Questioning a sales forecast

The sales forecast is perhaps the most important set of numbers to come out of the budgetary process. The sales figure is the driver for all direct expenses and some indirect ones. It’s used to predict the cash flow forecast, the profit and loss account and ultimately the viability of the whole company. So you need to ensure that the projections are both believable and achievable.

Believable

If the sales forecast has been prepared by the sales director alone, you may also need to ensure that their numbers stack up. Ask the sales director to break down the figures into projected sales to existing and new customers and between different products and markets. There are usually figures available for the return generated by direct marketing techniques. For example, on average, a certain number of cold calls will generate a certain number of leads that will result in a certain number of sales. So when you know how many cold calls each of your sales force can make, and the size of your sales force, the rest is simple arithmetic.

Achievable

It's all very well coming up with a sales figure, but totally pointless if your company doesn't have the capacity to meet it. So you also need to consider if it’s physically possible to achieve the sales levels being forecast. For example: a machine can only produce a given number of components on each shift, and a sales team can only visit a certain number of customers each week. Indeed, the company's inability to recruit or buy more machinery could limit the sales forecast.

Use our Questioning a Sales Forecast document to help you ask the right questions.