How do you forecast sales when launching a new business?
The business plan is an essential document for the definition and presentation of a project and to hope to attract investors. This file includes a lot of information on the products or services offered, the founding team, the strategy, the financing method, but also on the projected turnover and the financial evolution of the company over the years.
This is why a successful business plan cannot do without a projected sales plan. But where established companies can use past data, an entrepreneurial project usually has no previous results to rely on. So how do you develop your sales forecast to write a reliable and convincing business plan?
Why make sales forecasts in a business plan?When developing a new project, you must first have a short, medium and long term vision to ensure the viability of the business. This is the first essential step to consider going further, and this is partly what the sales forecast in the business plan allows you to do. Indeed, this forecast has a number of consequences that will either endanger the company or help it to develop: turnover, margin, break-even point, logistical organization to be put in place, working capital requirements, etc. Estimating sales should therefore help to make the right decisions, both financially (capital requirements for example) and in terms of sales and marketing.
These forecasts are also a way to consolidate your case and convince investors to grant you financing. If the analyses you have carried out seem to show a regular growth in sales, ensuring profitability in a defined term, you will probably gain the confidence of your interlocutors during your presentation.
Finally, the sales forecast in the business plan can serve as a basis for a review once the business is up and running. It will help you to see if the objectives have been reached or if, on the contrary, weaknesses in organization, cash flow, communication or prospecting have prevented you from developing your business correctly.
What are the difficulties in developing a forward-looking plan in a business plan?When starting a business, it is impossible to use past sales data or current prospecting information to estimate the potential number of products or services that will be sold. This is a major obstacle, because this type of data can provide a reliable and concrete basis, as long as the calculation methods are properly used. The difficulty is even greater when launching an innovative product that has no equivalent on the market.
However, this is less true when writing a financing file for a business takeover. In this case, you can use past sales charts and the company's current financial situation to project future sales, among other things.
Fortunately, whatever the reason for preparing a business plan, there are other solutions that can be used to best evaluate the commercial and financial results that can be expected.
What methods should be used to forecast the quantity of products sold?
Without historical data, there is no choice but to focus the sales forecast on external elements. Although sometimes random, they can provide a solid reference for estimating the number of products that will be sold or services that will be provided. It is also wise to take into account the human, financial and material resources of the future company to delimit the future sales capacities. Focus on the means available to make sales estimates in a business plan!
Studying consumer needs
If you are planning to start a business, you have probably done some consumer research to determine the viability of your project. The information gathered from this research can be valuable in estimating your sales, provided you collect relevant data. It is therefore necessary to obtain information on the buying intentions and needs of consumers and to answer essential questions: What is the proportion of people surveyed who would be ready to buy? How often do they buy similar products? How much do they spend on each purchase? Are customers loyal to a competing brand? Does your offer seem to meet their expectations, etc.?
Conducting tests with the target group
To go further in the market research and obtain additional data on customers, you can also conduct test phases for your products and services. For example, you can create prototypes or beta versions of an application or a website, in order to estimate the interest in your offer, the potential conversion rate, the elements that can slow down sales, etc. This will help you refine the forecast results, extrapolating the results to the market. This will help you refine the forecast results, extrapolating the information to a larger scale.
Analysing the competitionWithout internal historical data, it may be worthwhile to collect data from a publication, study, or balance sheet of a company (or several companies) that is a direct competitor to yours. The information is not always easy to obtain and is rarely very accurate, but it can give you an indication of whether your business and financial forecasts make sense.
Be careful, however, not to transpose them directly to your business: between a start-up and a company that has already been in existence for several years, the result differs substantially. Especially since you will probably adopt a model or a strategy that is not similar to that of your main competitors.
Studying the company's production capacities
In order to make sales forecasts in a business plan, it is also essential to take a close look at what you will be able to produce (or to obtain from your suppliers). Indeed, it seems irrelevant to aim for sales objectives that exceed the number of products you will actually be able to offer to customers. And if you see a demand that exceeds your offer, review your strategy: you could perhaps opt for a higher price or look for investments to increase the production threshold.
Taking into account marketing and sales actionsAn entrepreneur, whether they decide to start a business alone or with a complete team, cannot consider their business creation project without thinking about their marketing and sales strategy. And this will undoubtedly have an impact on future sales. Therefore, think about what actions will be put in place and what their influence on sales will be. For example, if you hire an additional sales person and they meet their objectives, how many additional products can you expect to sell? Or, if you decide to advertise your product launch online, how many new customers will that bring in?
This type of calculation should also help you estimate profitability, not just projected sales. Think about the return on investment: for so much marketing spend, what will be the revenue? At each stage of the sales process, what will be the expenses and the conversion rate?
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