How to Generate Accurate Sales and Revenue Forecasts
Sales and revenue forecasting is an integral part of financial planning for any business, including dealerships. Therefore, it’s important to institute a planning process that results in timely and accurate forecasts on a consistent basis.
Goals aren’t forecasts
Many dealerships make the mistake of equating sales goals with sales forecasts. It’s usually rare that all salespeople meet their sales goals in a particular month or quarter. So just adding up all their quotas and using that as a forecast will likely lead to an inaccurate figure.
Another mistake is just relying on “gut instinct” to forecast sales. Sure, your experience should come into play. But this should be supported by hard data, such as:
Historical sales volume. Looking back at your sales during the same month or quarter last year will provide clues to what they realistically might be this year. Based on this, you can create a seasonal sales index that’s factored into your current sales trends.
Current sales trends. This is a running total of your sales for the current period. Based on this, you can create a weighted moving average of your actual sales numbers and then adjust this by your seasonal sales index. The result will form the foundation for your current and future forecasts.
In addition to seasonality, don’t forget to consider other factors that could impact sales during the forecast period. For example, are you launching a new advertising campaign or having a big promotional event? And is the broad economy performing well or is it in a slump?
Measuring forecast accuracy
You can see how accurate your previous forecasts were by performing a historical accuracy check. One common formula is the mean absolute percentage error, or MAPE. Subtract forecasted sales from actual sales for the period, divide this number by actual sales and multiply this by 100.
For example, suppose you forecasted 100 vehicle sales last month but you only sold 90. The formula:
[(90 – 100) / 90] × 100 = -11.1
Here, your actual sales were about 11% lower than what you forecasted. Set goals for forecasting accuracy going forward and compare your MAPE from one period to the next to spot trends and see how you’re doing.
The sales manager is usually the person responsible for creating sales forecasts. He or she should receive input from other executives, as well as the salespeople who are on the front lines with customers every day.
Make accurate sales and revenue forecasting a priority at your dealership. Doing so will make it easier to plan for your financial future.