SMALL BUSINESS GROWTH | 4 minute read
Why are sales and inventory forecasting necessary tools for growing any business sustainably?
Sales forecasting is the process of making an informed estimation about the business’s future sales over a defined period, whereas inventory forecasting is the process of predicting when and how much you’ll need to order. Both sales and inventory forecasting are very important for any business as they help with business planning, budgeting, and goal setting which enables a business to grow.
Accurately forecasting a business’s sales and inventory are critical to smart business management. It allows a business to plan for demand and manage cash flow effectively.
How to forecast your sales
Although the exact sales forecast process will be unique to your business, there are four fundamental steps that will keep your business on track so you can make accurate sales projections. These steps include determining your sales channels, using past sales data, factoring in new products and defining your forecast period. By following these steps it will allow you to plan effectively and see the business projections up to 12 months in advance.
Key inventory forecast metrics
Once you have the basis for your sales forecast in place, you can define and track metrics over the forecasted period of time. These metrics include product sales, new customers, repeat customers, monthly revenues, monthly cost of goods sold and monthly gross margin. Using these metrics will enable you to determine the optimal time to reorder stock.
Demand forecasting
Smart demand forecasting can have a significant positive impact on the operations, reputation, and sales of any business. Demand forecasting refers to making estimations about future customer demand using historical data and other information. Without demand forecasting, businesses risk making poor decisions about their products and target markets. The most important factor of demand forecasting is that it enables businesses to more effectively optimize inventory, increase turnover rates and reduce holding costs.
Common supply and demand issues
Understanding the specific supply and demand issues can help you make smarter and more informed business decisions. Some businesses may find supply and demand issues occur more often during peak seasons. To help your business become more prepared, there are three common issues to look out for and avoid. These issues include understaffing, incorrect operations budget and loss of credibility. Above all, poor sales forecasting and inventory planning can have a significant negative impact on the credibility of a business. If you’re unable to meet demand, you’ll deliver a negative customer experience.
Using the right tools
Utilizing a customizable template like TradeGecko’s sales and inventory forecast model allows you to input the necessary data ahead of time, with all the forecasting calculations done for you. From here, you can forecast sales, costs, and revenue in the one place, as well as project your sales by channel, so you can determine where to focus your marketing efforts and other investments.
As you can now see, sales and inventory forecasting for small business is extremely important. Having a good understanding of what your future sales could look like and understanding how to order the right amount of inventory will allow you to develop an informed procurement strategy to make sure your supply matches customer demand.
