Most people who start an Internet business have starry eyed dreams of thousands of sales magically happening with very little effort.
What most people do not realize is that operating a business online is very similar to running a business offline. All the principles of an offline business apply just as much to an online business. This including pricing strategies, break even points, competitive analysis and sales forecasting.
In this article, we will focus on sales forecasting and why it is important to you as an online business person.
Offline you perform a sales forecast so you have an idea of how many products you are likely to sale in the first month, quarter and year. This enables you to manage your cash flow and ensure that you are not in a cash negative position for too long a period.
Like any business, you want to make sure you have more cash coming in than going out. If not, then you have to ask yourself why you are in business in the first place.
When you start your online business, you will have invested some money in creating a product, hosting your website, etc. You will also have running costs for your business such as web hosting, autoresponder service and so on.
Your sales forecast will give you an idea of how long you are going to be subsidizing the business before it becomes profitable.
Performing a sales forecast offline is much easier than performing one online. Offline you have access to sales figures and company information. Online, this information is kept close to the chest and not published or shared, in general.
An online sales forecast is a combination of common sense and guesswork. You have to work out how many products you believe you can sell each time period, e.g. month, based on information from your competitors, watching auctions of similar products on Ebay, sales of similar products on Amazon and so on.
You may also determine this from your traffic statistics, if your site is already performing. Knowing how many unique visitors you get per day, and how many convert into buyers, you can calculate fairly precisely what your sales rate is, and project this into the future to produce a forecast.
From this information, you will also know how much your profits and sales will increase if you increase your traffic, which again, allows you to make forecasts for sales.
The results from your affiliate program and joint venture efforts should also be added to this sales forecast so that you have a more precise idea of the amount of sales you will make.
Understanding your traffic and your sales will allow you to budget for your business and ensure that it remains cash positive for you.