Forecasting sales at a start-up is part educated guess and part in-depth research. Forecasting can be tougher for a niche marketer since little existing data will be available. In this case, the entrepreneur knows best—assuming he or she knows the target market intimately.
There is no substitute for knowing your customers and why they will buy your offering. Buyers will choose your product over the competition because it is different or better.
Presuming your offering is competitive and is desired by the target market, here are the basic steps in developing a sales forecast:
1. Develop a profile of your target market- Who are your customers and why do they need your offering?
2. Determine the trends in your industry- What is unique about the purchasing cycle in your space? Are there any anticipated future trends such as changes in government regulation, economic changes, or environmental changes?
3. Define the size or boundaries of your market- This market sizing could be by geography such as North America, by vertical such as healthcare, or by technology such as Apple users. You get the picture.
4. Identify your competitors- Who supply your customer today? At what sales volume? What channel of distribution?
5. Estimate an average sales price for your offering- This price should be conservative and may increase or decrease in years two or three. Note that discounting may be needed in year one.
6. Calculate monthly sales- Prepare sales estimates by month. Be sure to assess how seasonality may impact your sales cycle; this includes holidays, summer versus winter, or specific industry buying trends.
7. Compare your annual forecast to other similar companies- Consider using Risk Management Association (RMA) data to determine if your forecast is reasonable? If it varies from the industry norm, how will you explain this variance to investors or bankers?
8. Be prepared to change and modify this forecast- As you build your financial plan, it is normal for your forecast to change. Stay flexible.
Sales forecasting is a best guess, but if you know your customer it is an educated guess and you are the best one to do it.
John Bradley Jackson
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