What is a Sales Forecast?

If your cash flow forecast is about survival and your profit forecast is about viability, your Sales Forecast is all about growth.

A lot of business owners make the mistake of looking at forecasting from a top-down perspective. In other words, they might say “I want to make £500k this year!” However, a sustainable sales forecast is looked at from the bottom up, based on capacity, realism and probability.

How Certain is your Sales Income?

A realistic forecast looks at income based on how likely it is to come in. For example:

• Committed/Recurring: this includes things like subscription income, retained contracts, or repeat orders from loyal customers.
• Pipeline: if you are talking to leads, there is potential income to consider, but you shouldn't assume 100% will be achieved. Instead, you apply a "probability" based on how likely you are to win the deal. If you have issued £10k in quotes and usually win half, forecast £5k.

Can your Business Handle the Increased Sales?

A big spike in sales is the dream for most businesses, but you cannot forecast sales that your business physically cannot deliver.

• Service/Consultants: suppose you have 3x consultants who can bill 30 hours a week. In that case, your sales forecast can't exceed 90 billable hours.
• Products: your sales forecasts are capped by your stock levels and shipping capacity.

Seasonality & Trends

Very few businesses have flat years. Sales and expenses ebb and flow throughout based on a variety of factors.

You may have an August slow-down during school holidays, a December spike in sales (common in retail) or a “spend it or lose it” surge ahead of the financial year end.

Your sales forecast must account for this.

Revenue vs Activity

At surface level, a sales forecast seems to be all about the money. In reality, it’s about the actions required to bring that money in.

If you need £20k in new sales next month, and your average deal is £2k, then you need 10 sales.

• If you win 1 in 5 deals, then you need 50 deals.
• If you get 1 pitch from every 10 leads, then you need 500 leads.
• And so on...

A sales forecast turns a financial goal into a weekly “to-do” list for your marketing and sales team.

How Sales Forecasting Helps Decision Making

• Marketing Spend: if the forecast shows a dip in three months, you may need to increase your ad spend today.
• Sales Strategy: you are hitting your revenue targets, but it's all one-off sales. You may need to pivot to a recurring model for more stability.
• Confidence: it moves away from "hoping for the best" to knowing exactly what needs to happen every Monday morning to hit your targets.

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Learn more about Forecasting & Financial Modelling in our free guide: Forecasting as a Growth Tool.