Keeping track of key sales and inventory forecast metrics takes the guesswork out of business planning and goal-setting. With the right data at your disposal, you can form a realistic picture of projected sales and revenues over a defined period, and keep an appropriate level of inventory on hand to meet customer demand.
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Here’s how to start sales and inventory forecasts, and the fundamental forecast metrics you should be tracking for each.
How to start a sales forecast
Determine your sales channels
If you sell across more than one platform (on your website and on Amazon, for example), you’ll need to define each sales channel so that you can start to create a sales forecast that is accurate for each place you plan to sell.
Use past sales data
If you have accurate information on sales over the last year, start by using this data to make educated guesses about the level of sales you’ll be making in the future. Note down any periods of seasonality or variability in sales that deviate from the norm.
Factor in new products
Although you won’t have any previous sales data for new products you plan on introducing, it’s worth looking to similar products as a guide for how those new products will perform. For example, if you sold a printed t-shirt last year, you might use the historical sales data for this shirt to predict sales for a new print at a similar price point.
Define your forecast period
Your sales forecast will allow you to plan most effectively if you include projections up to at least 12 months in advance.
Key sales forecast metrics
Once you have the basis for your sales forecast in place, you should define and track the following metrics over the entire forecast period:
- Number of each product sold on a monthly basis, per channel
- Percentage of sales coming from new customers, per channel
- Percentage of sales coming from repeat customers, per channel
- Monthly revenues – the total made from all products sold
- Monthly cost of goods sold – the total cost to you of all products sold
- Monthly gross margin – monthly revenue minus monthly cost of goods sold
To make life easier, consider using a forecasting model like TradeGecko’s free sales & inventory forecast template, which automatically populates total sales revenues and margins based on your initial sales-per-product inputs. It saves time and ensures the data you’re seeing is accurate, plus it generates graphed reports to make understanding the data easier.
How to start an inventory forecast
Define your base demand
Planning for inventory relies on knowing how many sales you can expect to make in the future. Once you have your base sales data in place, start by determining the number of products you’ll need in stock to meet demand.
Identify upcoming trends
Look to the past period’s inventory fluctuations, including any stock-out or overstock periods, and note down any likely future variability in inventory.
Determine your product lead time
To make sure you actually have enough stock on hand when a sale is made, work out how long it takes for you to receive stock after a purchase order is made.
Key inventory forecast metrics
Along with your sales forecast metrics, you should also outline and track the following inventory metrics:
- The number of months it takes from placing a purchase order to being ready to sell each product (product lead time, as above)
- How many months of sales are expected from each product
- What percentage of the costs of products are paid when a purchase order is placed
- How many days payable you have for the remainder of the unpaid inventory costs
- The amount of each product you need to keep in stock, based on sales forecasts*
- The cash needed to make purchases*
*TradeGecko’s inventory and sales forecast tool automatically populates appropriate inventory purchases and the cash required to make those purchases based on your data from the first four metrics.
Sales & inventory metrics working together
As we’ve seen, sales forecasting is imperative to effective inventory management. Accurate sales data can be used to inform your procurement strategy so that you have just enough stock on hand to meet sales demand – resulting in a high inventory turnover rate and low inventory holding cost.
Additionaly, inventory forecasting is essential to ensuring you have products in stock when those projected sales eventuate – maximizing profitability.
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