How to Forecast Sales for a New Product or Service
One of the toughest challenges the owner of a new small business faces is how to forecast sales for a brand new product or service. If you own an existing business and are launching a new product or service, your job is a little bit easier, but even in this situation, forecasting sales still requires a fair amount of estimation and educated guessing.
Break down items into units
To begin forecasting sales for a new product or service, start by breaking down the item you are selling into units. Then project unit sales and average prices per unit separately. Multiply the number of units by the unit price to calculate sales. Calculating in this way makes it easier to go back to your forecast and modify either the units or the price when you find out that one of them seems wrong.
Determining units of sale is easy for some businesses, but a little more challenging for others. Given some thought, however, it's possible for even a service-based business to divide what it sells into units. For example, attorneys and accountants sell their time in quarter-hour units. Consultants sell in units of days, projects, or hours. Taxis sell in units of pickups, rides, and quarter miles.
Breaking what you sell down into units makes forecasting easier. For example, if you are starting a restaurant, start with how many tables or seats you have. Estimate how many tables or seats are filled at peak hours. Calculate how many peak hours there are per day and how many days per month. You might want to differentiate weekend hours from weekday hours if you expect more traffic during one of those times. Then estimate the average consumption per person.
This process creates a rationale for your sales forecast. You can use that rationale to explain the forecast so that investors or lenders will understand how you arrived at your numbers. Once you actually start selling, you can also use that rationale to figure out where your forecast is off.
Do industry research to inform your sales forecasts
Search online, read industry magazines or websites, or contact industry associations to find information that can help with your forecasts. For instance, the restaurant owner in the example above could look for data on average sales per restaurant in his or her area. If your estimate is wildly different from the average sales in your industry, that should be a reality check that something isn't quite right with your numbers.
Accept that your sales forecast will not be accurate and will require ongoing adjustment. Do the best you can, then concentrate on tracking your actual numbers so you can see what's wrong with your forecast and revise it as quickly as possible. Revising and tracking your sales forecast is an ongoing part of business ownership. The more you do it, the more accurate your forecasts will be.
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