Grow Your Business

Making accurate sales projection is something that any aspiring entrepreneur must learn. It is as important as having an interesting idea or finding a good location.

In a tough competitive environment, to be able to survive and thrive, businesses need to be on solid financial footing, and this means having of how much a business is earning against how much it is spending.

Indeed, accurately forecasting your sales is a necessary preparation for all entrepreneurs. Professor Ric Palo, member of the finance faculty of the Ateneo Graduate School of Business, gave some pointers on how to proceed with the matter of sales forecasts.

1. Get an idea of the gap between the actual market demand and current supply:

For any kind of sales forecast, he says, it is important to do your research on the conditions within the industry and among your competitors.

"When you set up a new business, you are basically trying to meet a perceived unmet need," he explains. "There's a gap between what your competitors are supplying the market and what the market actually demands." To project your potential sales, he says, you need to have an idea of what that gap is.


2. Benchmark against competitors:

 
"Look for companies in your industry that are the same size as you, even if they are serving another geographical area, then observe their sales," he recommends. "This will give you a rough idea of how much sales to anticipate for your own company, as well as examples of pricing and marketing that you can follow."

These internal factors include capital outlay and strategy.

Your production is primarily dependent on how much investment you are going to make.

Palo explains: "For example, you think the demand for the product is 100,000 units, and your competitors are only selling 60,000 units. You then have 40,000 units to target as your sales. How much you actually manage to sell will depend as well on the capital you have available for production."

For the company strategy, a potential entrepreneur must consider if he would be more aggressive in getting clients or take a more conservative approach.

"If you think you can push for more clients early on and generate more sales, you can factor that into your forecast,” he says.


4. Take a look at your business expenses, both fixed and variable:

Fixed expenses are costs you incur whether you make sales or not, such as rent or interest on loans. Variable expenses are connected with production--the more products you make, the more money you spend on things like raw materials, electricity, and labor costs.

Unlike sales projections, it's easier to generate hard data on expenses since most are entirely within your control as an entrepreneur, such as the location of your business or the number of your employees.
 
Palo adds that it is  “most important” to have a realistic, accurate assessment of the sales figures from the get-go.  From this, an entrepreneur may gauge if the business is able to make a reasonable return on the investment.