stack for Early-Stage Startups
Get actionable advice on everything from setting up accounting software to securing office space.
9 min to read
Read more
The views expressed here are those of the individual M13 personnel quoted and are not the views of M13 Holdings Company, LLC (“M13”) or its affiliates.This content is for general informational purposes only and does not and is not intended to constitute legal, business, investment, tax or other advice. You should consult your own advisers as to those matters and should not act or refrain from acting on the basis of this content.This content is not directed to any investors or potential investors, is not an offer or solicitation and may not be used or relied upon in connection with any offer or solicitation with respect to any current or future M13 investment partnership.Past performance is not indicative of future results. Unless otherwise noted, this content is intended to be current only as of the date indicated. Any projections, estimates, forecasts, targets, prospects, and/or opinions expressed in these materials are subject to change without notice and may differ or be contrary to opinions expressed by others.Any investments or portfolio companies mentioned, referred to, or described are not representative of all investments in funds managed by M13, and there can be no assurance that the investments will be profitable or that other investments made in the future will have similar characteristics or results. A list of investments made by funds managed by M13 is available at m13.co/portfolio.