Budgeting is an integral part of operating a business efficiently. This task includes forecasting your sales and distinguishing your Key Performance Indicators (KPI) to help you in preparing your budget.
Even without a formal process many businesses carry out some form of business planning, but structured planning can make all the difference to the growth of your business. It will enable you to concentrate resources on improving profits, reducing costs and increasing returns on investment.
When you have come up with a figure, you and your team now have sales targets to meet so it’s worth all the effort. So, where do you begin?
Use this 3-step method to forecast your sales.
1.Look at your sales history
You have a sales history, except if you are launching a brand-new business. Even one week’s worth of sales is still sales history. Use it.
Your Point of Sale (POS) system can be used not only to serve customers but also to obtain all sorts of data that you can use for budgeting.
• Transaction reports: tells the number of customers served by the business daily, weekly, monthly, etc.
• Average Spend: seen in the transaction reports, this is how much each customer spends on their visit to your store
• Sales Reports: show the sales flow for a business, or the actual sales daily
You can use this as a starting place. Of course, you want to raise these numbers, but identifying your starting point helps you predict where you can end up.
If you don’t have a sales history, talk to other businesses in your field, or seek help from a qualified bookkeeper like BKSP who can advise of industry benchmarks.
2. Find what your KPIs are
A detailed review of your reports will help you find out what your KPIs are. You can always improve your KPIs. You want to predict your sales not only because you aim to improve your future sales and expand your business, but you also want to be able to train your team more effectively.
Here are the KPIs you should look for:
• Average spend per customer
• Number of transactions daily
• Sales per day
Sales will not always stay the same. Determine your busiest days and slowest days. With your KPIs, you can teach your team ways to boost sales and also give them a daily sales target to meet. By identifying and boosting your KPIs, you improve sales, and in turn, your profit.
3. Ask yourself “What if?”
Use Steps 1 and 2 to forecast your sales. For step 3, play the “what if?” game.
• What if I raise the figure for the average spend per customer by only $1 or $2 or 10%? How would it impact my turnover?
• What if I succeed in enticing customers to make one more visit to my store every week? What difference would it make on my sales?
To compute this, multiply the number of current weekly transactions by a higher number, say 10%. Multiply the average spend for each customer by this figure in visits to find out how much your sales would increase. Then do the same thing using a 20% increase, and so on. Tinker with the numbers. Place these new sales numbers into the top line of your budget and look at how it impacts your turnover.
After determining your sales budget for the year, break the figures down into weeks to come up with your weekly sales budget.
You can even break it down further into days to get your sales flow. However, always remember that you made all these efforts to forecast your sales because you are sharing these targets with your team.
Sales forecasting isn’t as difficult as you think!
Just remember that sales forecasting doesn’t have to be hard. Anyone can do it and you, as an entrepreneur, are the most qualified to do it for your business. You know your customers, and you know your market, so you can forecast your sales.
Forecasting sales and turning it into reality are two separate things. There’s only one way to make it real: share it with your staff and encourage them to meet the daily sales targets.
It is essential for a business to forecast their turnover. BKSP offers a full scope of bookkeeping services to individuals and companies, big and small. Allow our team to assist you in reviewing your sales history and determine a realistic sales budget for your business. Contact Bookkeeper to the Smart People today.