Reading time: 6 minutes
Whether you are a sales manager trying to plan for the upcoming year or a start-up trying to figure out how much inventory to order, understanding how to calculate sales projection is essential. But what exactly is a sales projection? A sales projection estimates future sales based on past performance and current trends. But several factors go into calculating an accurate sales projection. Let's take a look at a few of the most important ones.
The first step in any sales projection is understanding your historical sales data. This means looking at how many units you sold last year, the average selling price, and what seasonality looks like for your product or service. Once you understand your historical sales well, you can project what your sales look like.
Of course, history doesn't always repeat itself, so it's also important to consider current trends when projecting future sales. This might include changes in the overall economy, new competitor products or services, and even changes in customer behavior. For example, if you sell winter coats and there has been an unusually warm start to the winter season, that could significantly impact your projections.
Calculating an accurate sales projection is not an exact science. Still, by considering historical data and current trends, you can understand what your business can expect in the coming months or years. And armed with this knowledge, you'll be better prepared to make the decisions to help your business succeed.
Now that we know a sales projection let's discuss calculating one. There are a few different things that you'll need to take into consideration when calculating your sales projection, including:
Once you have all of this information, you can start to plug numbers into our sales projection formula.
Sales Projection Formula
[(Current year's sales x Industry growth rate) + Inflation rate] x Competition rate = Sales projection
Let's walk through an example using made up numbers. Let's say that your business had $1 million in sales last year, the industry is projected to grow by 3%, inflation is at 2%, and your competition has a 10% market share. Plugging those numbers into our formula would give us a sales projection of $1.03 million.
Calculating a sales projection can seem daunting, but it's not that complicated once you know what to consider. By gathering data on your historical sales, the current state of the economy, changes in your industry and target market, and your competition, you'll be well on your way to coming up with an accurate projection for the year ahead.
This method involves estimating future sales using data from past periods. First, you'll need to calculate the percentage change in sales from one period to the next (e.g., month-over-month or year-over-year). Once you have this information, you can apply it to your current sales figures to estimate future sales. For example, if your company's sales increased by 10% last year, you could use this information to estimate that your company's sales will increase by 10% this year.
This statistical technique can be used to identify relationships between different variables (e.g., marketing spending and unit sales). Once these relationships have been established, they can be used to predict future behavior (in this case, future sales). Regression analysis is typically used when a large amount of historical data is available.
This approach involves estimating future sales based on the number of potential customers in your target market and your company's market share (i.e., your market penetration rate). For example, if you estimate 100 potential customers in your target market and your market penetration rate is 10%, you would project that your company will make ten sales.
Whether you are looking to plan for the upcoming year or trying to figure out how much inventory to order, understanding how to calculate sales projection is an essential skill for any business owner or manager. By considering historical data and current trends, you can get a pretty good sense of what your business can expect in the coming months or years. And armed with this knowledge, you'll be better prepared to make the decisions to help your business succeed. Look at our next article on best sales tips to increase your sales success.