Sales forecasting is a vital part of managing a product life cycle. It provides useful information that guides a management team in making smarter business decisions. For example, if the team knows there would be an appreciable increase in product sales in the growth phase; that might prompt them to check whether their current operating capacity can meet the anticipated demand. If it can’t, the company may start planning to upgrade their software, buy additional machinery, look for a bigger business site or hire more staff. On a closer look, if the forecast shows the sales boom is temporary, the company could choose to outsource rather than get expensive permanent fixtures.
What is a sales forecast?
Sales forecasting is the process of estimating the number of products or services your business will sell within a specific timeframe. Conversely, it can be described as the process of estimating the future sales revenue of a particular product or service. Sales forecasts are generally predicted using historical data, external data, industry trends, and the current status of the market conditions. True, it is easier to build a sales forecast when you have sufficient historical data. However, even when information is limited, you can still create a reliable sales estimate if you’re experienced.
Before we go deeper, we’d like to state that sales forecast is not definite. Events may or may not go according to what you estimated. But if done right, the estimation should offer a good idea of what to expect in the future.
Sales Forecasting: Predicting sales at each stage of the product lifecycle
1. Check past sales of similar products
Except you’re offering a radically new product, there ought to be a product or service performing the same function as yours in the market. If so, use the data of these competing products to estimate your future sales. You may not be able to get in-depth data for these products, but the basic information that is available should tell what the average forecast in your field is.
2. Conduct a market research
Normally, anyone planning or in the process of creating a new product or service would have carried out copious research such as panels, market surveys, or one-on-one interviews with customers. If you have the results of any of these market research data, use them for your sales prediction.
3. Talk to trusted suppliers, dealers, or distributors
Ideally, besides talking to potential customers, you need to seek the opinion of longtime operators in your field. So, find trusted suppliers and distributors you can ask about what to expect in your first year of business. While we’re not saying you should follow to a T all the advice you get, at the very least, let them guide you during your decision-making processes.
4. Start with a trial or pilot project
In cases where cash is scarce, and you’re running a lean operation, a low-risk method you can use to avoid wasteful spending is to start small. Instead of starting out with a big bang, roll out a small number of your product to potential customers to gauge the market reaction. Then use the observations of this pilot launch to refine your marketing and estimate future sales.
1. Use a sales forecasting software
Sales forecasting tools are invaluable tools in the arsenal of a business owner. They capture, categorize and sync sales data across all the connected sources of the user. That way, the business can work with the latest and most accurate market insight. They also notify users anytime sales or deals are canceled or whenever there is a change in the forecast.
2. Do your own primary research
Market research doesn’t stop at the introduction stage. Besides gathering intelligence from other sources, a company has to go to current and potential customers to get valuable insights to improve their operations and future product improvements.
3. Monitor and adjust your result where necessary
Unlike the introduction phase, where sales forecasts are mostly guesswork, at the growth phase, you can now get adequate information to make reliable estimates. What’s left is for you to be disciplined in tracking your sales on a regular basis – could be monthly – and adjusting your forecast and strategy where necessary.
4. Consider regulatory changes or new legislation
There are times in a business journey when you’ll discover an ongoing plan by a regulatory body to introduce new compliance requirements. Sometimes the regulation might have even been passed. Since these new laws are likely to impact your sales process, you need to factor them into your forecasts.
1. Review previous sales forecast
Like you did at other product lifecycle stages, you have to compare past sales data to help you determine what you should estimate for the maturity level.
2. Break your sales down into factors
Here is how you do this: For example, if you’re a retailer projecting revenue for a brick and mortar store, you first estimate the number of people that pass your street each day. Secondly, break it down by estimating how many of those people will enter your shop per day. Lastly, determine how many of those who stop by will buy from you and multiply the number of purchases by 30 (days) to get your monthly sales revenue.
3.Consider the economy and your specific industry
What’s happening in the economy and your industry? Are they experiencing a boom or a downturn? Are more competitors entering the marketplace? Consider this during your decision-making process.
4. Gather feedback from your sales team on a regular basis
Again, similar to what we advised for the other levels of the product lifecycle, you need to have real-time information on what’s happening in your market. Who better to have this information than your sales team or customer team who interact with customers almost constantly?
1. Glean valuable insights from your sales team
You may have correctly identified that your product is declining, but is there a chance rejuvenating the product might increase sales? Your sales team who are out there conversing with the general public might have valuable insights to help you decide this. Their contribution would be vital in determining whether you should scrap the product or be more optimistic.
2. Check if there would be a future upgrade for your product
Would you be making any new additions to your product or service? This decision might extend the market life of your product, which would surely affect sales.
3. Consider your marketing efforts
Did research reveal that actively marketing on social media will boost your sales, and you’re considering doing just that? Well, this might be a cause to be slightly optimistic when developing your sales forecast. Or maybe, you want to build a website for your company or beef up advertising spend and email marketing? All this might make an impact on your sales even though it looks like the end is near.
This Article is part of our Product Life Cycle Series
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