Planning ahead is one of the keys to a successful business, and the only way that you can plan ahead is with an accurate sales forecast.
Your sales forecast helps you set your future budget, determine what your business can afford to spend, and manage its cash flow. If you plan on taking out a business loan to expand your operations, a sales forecast can help you calculate how large a loan payment you can afford.
However, getting an accurate sales forecast can be difficult. Avoid these five all-too-common sales forecasting mistakes to ensure that the forecast you come up with is accurate.
Common Sales Forecasting Mistakes Entrepreneurs Should Be Wary of
Sales Forecasting Mistakes: There are lots of mistakes that are unpardonable if committed as a business owner; sales forecasting is still taking the lead among all of them.
1. Ignoring Past Results and Patterns
They say that past behavior is the best predictor of future behavior, and that adage also applies to business sales. If your business utilizes a customer relationship management (CRM) software, you should have your past sales information close at hand already. Even if it doesn’t, you can still pull up records from previous years to look at sales numbers.
Look for patterns that occur with your sales so you have an accurate idea of how they will fluctuate throughout the year. Have you noticed that sales tend to increase during a certain season, or after a particular type of marketing? Taking notice of these patterns helps you develop a more accurate forecast. It can also help you find out which types of marketing are providing the greatest return for your business.
There is only one situation where you can disregard past sales information, and that’s when your business has undergone significant changes.
2. Using Inaccurate Data
There’s no way you’re going to be able to come up with an accurate sales forecast if it relies on false data. This means that your team needs to enter data accurately every time.
When there are multiple sources of data, there can often be conflicts between sources. If this occurs, figure out what’s causing it and correct it immediately.
One of the best ways to ensure accurate data and improve sales forecasting is by having your sales team work with other team members to correct any data conflicts. Your sales team can also determine if there are any metrics that you should be tracking. Provide your sales team with a forecasting tool to help automate your data analysis and sales forecasting processes. This well help make those processes far more efficient.
3. Lack of Forecast Updates
The only constant in business is change. Your business is going to change, as will the behavior of your customers. To have an accurate sales forecast, you must consistently adjust and refine it. Many businesses make the mistake of creating a sales forecast, and then refusing to update it.
An annual, quarterly or even monthly forecast will become out of date quickly because your sales numbers are always changing. That’s why you need to adapt as you go. Use a CRM tool to track your customer’s current behaviors and buying patterns, and use that information to tweak your forecasts. The most accurate sales forecasts will be those that change in real time with any new developments for your company.
This may require more time in the short-term, but it benefits your business over the long haul. You also don’t need to commit a large amount of time every month, quarter or year to creating a new sales forecast, because you already have a forecast that you’ve been updating consistently.
4. Relying on Instincts Instead of Data
Trusting your gut should never be your strategy when it comes to sales forecasts. While there are times to use your instincts in business, it’s too easy to create an inaccurate sales forecast if you rely on emotional reactions and your feelings about what will happen in the future. Real-world data is much more trustworthy than your gut instincts for predicting future results.
Think about it as if you were investing in a company and had no emotional attachment to it. You wouldn’t invest just because the owner had a great feeling about future sales numbers. You would look at the available data.
For the best results, look at multiple data points, including historical trends and your business and sales forecasting tools, to create your forecast.
5. Forgetting That a Sales Forecast Is Only a Prediction
Remember that a sales forecast is only a prediction, which means chances are it’s going to be off by at least a small amount, if not more. If you expect a sales forecast to be completely accurate, you’re setting your sales team up for failure.
Where sales forecasting can help you is learning about your business and your customers, and then planning your future sales strategy. By analyzing your past and current numbers, it helps you decide where to commit resources in the future to get the best results. With the right approach, a sales forecast can help you reduce operating costs, increase sales and improve customer service.
It’s impossible to predict the future with 100-percent accuracy, but when you avoid these five common sales forecasting mistakes, you can maximize how effective your sales forecast is.
Josh McAllister is a freelance tech writer and business consultant based in New York. In his free time, he enjoys all things geeky and gadgetry, the outdoors, and spending time with his family. You can reach him on Twitter @josh8mcallister.