How to create a sales forecast for your business

The sales forecast section is a key section of your business plan.
This section relates directly to the market analysis, competitive edge, marketing plan and pricing sections (see our guide to writing a business plan).
The objective here is to build and justify your sales estimate for the next three years.
How to forecast sales?
Building a sales forecast is a double exercise. You first need to build the numbers using a bottom-up approach and then sanity checks them using a top-down approach. If you are not familiar with these 2 methods of building financial estimates, these are explained in details in our article on how to do a market for a business plan.
The idea when building a financial forecast is to decompose the figure in a set of measurable sub-hypothesis. That way you will later be able to easily analyse the differences between the forecast figure and the actual figure, adjust the hypothesis and get a new, more accurate, forecast.
Here we will use a series of hypothesis to build a sales volume forecast and a price hypothesis. How to set the price is explained in the pricing section of our business plan outline article therefore I won't talk about it here.
Estimating the volume is a difficult exercise but there are a couple of techniques you can apply to increase the accuracy of your guess.
Need a convincing business plan?
The Business Plan Shop makes it easy to create a financial forecast to assess the potential profitability of your projects, and write a business plan that’ll wow investors.

Forecasting sales of location-based businesses
If you are operating a location-driven business, such as a shop or a restaurant, the best thing to do is to go in the street where your business will be based and look at how many customers the other shops or restaurants in the street have.
If you feel that your concept is too different from the shops and restaurants in your street, then try to find a street with similar traffic which has shops and restaurants with a similar concept to yours.
When you go on street due diligence like this you need to make sure you that your analysis isn't biased by the day of the week and the attached seasonality. Make sure you cover at least one weekday and a full weekend.
Once you have estimated the traffic, all you need to do is to apply a conversion rate to deduct the number of sales.
In the end, your sales forecast should look like this:
- 600 people come to the street every day
- 1 out of 10 will enter the shop: 60 people/day
- 1 out of 5 people coming to the shop will buy: 12 sales/day
- the average price of an item is £80: £960 of sales/day
- the shop is opened 30 days a month: £28,800 of sales/month
Estimating sales using your competition
If your business is not location-driven then it is more complicated. The first thing to do is to go on a financial information website such as Companies House and try to get your competitors accounts or the accounts of a similar business. These accounts will give you the historical sales figure of these businesses from which you can estimate their historical volume sold.
From there you can use ratios such as the number of sales / square meter or the number of sales/employee to forecast your sales.
Your sales forecast will look like this:
Company | Co. 1 | Co. 2 | Co. 3 | My Company |
---|---|---|---|---|
Sales | £750,000 | £500,000 | £1,500,000 | £400,000 (4 sales / employee x 5 employees x £20,000 / sale) |
Average price | £25,000 | £15,000 | £30,000 | £20,000 |
Est. volume sold | 30 | 33 | 50 | 20 |
Nb. employees | 10 | 7 | 12 | 5 |
Volume / employee | 3 | 5 | 4 | 4 (average of companies 1, 2, and 3) |
This should give you an indication of what a mature business can deliver: Therefore if you are just starting out it will probably take you a bit of time to get there so you need to try to estimate what your ramp-up is going to be.
Also, if you are selling your goods through a distributor he should be in a position to give you an estimate. My advice here would be not to take it at face value and to discount it slightly to avoid any bad surprises.
Need a convincing business plan?
The Business Plan Shop makes it easy to create a financial forecast to assess the potential profitability of your projects, and write a business plan that’ll wow investors.

Lead-based sales forecasting
One of the best techniques to forecast the sales of businesses that have a sales force is to build your volume forecast based on your lead generation capacity.
Let's see how it works with an example. Let's say that you sell services to small businesses and that your sales process is as follow: you phone potential customers to get a meeting and then go to the meeting and try to close the sale.
To forecast your sales, you can estimate how many phone calls an average sales representative can handle in one day. From there you can deduct how many meetings your sales representative is likely to get based on an estimated success rate. And then apply another estimated success rate to deduct the number of sales from the number of meetings.
Try to work out the entire sales funnel rather than using a global conversion ratio. That way you will be able to track the intermediary steps and adjust your sales forecast on the fly as you get more clarity on what the conversion rate at each step is. You will also be able to set more precise objectives for your sales force.
With this technique your sales forecast will look like this:
- 2 sales representatives generating 250 phone calls/month
- 1 phone call out of 5 leading to a meeting, which results in 50 meetings/month
- 1 meeting out of 10 leading to a sale, which results in 5 sales/month
- the average price of a sale of £50,000, which results in a monthly sales forecast of £250,000
Forecasting the revenues of an online business
If you are on online business you can use Google Adwords keyword tool. This tool will give you an estimate of the traffic associated with each keyword as well as an estimate of the number of clicks you should get for a given ad campaign. Then to build your volume forecast you need to figure out how much you can afford to spend on Adwords which will give you an estimated number of clicks. You can then apply a conversion ratio to the number of clicks to estimate a number of sales.
Your sales forecast will be something like this:
- Marketing budget: £6,000 / month
- The average cost per click: £0.8, hence 7,500 clicks
- Conversion rate: 4%, which results in 300 sales
- Average basket: £30, which results in a monthly sales forecast of £9,000
Sanity checking your sales estimate
Once you have to build your volume and your sales estimates you need to sanity-check them using a top-down approach. The idea here is to compute the implied market share of your forecast and check how realistic it is. If the number seems too high then you probably missed something.
If you are a capacity constraint business such as a hotel or a restaurant you also need to ensure that the volume makes sense compared to your capacity. For example, if you have a hotel with 10 rooms and forecasted 270 nights per month then you are implying that your hotel will run at 90% capacity which seems high.
You also need to factor in the seasonality and check that it is reflected properly in your sales forecasts.
Need a convincing business plan?
The Business Plan Shop makes it easy to create a financial forecast to assess the potential profitability of your projects, and write a business plan that’ll wow investors.

Why the bottom-up approach is king
There are two reasons why you need to build your sales forecast using a bottom-up approach and not a top-down approach.
The first one is that, once you have started trading it enables you to check your assumptions and adjust your forecast based on your actual numbers.
For example, if you estimated that your salesmen will be able to get in average x meetings per month but they are actually getting y. Just replace x by y in your model and you have a revised, more accurate forecast on which you can take business decisions.
The second reason is to prepare your discussion with investors. If you use a purely top-down approach and say: "the market is worth £300m and we are going to take 1% market share the first year which gives us £3m revenues", the investor is going to reply: "I challenge that, prove it to me". And you are in trouble.
Now if you say: "we have 2 sales representative who will be able to generate 50 leads per month. We estimate that we will close 10% of our leads, which gives us 5 sales per month at an average price of £50k so £3m of revenues in year 1". The investor will most likely say nothing, give a phone call to a competitor or an expert and ask him if 25 leads per salesman per month make sense and what is the average success rate in the industry. If you are not too far off (remember that you need to demonstrate that you know your market) the investor will come back to you and ask you to run your model with the numbers the expert gave him (which you will then challenge because it is your market and you are the expert!).
The bottom line is that using a bottom-up approach enable a constructive discussion based on the assumptions used to build the number whereas the top-down approach is a black box and it just looks like you took a guess. No one likes to invest money based on a guess.
Also on The Business Plan Shop
- Free business plan template to download
- TAM SAM SOM, what it means and why it matters
- Tips for writing a business plan for investors
- Sample financial forecast for business idea
- What is a profit and loss forecast?