Selling products or services is at the core of any business. A projection of the sales revenue you expect to generate over a given period provides the basis for planning and strategizing for success. Sales projections have a rippling effect on every functional area of a company. These are some of the business areas that benefit from an accurate sales revenue prediction.
One of the biggest benefits of knowing when and how much you expect to sell is the ability to efficiently manage cash flow. Many businesses have uneven sales throughout the year. With knowledge of expected monthly or quarterly revenue, an organization can plan to set aside funds during their high season so that there is money to pay for expenses in slower times. This planning prevents not having enough cash to meet payroll or pay bills and taxes. By avoiding these circumstances, you will be able to maintain good relationships with vendors and employees.
Having sufficient funds to pay bills also minimizes the need to borrow money. While this may not eliminate the need, a business can negotiate a better rate if it knows in advance when it will need credit. In addition, keeping payments up to date will maintain a good credit rating and reduce borrowing costs.
Accurate sales forecasting enables a company to better control inventory. If you have an estimate of what sales will look like in the short run, there is less risk of overstocking. This saves on unnecessary carrying costs for materials, as well as product storage expenses. The prospect of not having enough inventory to meet demand is also limited by accurate sales predictions. Customer satisfaction is likely to be higher if the product is available when they want to buy it. Finally, projections diminish the need for flash product discounts to reduce inventory.
The supply chain is another area that benefits from having a sales revenue prediction. Just as with inventory, a company can practice just-in-time ordering of the resources they need to produce at the predicted demand level. This saves on carrying costs. The purchasing department can accurately order and schedule the delivery of materials relative to the estimated demand. Appropriate lead time can be built-in when a material is difficult to obtain. There also is more flexibility to take advantage of pricing deals.
Sales revenue predictions help in managing production schedules. Based on the expected level of demand, the production department can make decisions about where and when to run manufacturing operations. You can set up the schedule to minimize bottlenecks or downtime.
Sales and marketing have always been closely related. It is not surprising that having a forecast of sales earnings benefits the marketing team. You can schedule more expensive campaigns when the company expects to be receiving higher sales revenue. In slower periods you can use lower-cost marketing efforts. At the same time, promotional offers and discounts can be pushed when predictions point to slower periods.
Managers and human resources use sales predictions to determine staffing needs. Nearest to the source, sales managers will use estimates that show increasing revenue as justification for more new hires. The impact does not stop there though. More product is required when sales increase, so production and other departments may also request additional employees based on projections. If the business is seasonal, managers can use sales predictions to gauge when and for how long they need temporary workers. All departments can plan so they have enough time for training new employees.
Product and Price Planning
For companies that offer more than one product or service, a detailed sales revenue prediction can identify which items are selling best. It also indicates whether your prices are set correctly. If a product ranks high in terms of the number of units projected to sell, but revenue or profit is low, then you may want to adjust prices. Salespeople are in direct contact with customers, giving them insight into what they like and how much they are willing to pay. This information can be useful in future sales estimates and shared with other internal departments for optimizing the product offering.
Tracking and collecting data for sales profit predictions helps to identify what works or should be adjusted during this very sales process. The information may indicate that some steps are time-consuming or unnecessary and require changes. If a particular tactic results in a higher number of closed deals, the team may decide to focus on using these methods more often. The prediction estimates play a critical role in determining sales quotas, compensation, and perhaps even the realignment of territories. It becomes strategic operational guidance for each sales team.
The importance of accurately predicting future sales revenue is not limited to one area of the business. It provides the foundation for making decisions across the company that contributes to growth and success.