Small Business Marketing
Sales Forecasting Basics
Written by Samuel Muriithi for Gaebler Ventures
As an entrepreneur who is just about to start a business venture you need to have a good idea, albeit projected, of what profits to expect. Estimating these profits will require you to first make estimates or forecasts of the sales you expect.
Regardless of the type of business you intend to start, you will be doing yourself a disservice if you cannot make a healthy approximation of the quantity of sales you can achieve in a given market.
Making sales forecasts is not a random assignment of figures that you merely pull out of the air or the figments of your imagination. Sales forecasting begins with a sober assessment of the market and the supply and demand forces that act within it. You should ideally end up with realistic figures of what you can achieve and it is these figures from which you can subtract your expenses to see what sort of profits you can expect.
In making sales forecasts you don't have to be accurate, how can you be? You however need to think of figures that are both achievable and realistic. To make sales forecasts you need some prior knowledge about the target market. In the absence of this information the onus will be on you to carry out some research, perhaps you can conduct a basic market survey or even talk to people you feel will be helpful. Resist the urge to make wild estimates - remember that your prospective business' intention is not merely to make sales but enough of these to cover your expenses and provide a useful profit margin.
Sales forecasting as a process is not only required before you set up a business but it is a tool you'll use continually as long as the business is operational. The difference is that at the onset your estimates will tend to be somewhat speculative but with time you will have gained enough market knowledge to enable you make more realistic sales forecasts.
To make sales forecasts begin by estimating the quantity of product/service you think the market can absorb. Secondly, consider what price the market will pay for the product/service. Settling down on a given figure as the estimate of the quantity the market will absorb requires serious consideration. This is because so many factors come into play. Consider your competitors and the views that people in the market have about the product/service you intend to introduce. Find out as much as you can, even seeking professional assistance if necessary. All this preparation is worth it compared to introducing the product/service into the market blindly or oblivious to the profits/losses you stand to make.
The next step in sales forecasting is settling on a price. Pricing is a most sensitive business aspect that can determine whether your product/service flourishes or flops right from the onset. Settling on a price that will be deemed too expensive or too cheap is disastrous. Let the price be such that the customer will see sense in the product/service' worth but remember that the same price should be enough to earn you a useful profit margin. In making a pricing decision consider three things i.e. the income level in the target market, what the customers expect, and what your competitors' prices are.
Finally, your sales forecasting exercise will allow you to compute your expected sales amounts in a given period. Do this by multiplying the quantity of products/service you expect to sell with the unit price.
Samuel Muriithi is a business owner in Nairobi, Kenya. He has extensive international business experience in the United States and India.
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