How To Create A Sales Forecast For The New Year

Angie Noll is the Owner of Reconciled Solutions. She is a Certified Profit First Advisor and has an MBA from Loyola (Chicago).

Fall is in the air, and I’m breathing in the scents of fourth-quarter planning. As an entrepreneur, I revel in wiping the slate clean. This is when creativity and dreaming flow. And as the owner of a company that specializes in bookkeeping and profit acceleration, I think this is a particularly good time to create your sales forecast for the upcoming year.

Before getting started, I suggest taking stock of the past 12 months, noting market changes and measuring how you were able, or unable, to adapt. Entrepreneurship is a fluid journey, and the outcome of even the best-laid plan will never fully match up with the goals you developed in the prior year. It’s crucial to be able to look back at last year’s plan and identify where changing circumstances made some fluidity necessary.

How did shifting your plans impact your volume, margins, energy levels and team morale? This year, my company, for example, had to shift how it hired talented workers in an ever-changing post-pandemic work environment. It was not something I foresaw when I made my forecast for 2022. It impacted our work capacity, planning, employee morale and ability to take on more business.

After this reflection, ensure you:

Analyze last year’s financials and dashboards.

The first step in planning your sales forecast is to take a deep dive into last year’s financials. Analyze the good, the bad and the ugly of the year’s performance with these key metrics:

• Revenue percentage change overall and per product line.

• Gross margin percentage change overall and per product line.

• Expense categorization as a percentage of income (e.g., if your revenue was $500,000 and you spent $300,000 on payroll expenses, you are spending 60% of your income on payroll).

• Expense categorization as a percentage of total expenses (e.g., if your total expenses were $470,000 and $300,000 of that is attributable to payroll, you are spending about 64% of your total expenses on payroll).

• Income generated per full-time equivalent production worker.

Use your findings to build a sales forecast for next year.

Next, use those trends to build a sales forecast. (Here’s an example from my company of what a sales forecast might look like.) I suggest looking at recurring and non-recurring revenue separately. First, identify which clients you can assume with relative assurance will continue to do business with you. These are your base sales numbers.

Then, look at what you think can happen in the new year with new clients. I generally do not name potential clients in the pipeline or measure my chances of closing those clients. Instead, I look at my offerings as a whole, and you can do the same. Where do your most sought-after services collide with high profitability in a space where you are efficient in delivering? This is known as your "sweet spot," and it is important to focus in on it.

Know your client avatar.

It is useful to know your ideal client avatar for this exercise. Understanding your client avatar and where to find them will help you keep your sales and marketing initiatives effective and costs lower.

Study your marketing dashboard.

Your marketing dashboard provides data from the prior year that can be used to determine future sales. Consider data on:

• Products/services you sell the most volume of and have the highest net income.

• Most popular lead source that turns into a client.

• Average dollar amount and net income per sale.

• Return on investment of marketing dollars in comparison to sales.

• Marketing efforts that are yielding the best and worst results in attracting your ideal client.

• Time from prospect to closed sale to secure a new client.

• Percentage of leads turned into clients.

Your marketing dashboard is a great way to focus on what is and isn’t working for your company and set a strategy around outbound efforts.

Factor in seasonality trends.

Understanding the seasonality of your products and services will help in forecasting the cost of workers you need to support your sales goals and attributes to accuracy on the expense side of the equation.

Once you have the sales side completed, much of the expense forecast can be built in by mirroring the same percentage of sales growth or loss. It is also important to consider market conditions. For many of us, 2022 has been characterized by high inflation, which has made it difficult to control costs. Going into 2023, it is important to consider if this trend will continue to impact your market conditions.

Create your forecast, even in an unpredictable climate.

Is building a forecast worth it when circumstances change so quickly? For me, the sales and expense forecast provides a blueprint for what I expect to happen. A forecast can help keep you grounded and make you less tempted toward distraction. This is good for me but even better for my team.

When life unfurls itself in unexpected ways, it’s your job to chart a path forward. If you tend to make a mountain out of a molehill, your forecast can provide a more tangible, measurable picture of the business and act as a barometer for measuring the volatility of the situation.

Looking back at 2022, I now know that not having enough qualified workers in my business disrupted my ability to reach my sales goal by only roughly 10%. Today, we have developed a recruiting and hiring plan, a career advancement plan and a sparkly new training and development plan. As a result of things built in 2022 that I did not previously realize I needed, I’ve enjoyed a surge in company morale and my employees are excited to have a tangible outline for career growth. These benefits might not help me reach 2022’s sales growth target, but I know they’ll be a boon to our efforts in 2023.

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