Planning, Startups, Stories

Tim Berry on business planning, starting and growing your business, and having a life in the meantime.

How To Forecast Sales and Profits Without Just Guessing

Yes, it’s – my title here – a real question, and I get it a lot: how to forecast sales and profits without just guessing. It’s a good question too, because it leads to a better understanding of how and why we use forecasting to help manage a business, and to predict starting costs and the numbers for the first few months of a startup.

It’s a corollary to the question “but how can I forecast sales for a new product, when I have no data.”

And the key is that of course you guess. We’re people, we don’t know the future, so we are always guessing. But we’re not just guessing. We’re developing sets of assumptions. We’re looking at drivers for sales, realistic assumptions for expenses. We draw from experience as much as we can, and from research in addition. It’s a forecast, not a guess. And if it’s hard to forecast, sure; but it’s even harder to run a business well without a forecast.

Forecast Sales Based on Assumptions about Drivers

For example:

Forecast Expenses Based on Reasonable Expectations and Estimates

These are just a few examples. Yes, it is guessing, but it’s also looking at drivers and assumptions and pulling the granular assumptions together so they are visible. And, furthermore, it’s supposed to be followed by regular plan vs. actual analysis, so the forecasts get steadily more accurate over time.

One response to “How To Forecast Sales and Profits Without Just Guessing”

  1. TreyRoque says:

    Great overview, and kickstarter for ideas. Thanks!

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