Business owners and managers rely on sales projections to make decisions about budgets, inventory, marketing and hiring. Fledgling companies also use sales forecasts to determine revenue potential. You can calculate sales projections for the week, month, year or beyond using simple multiplication. However, the process of getting accurate figures is a bit more elaborate.
Determine the Value of One Unit
Breaking sales down into how much you charge for a single unit of the good or service you’re providing makes it easier to know the revenue you receive from each sale. It can be an hour of your time, one meal or a single product. If you offer more than one good or service, break all of them down into units and create separate sales projections for each.
Determine the Variables
You will get a better estimation of your projected sales if you can isolate the factors that can affect your sales. These elements vary by industry, and even among businesses in the same field, but a few common variables include:
- Business type
- Geographic area
- Customer demographics
- Hours of operation
- High, low and average numbers of clientele
- Business and revenue cycles
Once you’ve established the variables, you’ll need to review past financial data to decide exactly how each one affects your sales -- for example, how winter weather decreases sales in an ice cream shop.
Gather Historical Data
The best indicator of future revenue is past performance. This isn’t simply a matter of reviewing previous years’ financial statements and sale records to gather the information you need. You have to delve into outside resources, look for sales-affecting trends and cross-reference the data you find with your own information to obtain a solid sales forecast. New businesses that don’t have existing data to go by must rely on external figures even more.
The four main places to look for sales and financial data are:
- U.S. Census figures: In addition to demographics and income levels, the Census Bureau also gathers information on national and local figures for sales volume and various business expenses. The bureau also creates guides to help business owners use the data it provides.
- The Library of Congress: Here you can find a collection of links to various trade publications as well as resources for business statistics, financial data and other business research information.
- Trade publications: These documents contain significant amounts of industry-specific information about sales volume, price ranges, marketing, customer demographics, costs, gross earnings and other financial data. The material may also be broken down by location, providing more specific information.
- Product vendors: Product vendors and distributors can be sources of pricing information as well as how much of a product is moving and when sales for certain items peak and ebb.
Bringing It All Together
Once all the data have been gathered, you can start the calculations. A fictional restaurant serves as the example:
A restaurant owner wants to calculate her projected sales for the month of May. Research uncovered that the average monthly revenue for previous years was $30,000 with an average of 100 customers each day, or 3,000 customers per month. The owner also discovered that the number of customers increases 9 percent during sporting events. Important variables include the restaurant's recent price point increase from an average of $10 to $12 per meal and that May is basketball playoff season and games are shown almost daily.
Multiplying the average number of customers by the 9 percent sports-related increase in traffic brings the estimated number of customers to 3,270 per month. At $12 per meal, the restaurant can project $39,240 in sales in May.
It’s best to estimate conservatively to avoid overreaching.
Longer-range forecasts use broader swaths of information, making them less accurate than shorter-term projections.