Boost Your Small Business with Accurate B2b Sales Forecasting

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hi guys Ian Johnson from driv success.com today I thought we talk about the importance of improving your sales forecast accuracy I've covered this before another videos about per project evaluation and view technique today I thought I'd add a couple of tips to this um so we're going to talk about absolute error accuracy the impact of seasonality and then we'll review perk once again okay so let's get started the first portion we're going to look at is absolute error absolute error is very simple to understand absolute error is simply the difference between your forecast and your actual sales okay so it's the difference between forecasted versus actual sales okay so in our example let's say you have a salesperson he forecasts 150 units sold and he actually goes out and only sells 130 well your absolute error in this case is 20 units okay difference between forecast and actual sales very simple okay second thing you want to look at number two is the accuracy of this particular forecast okay in this case it it's uh involves taking the 130 units sold dividing it by the 150 units that were forecasted you get 87% all right very straightforward first two steps very easy okay where you're going to be kind of more a little bit more busy in terms of your analysis is the third portion okay this is seasonality and let's call it uh seasonality and business Cycles okay now these two things are extremely important in terms of understanding the ups and downs and the cyclical nature of your business okay so even in a market where you have what would be considered linear demand constant demand day to day week to week month to month quarter to quarter you are still going to have those periods where you are going to have basically ups and downs gradually over time you may have this linear model that continues to increase in terms of demand and quarter to quarter you may see constant increase in sales but you're still going to have this gradual basic uh or this intermittent demand fluctuation okay so even in a linear demand Market you're going to have some up and down okay the other Market that you may operate in is basically a cyclical market and you may actually have let me make sure that this is in blue it is you may have ups and downs that relate to quarter to quarter okay so you're going to have busier times of the year and slower times of the year what you want to do is you want to basically understand what these seasonality patterns are between these quarters okay what is happening between these quarters is it going up is it going down is it staying constant understand that but also do it for your linear model so if you're operating in a cyclical Market it's going to be easy to know yeah we're busier in the first quarter than we are in the third but in a linear model where it's constant demand and you're constantly shipping product it may require a little bit more work so be cognizant of that okay now the reason why you want to analyze your seasonality and business Cycles is for the simple reason that you want to avoid the two main cost drivers of inventory okay you don't want to have high holding cost which means you're going to have um product without sales you're going to pay in financing and you don't want to have lost sales cost of inventory where you don't have enough inventory to meet the demand in the market and you lose sales as a result so the reason why you analyze your seasonality in business Cycles is to make sure that you are doing everything you can to spot the fluctuations in month to month or quarter to quarter sales in either model whether it's linear or cyclical okay so you want to understand that because that's going to help you basically plan out your your your your forecast and your inventory in addition to that okay now the final thing we're going to cover number four is per per is very easy to understand it's called project evaluation and review technique what we want your salespeople to do with perk is to ask themselves three basic questions we want them to basically understand um what's the most I can sell what's the best outcome what am I most likely going to sell what's the most likely outcome and what is the minimum amount that I'm going to sell or what's the worst outcome okay so let's say uh let's do it this way a equals best outcome okay b equals most likely most likely outcome and C equals uh worst case okay now when you think about when a salesperson does a forecast they always ask themselves you know what am I most likely going to sell what would I really love to sell and what is the minimum I'm probably going to sell okay and what you're going to do as your salesperson is going to basically apply a dollar value or basic not a dollar value but a unit value to this and he's going to basically say you know let's continue on an example he says I'm going to do 150 units is my best outcome okay my most likely outcome is I'm probably going to settle on 100 units and the worst case scenario is I'm probably going to settle on 50 units okay so you've got best outcome 150 most likely outcome 100 and worst case scenario is 50 now here's the calculation for per and it's very simple okay what per says is I'm going to take one multiplied by a + 4 multiplied by B okay sorry let me just erase that for a second plus 1 multili by C and then I'm going to divide all of this by six okay so in this case if we plug in these numbers this is 1 * 150 4 * 100 and 1 * 50 what you've got inside the calculation is this is going to be 150 + 400 which is 550 + 50 is 600 so it's 600 divided by six gives you a potential number of sales or unit sales in terms of your forecast of 100 okay now again you may still have this variation up here between forecasted and actual what you want to do is number one determine your absolute error okay difference between forecasted and actual sales the determine the accuracy of this particular forecast it may be by customer and may be by territory but let's let's just take the example of this one which is by customer the forecast accuracy is the actual sales divided by the forecasted sales it gives you 87% pay attention to seasonality and business Cycles whether it's a linear Market or a cyclical Market it doesn't matter you're going to have minor ups and downs in linear markets you're going to have maybe more drastic ups and downs in cyclical markets finally use something as simple as per okay have your salespeople ask these three questions of themselves use this simple calculation and by doing so it should give you a little bit better numbers down here per is the basis of Gant charts per is used by project managers and it's used in order to eliminate um it's B basically used to identify the best possible outcome uh and to eliminate um you know non-essential tasks uh and to narrow down like I said the most likely outcome so that's pretty much it guys this is not going to do everything that you need it's not going to make sure that you get 100% on your forecast cuz that's simply not possible but if you take the time to deliver the absolute error determine the absolute error determine the accuracy determine your seasonality and impact of business cycles and use a simple tool like perk it will help you get a more accurate forecast so that's it absolute error accuracy seasonality business cycles and per hope that helps with your forecasting take care Ian Johnson driver success bye-bye