If you rely on revenue from a few months to sustain your business all year, forecasting your revenue and expenses isn’t a nice-to-have—it’s a must.
And yes, “forecasting revenue and expenses” sounds exactly like a line from that small-business accounting and finance course you didn’t take (or didn’t like) in school, but it’s not as hard as it sounds. After all, forecasting is just a fancy word for planning.
Even if you work with financial pros, like an accountant or a bookkeeper, you’re still the expert on your product and your industry, because it’s what you focus on most of the time. That insider knowledge is one of the most powerful tools you could ask for when it comes to forecasting, so you’re more than prepared to tackle this.
Plus, a basic forecast will help you make important strategic decisions, like whether you should upgrade your equipment, or when you should place your wholesale orders. Those are the kind of calls you want to be able to make for yourself, and a forecast is one of the best ways to do it.
FREE RESOURCE: We put together a spreadsheet to help you with your forecasting, and you’ll find a link to it later in the post.
What is seasonality in forecasting?
Seasonality is typically defined as monthly, quarterly, or annual seasonal patterns that recur consistently over time. Many businesses experience some form of seasonality in their sales or production cycles. Because of this, seasonality is often taken into account when forecasting future demand.
How to do seasonal forecasts for your online store
There are two main elements you’ll need to calculate future sales for your business: a sales forecast, and an expense forecast.
Once you have both of those done, you’ll be able to get a high-level view of your business’ money matters for the next year—and make some key decisions based on that information.
Sales forecasting
If anything sounds intimidating, it’s “sales forecasting.”
Before your mind is filled with visions of advanced spreadsheets and mathematical models, don’t worry: for the most part, forecasting is just educated guessing.
Your job with a sales forecast is to make a reasonable prediction, not to nail the exact numbers you’ll be selling in a year from now.
So how do you do that? There are a few ways to predict future demand. You can look at:
If you’re a new online business, or if you plan on launching new products this year that have no historical data, use what you know about your business and your customer base to make a best guess. You’re the expert on what you do, after all.
Now it’s time to get into the numbers.
Let’s talk products. Specifically, how many do you have? If you’re rocking fewer than five or 10 signature products, you can give them each their own, separate forecast. Once your products hit that double-digit mark, you’ll want to group them into product lines for a more manageable forecast.
Set up each product or product line as a row in your spreadsheet, under “Product Unit Sales.” This is where you’re going to input your forecast of how many units you’ll sell of each product this coming year, and which month you’re going to sell them.
Download your own copy of the forecasting spreadsheet template. Go to File > Make a Copy to save one to your account and keep your forecasts private. (You’ll need to be logged in to a Google account to save your copy. You can also adapt it to Excel.)
Next, add in the prices you plan to sell those products at each month. Maybe you plan on raising your prices mid-year, or you offer so many sales in November that you know your average sale price is lower. Add in those monthly prices now for each product line.
Scroll down a bit, and boom: you have a sales forecast.
Expense forecasting
Now that you’ve got a good idea of what your sales look like over the next year, it’s time to tackle your expenses.
There are two main types of expenses you’ll want to look at when it comes to your forecast: fixed expenses, and variable expenses.
Fixed expenses
We’ll start with fixed expenses, because to be honest, they’re easier.
A fixed expense is something that you pay every month, which could include rent for office space, software subscription costs, or the salary you pay yourself out of your business.
Pop open your business bank account and take a look at the past few months of transactions. Anything that comes out of your account every month is a fixed expense.
To add it to your forecast, give it its own line in the Expenses tab of your spreadsheet, and fill in your monthly cost.
Variable Expenses
For a seasonal ecommerce business, your variable costs might not be 100% correlated with your sales—even when it comes to cost of goods sold.
Most forecasts will assume that your cost of goods sold (the money you spend to create your products) happens in the same month as your sales, but that’s not always the case for seasonal businesses. Most of the time, if you didn’t stock up before your busy season, you’d be in for a rough time, and probably lose some sales.
That’s why it’s so important to plan ahead. If most of your expenses happen before your sales, you’ll need to have a plan for how you’re going to cover those expenses when they hit.
FURTHER READING: Forecasting is great for predicting how your revenue and expenses line up annually, but if you want a bit more detail, find out how to plan your business’s cash flow on a more tactical week-by-week level.
You’ve got your estimates of how much you’ll sell for each product or product line, so let’s work from there. How much does each product cost you to produce? Head to the Cost of Products tab in the spreadsheet to enter the unit cost of each product.
This tab of the spreadsheet will calculate the total cost of your products over the year, which you can find at the bottom right-hand side of the sheet.
Take those numbers, and your knowledge of the ordering process, and allocate those costs in the months you plan to spend the money.
Maybe the total cost of ordering a product is broken up into a few different parts, or you can order smaller production runs—only you know your business well enough to map out those costs.
