Key Takeaway: Sales forecasting isn't about being right. It's about giving purchasing, staffing, and cash flow planning a number to work from instead of a shrug.
What's on This Page
The Basic Method
This mirrors the inventory forecasting formula in our Inventory Forecasting Explained guide, because the underlying logic is the same: recent history, adjusted for trend and season.
Where Sales Forecasts Get Used
- Purchasing decisions. How much stock to buy ahead of a forecasted period
- Staffing. Scheduling more help ahead of a forecasted busy period
- Cash flow planning. Knowing when revenue is expected to dip seasonally
Keeping Forecasts Honest
- Compare forecast to actual every month, and note the gap
- Adjust the growth rate and seasonal factors based on what you learn, not just once at setup
- Forecast at the product or category level when possible. A single company-wide number hides very different trends underneath it
For further reading, see the U.S. Small Business Administration's guide to managing a business.
Checklist
- Pull recent sales history per product or category
- Calculate an overall growth rate
- Identify seasonal factors for key selling periods
- Run the forecast for the upcoming period
- Compare last period's forecast to actual results
- Adjust growth rate or seasonal factors based on that gap
Common Mistakes
FAQ
Is sales forecasting different from inventory forecasting?
They use a similar method, but sales forecasting predicts revenue and demand, while inventory forecasting translates that demand into a specific purchase quantity.
How accurate should a small business forecast be?
Perfect accuracy isn't realistic. The goal is a number close enough to guide purchasing, staffing, and cash flow decisions better than a guess would.
What causes most forecasting errors?
Ignoring seasonality and using stale, outdated growth rates are the two most common causes of a forecast drifting from reality.
Should forecasts be done at the company level or per product?
Per product or category is more useful, since a single company-wide number hides very different trends underneath it.
Calculate This For Your Business
Related Guides in the Sales Academy
- Inventory Forecasting Explained. the same method applied to purchasing
- Sales KPIs. tracking whether the forecast was accurate
- How to Track Sales Properly. another guide in the Sales Academy