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How Do Sales Forecasting Software Work?

The priority in any business, large or small, that sells physical products should be focused on the improvement and optimization of the company supply chain. Supply chain controls most aspects related to the product and reports information about what products are selling how much in each location. While supply chain is an overall essential process, it can be broken into several processes, some more essential than others.

One of the most influential and important element of supply chain optimization is sales forecasting. Sales forecasting is that act of using a set of mathematical algorithms to predict the number of sales each product will have in each of your locations. Sales forecasting is a useful tool in every department because it provides a variety of analytics pertaining to a variety of aspects concerning a company.

While some businesses choose to perform the act of sales forecasting manually, in some cases not even using algorithms, more modern companies choose to purchase or create sales forecasting software. Even many smaller companies use small business sales forecasting software to generate a sales forecast. Sales forecasting software, or revenue forecasting software, takes the algorithms above and runs historical sales data through them to produce a forecast.

These algorithms use several different methods that search for different trends such as seasonality or moving averages. The sales projection software system then matches the algorithm that will most correctly fit the trend of sales to each product in each location and creates a sales forecast for the number of desired upcoming sales periods. The best sales forecasting software systems then provide a report including several variables applicable to different departments in the company.

Some of the best sales forecasting software systems provide an ABC code report. This abc report can be filtered to a certain, pre-determined filtered set of items, or can be applied to all items. In sales forecasting software, an abc report is used to identify top-sellers, priorities, quantities, and any metric you could think of. For example, if you want to find which of your products or locations sells the most physical products and which products themselves sell the most units, you can see that in an ABC report.

A sales forecasting software ABC report also provides a user with the same information, adjusted for profit rather than just sales. Perhaps in your business model, you may have large items that do not sell very often but generate most of your company’s income when they are sold. This could be anything from mattresses to luxury brands. For example, if you are a mattress store using sales projection software, you may find that you sell a lot of pillows, but the bulk of your profit comes from mattresses.

Revenue forecasting software also allows you to see a custom report based on revenue. Perhaps there are items that sell a lot, and at a high price. Then you come to find that the margins are not very good and so a product that sells less often or for less revenue, but with a higher margin, actually accounts for most of your revenue. This type of reporting offered by revenue forecasting software is why so many departments are able to utilize its many features.

For example, revenue forecasting software is perfect for use by a finance sector of a company. Being able to understand and create a projection of the amount of revenue that will come into a company in the next 12-24 months is extremely valuable for financial planning purposes. With the ability to plan for profit before it happens, even if it is not 100% accurate, can be extremely useful when creating a budget and identifying places to cut and increase cost.

A marketing sector also has a large use potential for sales projection software, specifically on an individual product, or individual location basis. By understanding which products are selling well and which are not, a marketing executive could know which products to prioritize marketing for. The same goes on a location basis. For an international company, or even a company with several locations close together, a marketing sector can make the decision of how much of their national marketing campaign should be focused on one location as opposed to another.

Sales projection software also would then allow a marketing department to communicate with an operations department to see which products are taking up the most space. Using sales forecasting software, an operations sector can create an analysis of which products move quickly and deserve more dedicated space I the warehouse vs. which products take up room unnecessarily for long periods of time or expire quickly. The marketing sector can then create promotions for the slow-moving, or quick to expire products and free up space for best-sellers in order to avoid both overstocking items and being constantly sold out of items.

This type of communication across departments is one of the many benefits that the best sales forecasting software systems have to offer. The other concern many companies will have is how accurate the software really is. As mentioned before, sales forecasting software uses complex mathematical algorithms to determine the accuracy of a forecast.

Naturally, the best sales forecasting software system is going to contain more algorithms in order to improve and maintain the accuracy. Solutions like Avercast, contain over 200 forecasting algorithms that have been developed over decades after looking at the challenges of customers in order to continue to improve upon forecast accuracy.

We urge you, when considering a new sales forecasting software system, to consider these factors. Does the system that you are choosing focus on accuracy and provide the algorithms to prove it? Does the sales projection forecasting software provide an intuitive user-friendly solution? Does the software allow you to make custom inputs and judgements? Does the sales forecasting software allow you to grow as a company by providing additional demand planning and operations reporting tools as your company grows? At Avercast, we have all of these features and more. Sign up for a demo with one of our sales forecasting software experts to see how we can help your company succeed!

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