A Complete Guide to Creating FCST Sales (Sales Forecast)

By Indeed Editorial Team

Updated June 10, 2022 | Published January 3, 2022

Updated June 10, 2022

Published January 3, 2022

The Indeed Editorial Team comprises a diverse and talented team of writers, researchers and subject matter experts equipped with Indeed's data and insights to deliver useful tips to help guide your career journey.

Companies often plan for the future through various means, such as a sales forecast. It involves developing an accurate prediction of an increase in sales in any business organization. As a manager, understanding FCST sales allows a company to plan for sustainability and expansion. In this article, we examine what a sales forecast is, highlight the information required to conduct one, outline how to create a sales forecast, and identify its importance in any organization.

What are FCST sales?

FCST sales, or a sales forecast, is documented information about a company's future revenue. Sales forecasting involves evaluating the company's production output and determining the chances of realizing the sales target it has set. It analyzes past financial information such as income, expenditure, and net profit, to provide an insight into its finances. The marketing team also considers the company's sales history, consumer behaviour, the cost of producing goods, and the number of units it intends to produce while forecasting sales.

The marketing and sales teams often collaborate to gather and analyze this information. For old companies, the team compares its past data with present data. In contrast, a new company relies on the sales history and forecast of established ones to determine the feasibility of its production and sales target.

Related: The Most Important Sales Skills for Your Resume

What do you need for sales forecasting?

A marketing team requires access to some information, such as previous performance data, to accurately determine a viable future income. While the details in a sales forecast may differ because of the difference in the goods and services each company produces, here are some relevant elements that are common among companies:

Target goals and objectives

Setting specific, measurable, and achievable goals and objectives that can influence a company's revenue plan is vital during sales forecasting. In this context, goals are the target sales, while objectives are how the organizations achieve the set goals. For instance, if the goal is to achieve a 5% increase in sales, the objective is to modify the production process to reduce expenditure or apply a strategy that reduces revenue outflow. Identifying sales goals can also aid a company when planning its sales process.

Related: SMART Goals: Objectives for Your Career

A detailed sales guide

Sales forecasting aims to predict future sales, and a company achieves that when it has a well-structured and documented sales plan. This allows a company to focus on profitable activities that can help it achieve its sales goals. The ideal manner of presenting this guide is by using the company's acceptable communication method. It ensures that team members can easily access and understand the preferred company practices to achieve its goals.

Straightforward sales criteria

It's vital the marketing team presents the sales criteria in a manner that the team leaders, sales representatives, and everyone who relies on it understands. This is because there are better chances of increasing sales when all the teams with assignments understand their responsibilities and can work towards them. Also, it's essential the team adopts the company's accepted language when identifying these criteria to ensure a uniform understanding or interpretation among its members.

The production output

Forecasting sales also involves determining the production that a company requires to increase revenue. For instance, if the company doesn't achieve the revenue target in its first quarter, it can increase production to counteract the shortcomings in the sales forecast. A clear record of a company's present production capabilities and rate of growth is important for an effective sales forecast.

Organizational presentation of sales data

This involves customers' data responsible for purchases that the company records as sales. This information significantly contributes to accurate sales forecasting, making a well-organized customer database important. A customer relationship management system is a modern organizational tool that keeps customer data records and simplifies tracking and measuring changes in revenue, sales, or even the customers' data.

Evaluation and assessment

Evaluating and assessing team members considering the goals and objectives make achieving a sales target more feasible. The marketing team can hold each sales unit responsible for its revenue through its sales. The marketing team may consider regular meetings to discuss problems with achieving the desired goals, possible modifications for the objectives, and other solutions that validate the effectiveness of the sales target.

How to forecast sales

You can use several methods to determine a company's chances of increasing its sales revenue, but the most common option is its previous financial records. Here's how a company with organized past performance data can determine its future sales revenue:

1. Indicate the product or service for sale

The marketing team determines the product or service the sales team wants to sell during the sales period. The team indicates it clearly and provides an estimate of the product's or service's value in the report. For instance, the foremost information the marketing team of a cosmetics manufacturer documents is the product it wants to sell, how much it costs, and determines how many to sell over a year.

2. Determine the total unit of products for sale

The target quantity of products for sale is also vital information when forecasting sales. It's usually for the timeframe the company chooses, which is the sales year or consecutive sales years. The company uses the data it has from the previous sales of that or similar commodities to determine future sales. In cases where the current production units don't increase net revenue, the company can agree to increase its output.

3. Calculate the unit price

Next, the company determines the cost of each commodity and multiplies it with the number of available units for sale. For instance, the cosmetics company may choose to sell each lipstick for $40. If the sales department sells 10,000 pieces, the expected revenue for the sales year is $400,000.

4. Calculate the cost of goods for sale

The company also calculates the cost of goods it sells. Suppose the manufacturer spends $5 on producing each lipstick. The total cost of production is the multiplication of output for each unit and the total number of units for sale, which amounts to $50,000 in this case. Upon determining the cost of goods for sale, the marketing team seamlessly predicts the feasible sales revenue.

5. Subtract total cost from total sale

Arriving at the sales forecast entails subtracting the total cost from the total sale. Following the example above, the marketing team predicts the feasible revenue the cosmetic company may accrue by removing the cost of goods for sale, which is $50,000 from the projected sale of $400,000. The cosmetic company arrives at a sales forecast of $350,000.

Why is sales forecasting important?

An accurate sales forecast is vital for every organization for the following reasons:

Managing finances

The average profit-oriented business or organization gets its profits from its sales revenue. When the marketing team of the company or organization can accurately predict the estimated revenue it can feasibly earn over a designated period, it helps the management make better decisions regarding output, marketing, budgeting, and the other integral financial aspects. Sales forecasting helps an organization manage its finances better. For instance, it can reduce expenses or reallocate revenue when necessary.

Monitoring sales performance

Sales performance is an integral aspect of the marketing team considers in sales forecasting. Company teams or departments analyze this information to monitor performance and determine productivity levels. Team leaders can make adjustments where poor output affects revenue or other aspects that affect productivity. Analyzing its sales history also involves examining its previous output and marketing strategies. The marketing team can use this information to create better sales and marketing strategies, improving results.

Related: A Guide to Marketing as a Career

Improving customer experience

Forecasting sales can also significantly contribute to better output to improve customer experience. For example, when the marketing team examines sales patterns in the company's history, it can determine when the sales increased because of adequate customer satisfaction. The company can then align its present goals and objectives with this period in its history.

Related: How to Deal With a Difficult Customer

Gaining insight into competitor markets

An accurate sales forecast shows a new organization its earning prospects. If it's less than the expected revenue, the next step is considering whether competitors adjusted their marketing strategy, the quality of their goods, or any factor that influenced the increase in its revenue. After examining this information, the organization can make modifications to realign it with the sales forecast and compete effectively.

Setting sales goals and objectives

A company's sales forecast also provides vital information which the marketing team can use to set sales goals and objectives. If the sales forecast doesn't yield a significant increase, the company can modify its goals and objectives. For instance, it may consider tracking its revenues and expenditure or modifying its marketing strategies.

Implementing development plans

When the company has a detailed analysis of its prospective earnings, it can implement development plans aligned with the sales forecast. The marketing team can devise methods that result in a better output from every department. It can also assign quotas that each employee strives to meet. For instance, the head of the sales department may meet with sales team members to discuss ways to improve and increase revenue.

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