The Impact of External Factors on Your Sales Forecasts

No matter the scope of an organization’s internal planning and sales forecasting, there will always be external factors that can drastically affect sales. Therefore, an adaptation of sales forecasting is a necessary part of any successful business.

Keep reading to understand how political, legal, technological, and economic factors can affect sales, and what you can do to adapt your strategy to these unpredictable circumstances.

Understanding External Factors

Finding an effective sales forecasting tool is crucial in predicting sales, but it’s also important to understand external factors. External factors are any circumstances out of the control of the organization. Main external factors include economic, social, technological, legal and political changes.

By identifying and assessing external factors, organizations can mitigate risks and make necessary changes to sustain sales. Businesses can use tools such as Cash Flow Frog to create multiple scenario forecasts, making it easier to plan for unforeseen circumstances.

Economic Factors Influencing Sales Forecasts

Some economic factors that influence sales forecasting include:

• Interest rate changes
• Inflation
• Consumer spending behavior

A strong or weak economy will affect sales, and no business is immune to market conditions. Therefore businesses must carefully look at economic trends when forecasting sales.

Social and Technological Changes

Forecasting adaptation requires businesses to analyze and understand social and technological changes.

Changes in societal values can affect sales. One good example of this is the green movement. As many societies now place more value on protecting the environment, sales of eco-friendly products have grown significantly in recent years.

When conducting sales forecasts, businesses must look at emerging technologies that threaten to take away business. For example, ride-sharing apps have taken sales from taxi companies around the world, putting many out of business.

Understanding emerging technology can also help businesses pivot to a stronger market position. For example, cash flow forecasting software can provide businesses with valuable customer insights that help boost sales.

Political and Legal Environments

Political and legal changes can significantly impact the way a company does business. For example, new regulations may require companies to change ingredients in a product, which could drive up product prices and decrease sales.

The international political and legal environment also affects businesses, especially those that rely on overseas suppliers or customers.

Political instability can significantly impact market conditions, which has a large impact on consumer spending and sales. Even if your home country is politically stable, your sales may be affected when international suppliers or customers are affected by political instability elsewhere.

The effects of legal and political changes can be minimized by staying in touch with upcoming regulatory changes and the current political environment. Anticipating these changes can help businesses create more realistic sales forecasts and make necessary changes to strategy,

Adapting Your Sales Forecasting Strategy

An effective sales forecasting strategy relies on continuous adaptation to current economic, social, legal, and technological conditions. By keeping the following in mind, you can ensure your sales forecasting strategy is in line with external factors.

Scenario planning

Businesses must consider all scenarios and determine the likelihood of each external factor affecting their sales forecasts. Cash flow software that offers scenario planning can help with this process.

Accurate data

Businesses must update data frequently, as there is always new information regarding external factors and market conditions. Accurate and relevant data will ensure your forecast is aligned with external factors.

Communicate with all departments

Businesses must include all departments in their sales forecasts, not just sales or accounting teams. When each department shares its unique perspective on external factors, forecasting is more accurate.

Continuous review

When actual sales numbers don’t correspond to a sales forecast, companies must analyze their forecasts and identify the external factors that led to inaccurate predictions. Forecasting is a continuous process and companies must constantly analyze their predictions to increase accuracy over time.

While some external factors can never be predicted, following these steps can help businesses be better prepared and mitigate risks associated with external circumstances.

In Conclusion

Sales forecasting is a complex process and businesses must always consider how external factors can affect their sales. Social, technological, legal, and political changes can have unexpected effects on a company’s sales and every business is subject to general changes in the economy.

To hedge against the negative effects of external factors, businesses must regularly update their data, perform scenario planning, and discuss the possibility of external factors with all members of their organization. This can help businesses plan for changes in sales and keep an edge over their competition.

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