What is a sales forecast and how to do it?

For the optimal operation of companies, sales forecasts are an essential tool, since they allow anticipating the behavior of the area and give it a better margin of action. If these forecasts were not taken into account, the same companies would be stumbling around designing sales plans, whose results and impact over time would be difficult to calculate to apply improvements.

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Sales forecasts are indicators of economic-business realities (basically the situation of the industry in the market and the participation of the company in that market). While the forecast determines what can be sold based on reality, the sales plan allows that hypothetical reality to materialize, guiding the rest of the company's operating plans.

The main objective of a sales forecast is to allow access to the rest of the operating plans. It implies the future projection of the expected demand, indicating a set of environmental restrictions.

Many companies confuse the forecasting function with planning. The definition of a sales plan does not include the activities of making projections of demand levels and that is one of the most important differences in this regard.

In this way, the forecast system is configured as a "learning system", because it seeks to identify the errors contained in forecasts based on the environmental changes that generated them to improve their accuracy in the future.

Now, we know the importance of having a good sales forecast for the commercial area of a company. What you should also know is how to do it. Next, we explain how you can start and the steps you have to follow to carry it out.

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First, you have to know that there are two types of sales forecasts: qualitative and quantitative.

Within qualitative sales forecasts, we can identify two methods:

• Delphi method: it takes its name from the famous Oracle of Delphi and it's the method that helps to know with greater certainty the evolution of a product or service through prospecting techniques.
• Expert judgment: It is based on the experience and intuition of the most experienced sales representatives in a team. It consists of making forecasts based on previous company data, although influenced by current events.

Within quantitative sales forecasts, we can identify these two methods:

• Run Rate: it is a simple way to calculate sales compared to previous periods.
• Exponential Smoothing: considered one of the most accurate for making a sales forecast. It works with a few records and, in addition, it can be implemented by large and small companies through a spreadsheet.

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You already know the four methods of sales forecasting, but then, which one(s) do you decide on? Answering that question will not be easy, and at the risk of being unfair, we are going to develop the two methods, which, in our opinion, maybe easier and faster to execute.

Qualitative method: sales forecast with "expert judgment".

1. Evaluate if your product has a stable demand.
2. Select the expert or group of experts.
3. Compile the judgment of the panel.
4. Ask for additional information.

Quantitative method: sales forecast.

1. Exponential Smoothing.
2. Calculate the forecast based on your sales data.

Regardless of the qualitative or quantitative methods that you use or have known to make a sales forecast in your company, which can be adjusted to your needs in a given period, this information will be useful to expand your range of possibilities at the time to help you decide on the methodology in the future, alternating as your sales planning demands.