What if you could accurately predict the revenue of your company for the next quarter, fiscal year or the next 5 years? Well, sales projections are actually a thing where you can indeed predict the revenue, albeit based on past and current trends. In this article, we’ll walk you through what you should know about sales projection and how to do it right.
What Is a Sales Projection?
A sales projection is an estimate of future sales – based on historical data, economic factors and other variables that affect your business. Businesses base their pricing decisions, marketing efforts and inventory on these projections. Sales forecasts for your company can be influenced by various scenarios, such as: The current state of the market and your company’s position within it; The country’s economic changes that can impact your sales or your willingness to spend on acquiring new customers.
Why Are Sales Projections Critical For Businesses
Sales forecasts are critical for businesses because they provide a roadmap for the future. They help businesses to set goals, track progress, and make informed decisions about how to allocate resources. Here are some of the reasons why sales projections impact businesses:
- Setting realistic sales goals: They can help businesses to set realistic sales goals. This is important because it ensures that businesses are not setting goals that are too high or too low. Setting realistic goals can help businesses to stay motivated and focused on achieving their targets.
- Tracking progress over time: They can also help businesses to track their progress over time. This is important because it allows businesses to see how they are doing against their goals and make adjustments as needed. Tracking progress can also help businesses to identify areas where they can improve their sales performance.
- Estimating future revenue: They can also help businesses to estimate future revenue. This is important for businesses because it allows them to make financial plans and budgets for the future. Accurate sales projections can help businesses to avoid financial problems, such as running out of cash.
- Making data-driven decisions on allocating resources: They can also help businesses to make data-driven decisions on allocating resources. This is important because it ensures that businesses are allocating resources to the areas that are most likely to generate sales. For example, businesses can use sales projections to decide how much money to spend on marketing and advertising.
- Avoiding underperforming and overperforming: Without accurate sales forecasts, businesses may find themselves underperforming or overperforming against their targets. This can be disorienting and can lead to financial problems. For example, if a business underperforms, it may not have enough money to cover its expenses. If a business overperforms, it may not be able to handle the increased demand.
- Helping the accounting department to determine budgets: Sales projections can also help the accounting department to determine budgets for different aspects of the business. This is important because it ensures that businesses have the money they need to operate efficiently. For example, the accounting department can use sales forecasts to determine how much money to budget for marketing and advertising, payroll, and rent.
- Estimating financial outcomes: Sales projections can also be used to estimate financial outcomes, such as profit and loss. This is important for businesses because it allows them to make financial plans and budget for the future. Accurate sales forecasts can help businesses to avoid financial problems, such as running out of cash.
- Assessing financial risk: They can also be used to assess financial risk. This is important for businesses because it allows them to identify potential problems and take steps to mitigate them. For example, if a business is expecting a decrease in sales, it may need to take steps to reduce its costs.
- Conducting overall business planning: Sales projections can also be used to conduct overall business planning. This is important for businesses because it allows them to make decisions about the future of the business. For example, businesses can use sales forecasts to decide whether to expand into new markets or invest in new products or services.
Sales projections are a critical tool for businesses. They can help businesses to set realistic sales goals, track their progress over time, estimate future revenue, make data-driven decisions on allocating resources, avoid underperforming and overperforming, help the accounting department to determine budgets, estimate financial outcomes, assess financial risk, and conduct overall business planning.
6 Steps to Create a Sales Projection
To create an accurate sales forecast, here are six steps you should follow.
- Identify potential sales opportunities: This involves understanding your target market, your products or services, and the competitive landscape. You can do this by conducting market research, talking to customers, and analysing your sales data.
- Review historical data: This will give you a baseline to start from and help you identify trends. Look at your past sales data to see how much you have sold in the past, what products or services are the most popular, and when you typically see the most sales.
- Examine market factors and seasonality: Consider factors such as the economic climate, the competitive landscape, and seasonal trends. For example, if you sell clothing, you might expect to see more sales in the winter and summer months.
- Gather information from your sales team: Your sales team is on the front lines and has the most up-to-date information about what is happening in the market. Talk to them about their insights and expectations for the coming year.
- Identify sales goals: What do you want to achieve with your sales projections? Do you want to increase sales by a certain percentage or reach a certain dollar amount?
- Make assumptions and adjust as needed: No sales projection is perfect, so be prepared to make assumptions and adjust your projections as needed. For example, if you are expecting a new product launch, you might need to adjust your projections to account for the potential increase in sales.
By following these six steps, you can create an accurate sales projection that will help you make informed decisions about your business.
Automating Sales Projection Using Tools
You can use automated tools that are accurate in their predictions of the future. One of the popular tools is HubSpot’s sales forecasting tool – a platform that gives you a comprehensive overview of your entire sales pipeline, so you can make the right decisions for your business. With this tool, you can automate processes like lead scoring and lead engagement, which frees up time for salespeople to work on tasks that matter. You can see how your business has been performing over a specific period and inspect deals to ensure that your sales team is converting the leads that have the most impact on your bottom line.