7 Tips for Improving Sales Forecasting

Oliver Lee
August 4, 2022
 Mins Read

Sales forecasts contain numbers that are accessed by the whole organization. The sales units would naturally need the numbers to know how much they can expect to sell and how much they should sell. The product development teams need the numbers to know how successful their designs have been and if they need to make any modifications to sell more products. The procurement team needs to know how much to produce, the quantum of raw materials to purchase, and the timing of the requirement. The marketing team needs to know the target for the year so as to decide if any additional marketing thrust is required. The finance managers need to know the number of funds to allocate, and how much capital to raise.  

Thus, the sales forecasts have to get the numbers right, in each time period for which this projection is generated. This can be achieved in the following ways.

7 Tips for Improving Sales Forecasts

1. One number does not represent the absolute truth:

First thing, get rid of the notion that there is one number that represents the absolute truth. A sales forecast will mostly project a set of numbers, which will represent different outcomes and possibilities. Different departments will need the data to be analyzed from different angles. Hence, it is important to be flexible and prepare the analysts for developing multiple forecasts.

2. Flexible processes breed success:

The same process for analyzing a forecast will not work each time. The economic conditions change, consumer behavior changes, and so do the products launched by competitors. That means the forecasters have to constantly tweak their analytical methods in line with the changing scenarios. Flexibility is the key.

3. Set aside a time period for the forecasting:

There has to be a time period for when the data will be collected and the analysis will be performed. Forecasting is never performed as a daily exercise. This work should start on a date and end on a cutoff date. Forecasters should also focus on a fixed time period for collecting the data. Only then will it be of any use.

4. Understand the buyer’s behavior:

Sales forecasting is pointless unless the analysts understand buyer behavior. The sellers need to know who the decision-makers in the family are, how much the buyers are prepared to spend, and what emotions guide their decisions. These are the factors that should guide the decisions of the forecasters.

5. Do not depend too much on historical records:

Forecasters often fall back on historical records to decide what the future will look like. However, this method cannot rely on all the time. The future for salesmen is always a fluid one. Consumers are human beings and their behavior is prone to constant changes. Use past data but keep an eye on the present for an accurate view of the future.

6. Choose the right techniques:

There are many methods to choose from, but the analysts have to select the forecasting technique that suits them the best. They can select from judgmental bootstrapping, Delphi method, extrapolation, and many more. The method has to be selected based on the kind of data that is available to them, internal policies, and the economic conditions currently ruling the market.

7. The data must be free of unusual variances:

Before sitting down to analyze the data, the samples must be cleansed of all distortions and variables which are exceptions to the rule. Unusual events that affected the set must not be taken into consideration. Only then will they give an accurate figure. Sales forecasting is an essential activity that affects the strategy of the company and the decisions made by the managers. That is why the numbers have to be accurate. Otherwise, they can lead to misleading information that will become the basis for wrong decision-making. Keep on making improvements to the techniques. Better the forecasting, the better will be the future results of the company.

Article by
Oliver Lee

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