How to Use Sales Forecasting Methods at a New Restaurant

What is Sales Forecasting?

Sales forecasting is the use of historical sales data to predict future sales. Restaurant businesses use sales forecasting methods to make decisions about inventory, staffing, and budgeting. Sales forecasting can be done using statistical methods, such as regression analysis, or more subjective methods, such as judgmental forecasting.

Sales forecasting is a critical part of any restaurant business. By looking at historical data of past sales patterns and trends, businesses can make informed decisions about which products or menu items to offer, how many staff members to hire and schedule during particular seasons or hours, and how much money to budget for the sales teams for their marketing and advertising initiatives.

Why are Sales Forecasts Crucial to a Business?

The most important aspect of any business is generating revenue and cash flow to sustain its operations. The sales forecast thus becomes a roadmap for the sales teams and sales reps, helping the company ensure that it achieves its desired revenue goals. To obtain accurate forecasts, a sales forecasting system must take into account a wide variety of factors, including historical sales patterns, current market trends, expected changes in the competitive landscape, and seasonal fluctuations.

• An accurate sales forecast enables restaurant businesses to make informed decisions about where to allocate their resources and how to adjust the business model in order to achieve desired results.
  
• Without accurate data on future sales, a company would have to act blindly when it came to Demand Planning, employee scheduling, and purchase orders.
  
• A sales forecast is also crucial for managing financial risks. A company that doesn't have a clear idea of what its future sales are likely to be, will find it difficult to obtain financing from banks and investors.
  
• Restaurant businesses need to maintain sufficient inventory levels to meet customer demand and if they don't have accurate sales forecasts, they run the risk of either holding too much inventory or not enough, both of which can adversely impact expenses.
  

How do Established Restaurants Conduct Sales Forecasts?

To know the future, you need to understand the past. This is what gives existing restaurants an edge over the newcomers. Established restaurants have the advantage of historical data, which new establishments lack. They have large data sets of past sales, orders, customer information, market trends, competitors, and several other factors that determine future sales. Established restaurants use this data to conduct sales forecasts. They do this by analyzing past sales data, considering seasonality and competition, etc to make informed predictions.

Sales forecasting is very important for restaurants because it helps them project sales and corresponding costs for the future. Generally, a restaurant's sales forecasts can be monthly or quarterly projections. For an accurate forecast, a restaurant needs data on past sales. This data can be gathered from financial reports, point-of-sale systems, or other software that tracks sales data. Once this data is accessed, it can be used to estimate future sales patterns and trends. For example, if a restaurant sees that its lunch sales have been declining over the past few months will receive a sales forecast based on these records. It may accordingly adjust its purchase orders or deploy its sales reps to take initiatives to improve these figures.

How do New Restaurants Conduct Sales Forecasts?

New restaurants, too, need sales forecasts in order to know how much revenue they can expect to generate, and what kind of expenses are expected. The forecasting process is essential to properly price menu items, identify employee scheduling needs, and make informed decisions about marketing and advertising expenditure.

However, sales forecasting for new restaurants can be a struggle for some time because of the lack of past sales data, operator inexperience, and little knowledge of what the future holds. In such a scenario, all you can do is consider local and larger market trends, conduct an analysis of the competition around your restaurant, review seasonal factors, and prepare an average sales prediction to serve as a guide. Forecasting techniques for the initial months will go through a lot of trial and error before the restaurant obtains the data it needs to understand the sales patterns and customer behavior.

As the first step is creating a sales forecast model, consider the various factors that will determine your restaurant's sales, such as seasonality, location, target market, competitors, customer base, etc. This model can then be used to get an estimate of the number of customers you can anticipate serving each day. These customer projections can be converted into sales estimates by multiplying them with the average spend per person. However, most of it will be based on assumptions, so accurate sales predictions may take a while to materialize.

Factors That Can Throw a Sales Forecast Off-course

Modern business intelligence tools are mostly accurate with their sales forecasts. Yet unavoidable circumstances could still throw a sales forecast off-course. It is advisable for a business to be prepared for unexpected turns that may take the sales down or up at any point. Here are some factors you should keep in mind-

1. Changes in the economy-
A recession can cause a sharp decrease in demand for many products and services, particularly in the restaurant business. This may lead to lower average sales and revenue. Similarly, an unexpectedly strong economic recovery can lead to higher than expected sales growth.

2. Changes in consumer confidence-
Consumer confidence is a key driver of spending levels. A sudden drop in consumer trust in your restaurant, a marketing disaster, or a bad campaign can also lead to lower than expected sales, even if economic conditions remain favorable.

3. Competition-
New entrants in the market, changes in the competitive landscape (such as a competitor launching a new product), or a sudden drop in a competitor's prices can impact your sales negatively or positively. Such factors will throw your predictions off-course. But you can also recover from these issues, depending on how well you can adapt or respond to them.

4. Natural disasters-
Floods, storms and other natural disasters can disrupt supply chains, destroy inventory, or shut down an establishment for days or weeks, leading to lost sales and decreased revenue.

Downsides of an Incorrect Sales Forecast

While accurate sales forecasts offer multiple benefits, an inaccurate forecast can create quite the mess. Beware of the following scenarios-

• If a restaurant overestimates its future sales, it may end up with excess inventory it is unable to sell. This can lead to wasted resources, financial loss, and mismanaged employee schedules.
  
• If a company underestimates its sales, it is underprepared to handle demand and may miss out on opportunities to earn more. In either case, an incorrect sales forecast can put a restaurant at a disadvantage.
  
• Moreover, incorrect sales forecasts can also damage relationships with investors, lenders, and other stakeholders. These groups rely on accurate information to make decisions about whether to invest in or lend money to a business. If they lose faith in a restaurant's ability to provide accurate data, they may be less likely or willing to do business with that establishment in the future.
  

Top 3 Sales Forecasting Software for Restaurants

While choosing the perfect sales forecasting software for your restaurant is a decision only you can make based on your individual needs, here's a list of the top three sales forecasting systems in the market to consider-

1. Zip Forecasting
Zip Forecasting is an automated sales forecasting and demand planning software that has been designed for restaurant businesses. This software eliminates all guesswork from employee scheduling and purchase order creation. Zip Forecasting will pull in all your historical data, identify your sales cycles, and create accurate sales forecasts. With an estimate of what to expect in the coming days, you can then plan your supply chain management, inventory management, and employee management accordingly and avoid wastage of resources. The software will also factor in local weather conditions, events, and public holidays and project your sales accordingly. It enables you to optimize your business operations and improve your decision-making, while stemming unnecessary expenses and wastage at the same time.
Zip Forecasting software costs $19 per month per location.

2. PredictHQ
PredictHQ is a cloud-based sales forecasting and demand planning software that pulls in the historical sales data of a business and considers a range of internal and external factors that may affect sales to throw up accurate sales predictions. From holidays, to special events, school seasons, sporting events, PredictHQ's forecasting techniques consider a number of factors to bring you data that's on point.
The company's pricing plans are not available on its website and may only be obtained upon request.

3. Intuendi
The Intuendi forecasting and demand planning software has been designed especially for small and medium-sized businesses. Its forecasting methods factor in calendar events, seasonal trends, and marketing efforts by sales teams, to come up with accurate sales numbers. The company uses Business Intelligence tools to help restaurants and other businesses with inventory optimization, future sales planning, and purchases. With this omni-channel software, you can also manage your supply chain to get the results you want for your business.
Intuendi's pricing plans are also available upon request.