Being in business means that you are always budgeting. This includes forecasting your sales and identifying your Key Performance Indicators (KPIs) so that you can start to prepare the budget.
Good news though: once you have your budget, you have targets for your team to meet so it is worth the pain. But, boy, oh boy – where do you start?
Here is a three-step method to predicting your sales.
1. Review your history
Unless you are starting a brand new business in a brand new field, then you have sales history.
Even if you have just one week’s worth of sales, you have a history. Use it.
A Point of Sale (POS) system is not just used to serve customers; it also captures a lot of data that is useful in budgeting.
- Transaction reports identify how many customers you serve in a given time frame (a day, a week, a month).
- These transaction reports will also show you the Average Spend each customer makes when they visit your front counter.
- You can find Sales reports that will show you the sales flow for your store, or the actual sales for each day.
This gives you a starting place from which to predict sales. Naturally you will want to increase these figures, but knowing where you are starting from helps establish where you can possibly end up.
But what if you don’t have any sales history? Speak with other stores in your field, in your buying group, or look to the ATO or IRD for guidance. They have sales benchmarks for every industry you can think of.
History always establishes your starting point for forecasting sales.
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2. Identify your KPIs
When you dig deep into your reports, you can identify your key performance indicators (KPIs).
KPIs can always be improved. The reason you want to forecast your sales is to not only build future sales and grow your business, but also to enable you to communicate more effectively with your staff.
So what KPIs are you looking for?
- Average spend per customer
- Number of transactions per day
- Daily sales
There is always a sales flow in your business, and not all days are the same.
Establish which are your busiest days and which are your slower days. Knowing your KPIs allows you to train staff on how to improve the sales and also gives you the daily sales targets for your staff to meet. Knowing and improving KPIs builds sales, and, in turn, profit.
3. Play “What if?”
The most important reason that you dig deep into these reports and identify your KPIs is so that you can predict your sales.
And now the fun part — lets play “What if?”
- What if I increased the amount of average spend per customer by just $1 or $2 or 10 per cent? What difference would that make to my turnover?
- What if I could attract customers to return just one more time each week? How would this affect my sales?
To work this out, multiply the number of current transactions per week by a certain increase, perhaps 10 percent. Multiply the average spend per customer by this increase in visits to see how much this would increase your sales. Then do the same exercise again with a 20-percent increase, and so on. Play around with the figures. Put these new turnover figures into the top line of your budget, and see how this affects your profit.
Once you have decided on your sales budget for the year, break it down into weeks to get your weekly sales budget.
Go even further and break it down into days of the week to reflect your sales flow. But don’t forget the most important reason why you have gone to all this trouble in forecasting sales: to share this budget as targets with your staff.
It is one thing to predict sales and yet another to make that prediction a reality. The only way to make it a reality is to share it with your team and encourage them to meet the daily target.
Before you know it, you will meet your sales budget for the year.
Want more? Read about the 6 business metrics you can’t afford to ignore.