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Every startup business needs to know how to project sales. A data-driven sales forecast is critical to making smart business decisions.
Forecasting reveals future sales volume estimates, informing everything from budget to scaling decisions. A sales forecast is also helpful when seeking funding from investors.
Startup sales forecasting can be challenging because a new business doesn’t have a lot of historical data to use.
By diligently measuring sales activities and using a sales forecast template, your startup can discover valuable insights to drive growth.
Quick Takeaways:
- For startups, sales forecasting is important for strategic planning and attracting investors.
- There are different methods for forecasting, but initially it's a good idea to keep it simple.
- With the right data, a startup can clarify how business decisions will impact growth.
What Are Sales Forecasts?
A sales forecast uses data to create future new revenue projections. It can include predicted volume, sales by account or product, and rate of growth. The more accurate the sales projections, the better equipped a business is to plan for the future.
For example, when a business can predict its sales volume will reach $2 million in turnover over the next 24 months — with fast growth after the first six months — it can make strategic decisions about hiring, capital investments, and goal setting.
However, a sales forecast isn’t a roadmap for the future. You’re working with data-informed predictions, not guarantees. Anything can change along the way: external factors like new competition or market shifts, and internal factors like unexpected costs or pricing adjustments.
Take a measured approach to sales projections. Use them as a guiding force, but make sure your startup can pivot.
How to Project Sales for a Startup Business
There are different methods to project sales. For startups, keep it simple: Use a basic spreadsheet template and track existing data.
As you build on your foundational sales data and invest in tools like CRM software and a sales analytics platform, you can create more dynamic forecasts. Other sales forecast examples include sales funnels and lead scoring. Both of these methods require more research on your buyers and sales process. This is one of the reasons why you should track your sales KPIs (key performance indicators) from the beginning.
Here are some free startup sales forecasting templates to get you started:
- Basic one-year sales forecasting template for Excel or Google Sheets from Smartsheet (Template 1)
- 3-year sales forecast template from Vertex42
- B2B sales forecast template from HubSpot
- Multiple product sales forecasting template from Close (Template 5)
Input your data to generate a forecast. It sounds relatively simple, but you must have accurate inputs to use these tools effectively.
Sales Forecasting Data for Startups
Here are the data inputs you’ll need for a basic startup forecasting template:
Unit sales
Generally, businesses break down their products or services into units for sales forecasting purposes. For example, a B2B startup that uses a SaaS model may break down new subscriptions or closed deals into units. Then they can determine how many units the business is likely to sell each month.
A startup probably won’t have a lot of data to use at first. For businesses in an accelerated growth phase, unit sales will likely fluctuate. So, when using your sales projections to make decisions, use good judgment. Also consider your niche, market strength, and the expected size of your sales team.
Unit prices
To project sales, multiply the number of units by price.
For example, if a business sells 20 units in a month, and the price of each unit is $200, gross monthly sales revenue will be:
- 20 units x $200 = $4,000
Startups often struggle initially with pricing, especially when establishing product-market fit. It helps to factor possible pricing adjustments into any strategic planning.
To get started with pricing projections, look at your competitors’ prices to see how you compare. Make sure you also have a reasonable spread between business costs and sales revenue to ensure you’re generating enough revenue to be sustainable. Then be ready to adjust pricing as necessary.
Average unit costs
You’ll also need the average cost of each unit. Add up all costs involved in creating your product each month and then divide the total cost by the number of units you sell.
As a tech startup, unit costs may include paying your development team, IT maintenance, and other expenses. They don’t include costs unassociated with developing your product, such as marketing and sales.
Cost of sales
The cost of sales is the total cost of units sold each month:
- Unit sales x average cost per unit = cost of sales
Using the previous example of 20 unit sales per month, and assuming you calculated the average cost of one unit as $30:
- 20 units x $30 cost per unit = $600 cost of sales
Compare the monthly cost of sales to your gross revenue, and you’ll generate the net sales revenue:
- $4,000 gross sales revenue - $600 cost of sales = $3,400 net sales revenue
Note: This isn’t monthly profit. For that KPI, you still have to factor in other business costs outside of the sales unit costs.
By plugging these numbers into a sales forecasting template, startups can get sales projections for the next year, two years, and even five years.
You can use this information to show investors how much your startup is expected to grow. By understanding how the different sales inputs interact, you can see how adjusting the numbers can generate different results.
For example, if a business wants to increase sales revenue to reach a set goal, it could expand its sales team, adjust pricing, or cut sales unit costs.
A Smart Approach to Sales
Sales forecasting isn’t something that most startups get right the first time. There are many factors involved in sales projections, growth predictions, and making strategic decisions based on that data.
If you need help growing sales with a planned process, let’s talk!