Although we probably agree that the best way to forecast sales is by looking at past experience, I know that you can’t always count on having that kind of information available to you. So let’s think about some other examples. It’s never as exact as it sounds. There’s a lot of creative guessing. Following are a few ways you might forecast sales of a new business. The point isn’t to list the only acceptable methods, but rather to suggest that anything logical might work.
- You want to sell products over your website? OK, find a way to predict traffic. Maybe you can buy search terms. For example, with Google advertising, Google AdWords can help you estimate how many will see the link you buy on the search terms. Then you estimate how many of those people actually click your link. Estimate a very low percentage, less than 1 percent, unless you have the world’s most compelling link. Then estimate how many of those actually buy what you’re selling. That’s a low percentage too. At least with this you’ve got some mathematical basis for unit sales. And if you’re estimating more than one per thousand, be careful — it’s probably too high.
- Doing retail business? Find some estimates of sales per square foot for your type of business. You can do a Web search for that, and you might find something useful. I found annual sales per square foot for Best Buy, Apple, Neiman Marcus, and Tiffany, and learned that Apple does $4,000 per square foot, compared to $2,600 for Tiffany and less than $1,000 for the other two.
- Let’s say you’ve self-published a book you wrote and paid to have the book printed. Forecast your sales through different channels: Amazon.com and competing websites first, then perhaps through distributors to physical bookstores. But can you get that book into distribution? Will bookstores accept you? Use the reverse tree method and call other authors from the same print to see how they did. Do a Web search on self publishing. Start a blog and use search-term advertising to generate readers. Estimate how many people who visit your blog will click a link on it to buy your book. Build your sales forecast according to the places where people can buy the book: online at your site, online at other sites, and physically in stores. Be realistic about how long it takes to get into stores.
- You are opening up a bicycle store in a summer tourist destination. Find an estimate of tourists, then estimate what percent end up renting a bike, then how many units that means, and go from there. Or count bike rentals per day, and build up a forecast from there.
- Selling products through channels of distribution? Maybe estimate unit sales by channels.
- During professional consulting? Estimate by the job, the day, or by the hour. Make assumptions based on leads.
- Lots of companies use pipeline analysis: how many leads per marketing effort, how many presentations per lead, how many closes per presentation.
Whatever your business is, find some numbers and logic for it. Break your assumptions down into units, and price per unit, and make sure there’s some way you can check on the logic and revise and track as the numbers flow in. The key to this is watching the actual results.
Tim Berry is the founder and chairman of Palo Alto Software and Bplans.com. Follow him on Twitter @Timberry.
