How to Estimate Your Small Business’ Future Sales

Effective budgeting requires a look at existing assets as well as a forecast into future sales. As a small business owner, you can only spend what you have, and you should always aim to spend less than your anticipated revenues. This is well-understood, practical business advice.

The cornerstone to a strategic growth strategy includes smart projections for your sales in the next quarter and year. With those projections, managers can then set goals and allocate the right resources toward accomplishing them.

Of course, estimating your small business’ future sales requires more than a bit of guesswork. Thankfully, you can follow the steps below and leverage technology you likely already have, such as your CRM platform, to simplify the sales forecasting process.

First, we start with a definition. What is sales forecasting? This is followed by instructions on how to calculate small business sales projections, and the best way to manage the data.

What is Sales Forecasting?

Sales forecasting is a process that explores historic revenues, recent sales trends, and potential growth opportunities in order to estimate your sales numbers for an upcoming period.

The best sales forecasts consider a variety of factors such as:

• Seasonality

• Market shifts

• Changes in buyer preferences

• Competitive pressures

• Product availability

• New product launches

• Staffing and other talent resources

• Current pipeline

Often, sales forecasting can reveal growth gaps as well as opportunities. Generally, though, a key purpose in projecting future sales is to understand if and how the business may need to pivot. A business may need to adjust in order to curb an anticipated dip in sales or to budget aggressively to fuel new customer acquisition.

The right sales forecast data enables small businesses to build better plans to safeguard their company — and capitalize on additional growth.

A Step-By-Step Guide to Small Business Sales Projections

In most large corporations and enterprises, there’s a team of data analysts and business intelligence specialists who are adept at anticipating upcoming sales. Their sales projections are calculated thanks to a plethora of historical data they hold, along with long-established formulas that factor in their product development pipeline, marketing budget, and human resource plans.

Small businesses, on the other hand, may need to schedule their first sales forecasting meeting and establish their own process for projecting future revenues. To offer high-level guidance, here are six crucial steps small businesses can follow to estimate sales.

1. Determine the target sales period. The ideal window for your sales forecast depends on the size of your business, its investment lead times, cash flow needs, and your ability and willingness to be agile in the face of adversity or opportunity. Lean organizations, such as drop-shipping stores, might benefit from doing monthly sales forecasts that allow them to plan their next month’s marketing budget and set immediate goals since they can shift strategy at a moment’s notice. Brands that require months-long manufacturing or software development lead times may instead need to look ahead one or two quarters, or even up to 12 months.

2. Review historical sales data. Established small businesses with several years of revenue history should leverage that data to determine year-over-year growth. Review that data, too, while considering the impact of seasonality on sales. Recently launched brands, however, need to move ahead to step three.

3. Analyze your current pipeline. While previous sales data reveals a lot about where your business has been, your current pipeline offers insights into your growth trajectory or a potential shrink in sales. Perhaps after years of steady but flat revenue, your sales team is on the cusp of multiplying their numbers after a product breakthrough. When you dive into recent sales trends, it’s easier to manage your expectations for the upcoming sales period.

4. Factor in customer retention and attrition. Clients renew and, in some cases, increase their commitments. Other times, they wait out the end of the contract before switching providers or they adjust their service level early. Review how your account managers handle retention and churn, and calculate that into your sales projections, too.

5. Consider employee loyalty, turnover, and hiring. Employees, similarly, come and go. In accepting that, you can use that data to your advantage. Small business owners can reduce their sales forecast accordingly when they anticipate certain sales reps will turn over. While hiring additional salespeople can help to offset the talent loss, it’s important to remember that every new rep requires several months of ramp time.

6. Conclude with best-, moderate-, and worst-case scenarios. Though the exact formula will change from company to company, the first five steps are important in developing a comprehensive sales forecast. Considering all the different variables at play, though, sales leaders need to also be realistic. Anything can change. As such, managers and owners should create best-, moderate-, and worst-case scenarios for their sales forecasts, which permits an acceptable degree of error (whether it’s a five per cent, 10 per cent, or even 15 per cent difference in projected revenues). This empowers small businesses to be more dynamic since they can develop plans to scale back costs if sales underperform against expectations — or ramp up production, marketing, and hiring if sales outperform pre-set targets.

To consolidate the data points in each of the steps, many organizations rely on their customer relationship management (CRM) platform. Rather than cherry pick stats from a variety of different tools, small businesses can use their CRM system to quickly filter data based on specific time periods, calculate their current sales pipeline, gather averages on client retention and churn, and even estimate new hire ramp time. You may also find that the artificial intelligence (AI) built into your CRM platform can assist in creating your ideal sales forecasting model, too.

Additional Tips for Future Sales Estimates

When you determine your sales forecast for the upcoming month, quarter, or year, you may use your projections to:

• Allocate marketing budgets

• Plan for new hires

• Purchase new inventory and update fulfillment schedules

• Renegotiate vendor costs based on anticipated volume changes

• Preserve cash during downturns

Often, the idea of sales projections prompts optimism. Small businesses hope that the combination of historical data and current trends will suggest further growth. Of course, in the instance that a forecast predicts a revenue slump, it’s important to ask yourself if it’s a permanent decline in sales or a temporary dip. When it’s a permanent decline, the company should plan to invest in further research and development so it can introduce new products that may revitalize its sales. When it’s a temporary dip, managers should budget the resources to weather the storm, especially if they know larger contracts with longer lead times are likely to convert months later.

The most productive way to use a sales forecast is by developing action plans to help you take advantage of potential growth or to pivot when you believe business may slow down. Share your findings with your salespeople, too. By offering them transparency, you can motivate them to suggest and implement creative solutions that may improve overall sales. Doing so also sets expectations and establishes accountability, which you can track using your CRM platform. In fact, your sales reps can log into your CRM system to monitor the team’s and their individual daily progress, while also keeping an eye on weekly and monthly sales, relative to forecasted numbers.

As the numbers manifest, everyone can work collaboratively to either make up any gaps between actual and projected sales, or they can share notes and best practices in instances where real revenues exceeded expectations.

Final Recommendation

While you should place high importance on your sales forecast, small businesses can consider their revenue projections to be a loose goal when unexpected events cause your sales to change course. The hard reality is that different variables can rapidly shift your sales outcomes; knowing this, sales teams need to stay agile and be nimble. When revenues shift, you have to be creative in order to survive and hopefully thrive. Naturally, when business is booming, you’ll want to recalculate your forecasts to accommodate the additional growth.