Once you do know when you’re going to spend that money, add it in as a variable expense in the Expense Forecasting tab of your spreadsheet.
Lastly, add in any other variable expenses you have planned for next year. Are you attending an industry conference, or do you hire seasonal help? Make sure you estimate costs for anything that isn’t a monthly expense, and give them their own rows.
Want to grab your copy of the spreadsheet? You can find the forecasting spreadsheet template here. Go to File > Make a Copy to save one to your account and keep your forecasts private. (You’ll need to be logged in to a Google account to save your copy.)
Seasonal forecasting best practices
Know your seasonal sales trends
First and foremost, the best way to forecast your sales is to know your historical sales, and what your peak season sales are usually like year over year. So, if you’ve been tracking your sales with a system like QuickBooks Online, do a few reports to get a sense of your sales trends.
Compare your sales year over year, and note if there are any outliers—the spike or dip in sales unrelated to anything else.
If possible, generate a report that segments by customer type and looks at the sales and growth from each customer over the last year or few years. There’s a good chance you’ll have a couple of more profitable—or more reliable—customers than others, and you can focus on keeping those relationships running smoothly.
Start forecasting early
The earlier you start working on your forecasts, the more time you’ll have to plan for your best-guess forecast.
Use the templates above to predict your inventory needs and maximize your cash flow, so you’re prepared for every forecasting scenario you can dream up.
Keep stock reserves on hand
Seasonal businesses are more likely than others to experience inventory issues. That’s because inventory management is tough when your sales vary so much between seasons.
You can avoid this problem entirely by making sure you keep a little bit of inventory on hand in between seasons, to tide you over until you can place your next order. Try to keep your minimum inventory at about 70% of your maximum inventory level for your busy season.
Get an inventory management software
Speaking of inventory planning and management, you’ll want to get an inventory management software to help automate forecasting.
These tools can not only track inventory levels for all the items you carry, they can also be integrated with other tools like QuickBooks Online or your ecommerce platform, so your inventory levels are updated automatically and you can see if you’re about to run out of a product.
Shopify app Stocky is a great inventory management tool that helps you have better supply chain visibility and know what products you should order when based on product performance and seasonality.
Why should ecommerce businesses forecast seasonal demand?
As a seasonal business, there are some months when it feels like you’re swimming in money—and others where your bank account feels more like a desert with a lone tumbleweed blowing through it.
That’s because in most seasonal businesses, your revenue and your expenses don’t line up. A few months of the year fund your business for the others, and you probably spend your “off” months investing back into your business.
That’s why forecasting your retail sales and your expenses is even more important for you.
Cover all of your expenses
Business is never easy, let’s get that straight—but it is easier to wing it with your business finances if you earn $5,000 every month and have $1,500 a month in expenses.
But if you earn $50,000 two months of the year, and your monthly expenses aren’t very stable, forecasting is critical. It’s one more thing that will help you resist those treat-yourself moments in high revenue months, and help cover any shortfalls during the offseason.
Invest in your business
If you could really use a new laptop or some upgraded equipment, a forecast can help you figure out when you’ll be able to make those big purchases—and if you have the money to do it.
If not, but you really do need the upgrades, a forecast could help you decide whether taking business financing to fund the purchase would be a good move.
Get the capital you need without the complications
Through Shopify Capital, you get the money you need to grow your business with just a few clicks. There is no lengthy application process and no paper forms to fill out.
Prepare for the busy season
Stocking up ahead of the busy season is critical, which is why we recommend doing things like making sure you have enough shipping supplies ahead of a busy sales season, such as Black Friday Cyber Monday. The importance of preparing for busy time periods is magnified when the busy season is your only season, so you’ll need to invest in inventory, supplies, and more before you need them.
Your forecast can help you map out and manage the expenses of stocking up before the sales start rolling in.
Make strategic decisions
Maybe this is the year you finally decide to spring for seasonal help, or take additional business financing. Making those decisions is much easier when you have an idea of what your year looks like, what you’re committed to spending already, and how much you think you’re going to sell.
Those are decisions that shouldn’t be entirely outsourced to someone else, which is why working through a forecast is so useful.
Forecasting seasonal demand for your store
Your forecast isn’t set in stone, and one of the most useful things you can do is adjust the numbers as you get more information.
Right off the bat, you might realize that some of your variable expenses aren’t hitting at the right time, and you might want to move them around.
Later on, as sales and orders start to come in, you might realize you need to adjust your sales forecast, and your corresponding costs to fulfill those orders.
You might even realize that yes, you do need to secure some business financing, and you’ll have a good idea of how you’re going to use the money, since you’ve already set a budget.
And that’s all OK.
In fact, it’s great, and it’s the best part of having an annual forecast in place for your seasonal business. Being able to adjust your plan, instead of hoping for the best when things change, will help you feel on top of your business finances all year round.
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