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The Importance of Sales Forecasting

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Updated: May 4

Sales is the lifeline of any business structure; therefore, it is crucial for a company to carry out regular sales forecasting.

What is the Meaning of Sales Forecasting?

Sales forecasting or predicting refers to the estimation of how much a business plans on selling within a particular time period (Salesforce, 2022).

Why is Sales Forecasting Important for a Business?

Sales prediction is an essential business practice and provides the following benefits:

· Effective resource allocation

Sales forecasts allow businesses to effectively allocate resources for their growth strategy, these may include financial resources (ex: cash), equipment or fixed assets, people (ex: staff wages, suppliers, etc.) (Kothandaraman, 2021).

This also aids in managing the company’s cash flow.

· Organizational decision-making

Predicting sales plays a huge role in an organization’s decision-making, as they can:

– Forecast likely profit/loss within a specific time period

– Make more informed decisions regarding marketing campaigns, new product lines, managing staffing/inventory, etc. based on cash flow and sales predictions

– Shows when business will be ready to execute/implement organizational plans

· Reduce risk: Identify potential issues in time

Addressing issues (ex: predictions indicate company sales are below quota) as soon as possible increases company flexibility and provides more time to solve them, preventing problems from having a bigger impact down the line (Rohn, 2022).

· Set benchmarks to assess future trends Use the sales forecasts are a benchmark to compare progress.

· Set goals

Sales predictions form the base of a business’ strategy, and the forecast insights outline the direction in which the company is headed; this helps businesses set more realistic targets.

· More accurate budgeting

Sales forecasts allows companies to estimate their revenue and expenses with more accuracy.

What Happens if a Business Does Not Predict Sales?

Poor or lack of sales prediction could harm a company in numerous ways:

· Unbalanced inventory Possible undersupply or oversupply of stock) · Relationship issues with suppliers

Within the supply chain, a company’s growth strategy is based on its predictions. An inaccurate forecasting framework will impact the supply chain as a whole, possibly damaging relationships with suppliers (Forecasting Software, 2020).

· Insufficient cash management

Accurate forecasts indicate a business’ cash flow expectations, making it easier to allocate resources and prevent poor cash management from unexpected performance

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