How to Forecast and Plan Your Sales

Sales Plan Case Study

Here’s how sales forecasting helped my firm

Sisters Emma Harrison and Victoria Nielson started selling fair trade jewellery in people’s homes in 2005. In 2007, The Chocolate Elephant became a limited company selling ethical clothes and gifts.

The business makes most of its sales at charity fairs, but the sisters have also launched a mail order catalogue and revamped their website.

Here Emma explains how the firm forecasts its sales.

What I did

Consider last year’s sales

"The first thing we do is look at last year’s sales and think about our range. One of our products generated 40 per cent of our income last year, but this year we dropped it as it was getting to the end of its life cycle in terms of attractiveness. At charity fairs you have to turn over products quickly, as people come every year.

"Stock levels are also crucial. We start from what we achieved last year and decide what we need to achieve the same sales rate again.

"It’s important to look at the economic climate, too. We’re somewhat dependent on charity fairs – the more bookings we have, the more sales we generate. But retail sector sales have dropped this year, so we’ve introduced a catalogue which will have a direct impact on sales."

Take seasonal trends into account

"We have two main sales periods – springtime and the lead up to Christmas. Roughly 70 per cent of our sales come in the last three months of the year, so stock management is crucial.

"There isn’t any cash coming in until mid-November. If we hadn’t got our forecast right, we would find ourselves going through several months with very little income and lots of suppliers to pay. We spend a lot of time figuring out who we have to pay next, when the next fairs are, and when the next income is coming in."

Keep it realistic

"It’s crucial to have a realistic sales forecast. If our forecast isn’t accurate, then at the end of the year we’ve got stock that we can’t sell. There’s a fine line between having too much stock and not enough to meet demand.

"A growing business takes up a huge amount of cash and we’ve grown our stock from an initial £1,000 investment to £65,000. Your sales forecast is essential to knowing how you can fund that stock build-up, in order to grow."

Adjust the forecast

"There are some factors you can’t control, such as the credit crisis. This year we knew it would be difficult so we’ve looked at our stock and there’s a large chunk we knew wouldn’t sell at full price, so we’ve taken a write-off against last year’s profits.

"You must keep adjusting your forecast. Keep re-examining the numbers and adjusting your stock levels. If your sales are coming in lower than expected, reduce your prices."

What I’d do differently

Be more price sensitive

"We’ve just put out our new catalogue and I already feel we need to drop some of the prices. Stock becomes dead stock very fast."

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