Monthly sales forecasting

This is the first and primary metric anyone in retail with forecast – and it is important that it is accurate. The sales forecast is a prediction of the customer’s demand for your product. Will he / she allocate their income to your store?


There are a number of factors that can be considered when pulling together a sales forecast: new brand launches, a fresh season / delivery of goods, a significant local event, perceived behavioral changes with your customer, etc. However, much of the considerations listed above are commonly worked into pre-season plans.


The most prudent sales forecasts consider the following elements:

  • Sales trend
  • Delta, or difference, between actual results and plan
  • Inventory levels, and age
  • Revised promotional calendar

Avoiding forecasting pitfalls

Five common forecasting pitfalls are:


Wishful thinking

It's all too easy to be over-optimistic. It's a good idea to look back at the previous year's forecast to see if your figures were realistic. New businesses should avoid the mistake of working out the level of sales they need for the business to be viable, then putting this figure in as the forecast.


You also need to consider if it is physically possible to achieve the sales levels you're forecasting. For example:

  • one taxi can only make a certain number of airport trips each day
  • a machine can only produce a given number of components on each shift
  • a sales team can only visit a certain number of customers each week


Ignoring your own assumptions

Make sure your sales assumptions are linked to the detailed sales forecast, otherwise you can end up with completely contradictory information. For instance, if you assume a declining market and declining market share, it's illogical to then forecast increased sales.


Moving goalposts

Make sure the forecast is finalised and agreed within a set timescale. If you're spending a lot of time refining the forecast, it can distract you from focusing on your targets. Avoid making excessive adjustments to the forecast, even if you discover it's too optimistic or pessimistic.


No consultation

Your sales people probably have the best knowledge of your customers' buying intentions, therefore:

  • ask for their opinions
  • give them time to ask their customers about this
  • get the sales team's agreement to any targets that will be set


No feedback

Having built your sales forecast, you need someone to challenge it. Get an experienced person - your planner or a senior merchant - to review the whole document.


Excerpted from Info Entrepreneurs “Forecast and plan your sales”.  


The importance of accuracy in sales forecasting


Forecasting is, by nature, a prediction. Getting each month’s forecast correct down to the dollar is difficult, but getting close is very important.

The Business Forecast Workshop Summary will look at complete forecast pictures. Forecasts can be complicated projects with many metrics all interacting and affecting one another. At first, an isolated look at each metric will maximize and ensure a thorough understanding. 

Click to enlarge.Reference this merchandise plan for the following scenarios, or download it













Forecasting sales high

Click to enlarge.

Looking particularly at the JUNE forecast, originally we forecasted just under $4.3 million in sales. The actual numbers came in ($3,948,532 in sales), and as you can see we fell short of our forecast in June (which was originally $4,279,302). What impact does this have on the business? 




The first metric directly affected is inventory. If you sell less product than planned, you will have more stock leftover than planned. In this case we are starting July with over $100,000 in extra inventory. 



Without touching any other metric (just sales), we can also see that our gross margin rate will be lower. Less sales dollars means less gross margin dollars. With lower than forecasted sales, our margin is coming in at 9.92 percent vs 12 percent in the forecast for June. 


Markdowns are not directly affected by the sales metric (they are often determined by the inventory metric), but falling short of sales may prompt a revised (more aggressive) promotional plan – further eroding profit.


Forecasting sales low


Click to enlarge. 

In June, we can see in this scenario that our actual sales came in approximately $300,000 higher than our forecast. We achieved $4,543,264 on a forecast of $4,279,302. Immediately we know that this has an impact on our inventory. As we can see, we are now opening up July almost half a million dollars short of inventory.


Our July plan was to have $10,957,958 of stock at the beginning of the month. After surpassing our June sales by such a significant amount, we are now only opening July with $10,470,652 in inventory. It may be difficult to meet future month’s sales plans if we don’t have enough stock.  





On the positive, higher sales means much better gross margin for the month. We actually generated 11.27 percent versus the forecasted rate of 5.8 percent. 



Having realized June’s sales, we’ve only touched on 2 metrics in July and the effect that our inaccurate forecast has had. What we haven’t looked at (but will get to) is the longer-term impact, over three or four months. 

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