Sales forecasting: what factors should be considered?
While it is wise to expect the unexpected, a company must still have a strategy in place if it is to maximise sales, increase turnover and improve profitability. The growth of organisations is the real challenge of sales forecasting. However, in order to make accurate predictions, business leaders must take into account a number of internal and external factors to ensure that they are as close to reality as possible. Otherwise, it will be impossible for them to propose solutions adapted to the various problems they face. Let's identify these factors that influence business leaders' sales forecasting decisions.
Which internal factors have an impact on sales forecasting?
Sales forecasting remains totally dependent on the organisation of companies and all their activities towards the consumer. Therefore, any changes in the sales team, but also in sales management procedures and techniques are of paramount importance. These changes need to be taken into account if the sales forecasting process is to be effective.
The internal factors involved are:
- the launch of a brand new product on the market;
- a change in product stock
- the introduction of a promotional offer;
- changes in personnel.
The release of a new product on the market
Launching a product involves costs that an entrepreneur would be wise to plan early on. He or she also needs to determine the market in which to launch the brand new product and search for the ideal target group. Of course, the success of such a marketing project also involves:
- guaranteeing the coordination of actions by the different actors in the supply chain;
- ensuring a sufficient product penetration rate to generate a large number of purchases;
- setting the right price according to commercial objectives.
Thus, the effectiveness of sales forecasting will be judged by its ability to anticipate the future cash flow needs of companies as well as the behaviour of customers towards this decision, and the evolution of sales and market share.
The stock variation of productsA change in product supply patterns can influence the sales plan. For example, if a company's capacity is increased, it must put in place a promotional offer to quickly sell its stock of products on the market so as not to suffer a loss of income that would be detrimental to its economic growth.
The use of CRM sales management software or self-learning technology such as machine learning will help the management team to define the best promotional mix for a product or a catalogue of articles according to the profile of each consumer and the evolution of the market.
PromotionsAs part of its marketing strategy, a company may decide to run a promotion to clear a stock of products and maximise its sales of the item in question. More sales will enable it to gain market share and increase its annual turnover.
With an effective sales forecasting method, it will have no difficulty in achieving these financial and commercial objectives during the promotional period. However, the process should be well conducted, taking into account the properties and characteristics of the product and the historical data that the company has on a similar item.
Also, the information that the CRM software holds on the profile of each consumer, will allow the company managers to establish reliable predictions on:
- the type of sales promotion to offer their customers (discounts, flash sales, prizes, etc.);
- the best pricing strategy to adopt for their products in this situation;
- the potential gains to be made from the promotional campaign.
Changes affecting staffA recruitment process is likely to increase the workload of the teams, while the departure of a sales person will tend to cause a drop in activity and therefore in the level of sales over a given period. Indeed, any change in a company's sales force is likely to change the sales forecast.
To be effective, forecasts must take into account the unavailability of an individual at his or her post or, conversely, the presence of a dynamic sales team. Implementing the sales strategy derived from a predictive model will enable the company to remain competitive in the market despite changes in the company.
External factors that influence sales forecastingExternal factors do not depend on the operation of companies. The latter therefore have no capacity to control or influence them. The same is true for sales forecasts, which in fact have no direct effect on them.
For example, a forecast will inform a trader of the upcoming weather, but nothing more. It cannot change the course of things. However, it is essential for companies to understand these different factors in order to define an effective marketing strategy, but also to gain market share and increase their turnover.
External factors include: changes in the competition, the macroeconomic environment, fashions and trends and changes in legislation.
The evolution of competition
When forecasting sales, a company cannot ignore its competitors, especially if it has just entered the market and its products are still unknown to the vast majority of consumers. Even existing companies are still at the stage of competitive intelligence in order to be informed in real time of opportunities or threats in their sector of activity.
As a rule, an organization's business strategy has an impact on its competitors' sales. Therefore, what a company needs to do is to study the marketing model adopted by its competitors. From this study, questions will be raised.
- What are the prices charged by the competition in the market?
- What promotions and discounts are offered to the consumer?
- What advertising campaigns are launched?
- What new products are introduced on the market?
The macroeconomic environmentA company must be able to be informed of the changes that are taking place in its industry, even if it is not able to control or master them. Forecasting sales is therefore a major challenge for any business strategy.
A sales forecasting method will allow company managers to plan a budget line to face periods of high demand. Thus, the offer can be revised upwards to meet the needs of the customers.
When it comes to retail businesses in Paris or in other regions of France, the most classic example is the high demand for school supplies in September.
TrendsA business owner is expected to meet the needs of the most demanding consumer in his database. The good business leader goes far beyond that. He must be able to anticipate fashions and trends. This is not necessarily easy to do, even with a well-developed sales plan.
However, it is better to plan ahead, at the risk of making a mistake, than to have to suffer a depreciation of stocks due to the lack of interest shown by customers for "products that are out of fashion". If, in addition, the competition manages to perform well during this period, the company may fear a significant loss of market share, which would automatically lead to a drop in revenue.
Change in legislationA company must be aware of the legislation in force in its industry in order to operate within the strictest legality. Otherwise, it can expose itself to sanctions during the course of its activities.
Similarly, a change in legislation or standards must be known and the implications sufficiently understood by the managers to enable them to make the necessary decisions for the survival of their activities. Changes are generally announced several months in advance so that arrangements can be made as soon as possible.
In conclusion, it is important for a company to take into account all the factors that influence sales forecasting to be sure to make predictions with a high level of accuracy. The list that has been presented is not exhaustive. Each company is subject to different conditions. Thus, the factors may vary from one organization to another. The best thing to do is to be attentive to each change that occurs.
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