How to Do Sales Forecast for Your eCommerce the Right Way

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September 7, 2021 Business

The pandemic-induced lockdowns saw an accelerated shift to online purchases, and industry insiders believe this trend will continue. ECommerce sales are predicted to grow at a healthy clip and reach 23.6% of total retail sales by 2025.

So, if you’re planning to become a part of the eCommerce industry, it is a good time to jump the bandwagon. However, you cannot ignore eCommerce sales forecasting, one of the biggest challenges online store owners face.

Revenue projection or forecasting sales is the compass and foundation of any eCommerce business. It would help if you used the prowess of sales forecast excel in helping you forecast accurately, calculate what return you can expect from a specific channel, where you should spend your marketing budget, how you should allocate your ad budget and how you can take seasonality into account.

What is sales forecasting for eCommerce?

A sales forecast means an assessment or estimate about managing cash flow in the future. Simply put, it is about predicting when money will come in and go out of the businesses so that you can avoid risk, identify business opportunities and anticipate a problem.

Sales forecasting is a business management concept typically not considered for eCommerce businesses, but it can offer competitive benefits when used carefully.

Factors to consider when sales forecasting for your eCommerce business

1. Internal factors

Most times, eCommerce business owners are busy looking at Google Trends or assessing what competitors are doing. But, they forget to consider the work that they have to do themselves. Ensure these internal factors are under your control –

Traffic sources – Keep an eye out for the percentage of your traffic that is social, organic, or coming from paid sources. For instance, if you have a newsletter, find out if it brings you visitors.

Visits and rate of conversion – No matter what, these two metrics must be under your control. Follow how many visitors are getting converted to actual customers and how much time each visitor is spending on your eCommerce website/app. Also, talk to your marketing and design team to find out if there are ways to increase the visit time and conversion rate.

Products – Consider product demand and if you are planning to launch a new product in the future which may require more people working in the support or post-sale department.

Promotions – You need to consider promotions or discounts that will affect your cash flow.

Personnel – The number of employees you would need to assist customers during low or high peak seasons.

Stock – You must always have enough products, especially during a high sales period. Stock management is even more important when you’re dealing with products that quickly go out of fashion or go bad.

Internal policy – Your cash inflow or outflow might be affected by a change in your return policy or other aspects of your terms and conditions.

The factors mentioned above directly depend on your business and can be controlled while creating a sales forecast. Now, look at the factors that don’t directly depend on your business but are important nonetheless.

2. External factors

External factors may either be a threat or an opportunity. Regardless, you would want to control them.

Competitors – When creating a sales forecast for your eCommerce business, it is crucial to look at your competitors’ activities. Carefully study their new releases, advertising campaigns, discounts and promotions, and the positioning of their keywords.

Periods of high demand – You might know when there’s a high season in retail, but your niche might follow different peak seasons. For instance, Halloween costumes in October and school stationery in September.

Changes to rules and regulations – When adapting to the new GDPR, many Internet-based shops have to manage that adaptation. Such changes are generally announced months before their implementation and so, make sure to consider these.

Trends – Foreseeing trends in eCommerce is important so that you are not caught off-guard.

When is the right time to make a sales forecast?

The best way would be to have your objectives and predictions coincide with the fiscal periods.

On the one hand, you need to set an annual goal and a corresponding sales forecast. On the other hand, you need to break down your sales forecast quarterly.

Certain sectors need to make a daily forecast, such as catering and hotels. You can apply this to your online business.

Your sales forecast must not be based on emotions, and it should rely on historical data, key metrics, and industry trend projections.

Sales forecasting methods for eCommerce

Depending on how long you have been running your online shop and the varied sources of your visits, the three common methods of forecasting are –

The sales history of your competitors: Say you have just started your eCommerce business, and you don’t have any sales history. The best solution would be to assess how well your competitors are doing. You can get invoice data from your competitors and assess their invoicing information, along with market share. You’ll get enough data to estimate how your business will fare in the first year.

Your sales history: A classic method of sales forecasting is taking into consideration your sales history. If your eCommerce business has been up and running for a few months or years, you’ll have valuable data to work with. To calculate future sales, you need to consider two variables – seasonality and growth percentage (both positive and negative). You can calculate the income you’ll make next year by studying your previous sales history and analyzing seasonality.

Making use of statistical data from the channels you are using: Statistics are available from various sales channels, and you can make use of the data to create your sales forecast. For instance, some of the information that you can use is the sales and open rate from email marketing, the number of people who buy from your online shop through Facebook Ads or Google Ads, the volume of sales from affiliates, and so on.

So, create a monthly sales forecast for 12 months and then develop an annual forecast for 3 to 5 years. However, make sure your forecast is flexible and adapted according to the current trends and market conditions.