Regardless of industry, the bottom line in today’s business landscape is that you need to be making intelligent decisions about everything that affects the bones of your business and potential year-over-year growth. But to do this, you need to accurately forecast your sales, as research proves that companies with accurate sales forecasts are over 7% more likely to hit their revenue and sales quotas. Luckily, you have a complete guide to sales forecasting, including advice about methods, possible influences, and recommended forecasting software below.
Let’s leap right in or jump to sales forecasting:
What is Sales Forecasting?
Sales forecasting predicts future sales levels or revenue for a particular product, service, or company.
It often uses historical sales data, market trends, and other relevant information to predict future sales.
Sales leaders use sales forecasting to inform the companies’ budgeting, spending, and sales strategy to maintain lead flow and revenue levels.
Although, just like weather forecasts, sales forecasts aren’t always a sure thing.
Instead, sales forecasting is a planning tool to support leaders and companies in preparing for future business opportunities.
Why Accurate Sales Forecasting Matters
Forecasting sales are all about the future success of your operation.
That’s why they can be a precious tool for your organisation when done right.
The proof is in the numbers: companies with precise sales forecasts enjoyed 13.4% more year-over-year growth than companies with inaccurate estimates.
This means: you’ll be able to focus your sales team on high-revenue, high-profit lead opportunities, often resulting in improved win rates.
Improved win rates will then increase the alignment of sales quotas and revenue expectations. All while helping to create benchmarks you can use to assess future trends.
More so, by accurately forecasting sales, leaders can maintain the following benefits:
- Better Resource Allocation: By knowing what sales you can expect, you can make informed decisions about hiring, marketing, and other resources necessary to meet those projections. Sales forecasts allow you to estimate revenue for any given period, meaning you’ll know how much money to expect to earn and when. This financial heads-up means you can plan for budgeting and resources dedicated to other aspects of your organisation.
- Improved Planning: By better understanding your sales pipeline, you can make better decisions about your business operations, leading to higher profitability and customer satisfaction. Power is knowledge, and with sales forecasting, you can determine whether it’s likely you’re going to meet your current goals – which, in turn, helps you set goals for the next period.
- Increased Transparency: Accurate forecasting shows where the sales team is doing well and where you must improve. This enables you to make data-driven decisions that can improve overall sales performance. More so, a history of detailed and well-documented sales forecasts helps build a picture of your performance and performance milestones for potential investors. The more up-to-date and articulate your projections are, the better you describe your business’s position to investors and even employees.
- Enhanced Credibility: Accurate sales forecasting helps sales leaders gain credibility with stakeholders, including executives, investors, and board members. When you can accurately predict sales performance, it demonstrates your understanding of the business and your ability to lead the team effectively.
- Improved Accountability: With clear projections, you can hold your team members accountable for their performance and ensure they take the necessary steps to meet their goals.
Overall, accurate sales forecasting is a critical tool for any sales leader who wants to:
- Identify potential challenges or opportunities
- Adjust strategies accordingly
- Use data to make informed decisions can improve the team’s performance and drive business success
Who is Responsible for Forecasting Sales?
Creating accurate sales forecasts is a collaborative effort involving multiple organisational stakeholders. However, sales leaders and their teams are primarily responsible for producing accurate sales forecasts.
Who’s responsible for sales forecast depends entirely on the organisation; in general, though, the people responsible usually are:
- Sales Leaders: Sales Leaders promise the numbers that their sales teams will deliver. How they forecast usually depends on their level of seniority.
- Sales Reps: Sales Reps report their numbers back to their managers.
- Product Leaders: Determine which products should be available to sell and when.
What Influences a Sales Forecast?
There will always be external and internal factors that influence your sales forecasts; we explore several below:
As we all know, during an economic downturn or recession, it’s more likely that both individuals and companies won’t spend money – and you’ll have a slump in sales. Whereas moments of economic growth are more likely for you to see a hike in sales
Seasonal demand affects many businesses and will see sales fluctuate throughout the year as the product or service becomes in need.
Policy and Governance
Suppose there are changes in your corporate policies or governance structure. In that case, it can impact the sales forecast in a big way – especially if it involves changes to your sales compensation plan, as it directly influences your sales team’s behaviour.
Hiring and firing affect your bottom line, whether that’s a drop in sales after termination or an influx of new deals after recent hires.
Your local laws or mandates have the power to affect business – either by creating new or improved demand for your product or making prospects hesitant to buy anything.
What your competitors are up to, unfortunately, also has the power to affect business for worse or sometimes for the better. For instance, if your competitors halve the prices, you may need to react quickly with a similar offer to avoid losing the sale. Comparatively, if your competitor goes out of business, you’ll see an increase and demand in sales.
Why is Forecasting Sales in Unpredictable Times So Hard?
We all know that accurate sales forecasting is a crucial element of effective sales management.
It enables us as businesses to make informed decisions, allocate resources efficiently, and set realistic sales targets.
But, as you already know, sales forecasting can be a complex and challenging endeavour.
We all know that Covid-19 threw a major spanner into the works, but to what extent?
Well, sales leaders now face a variety of obstacles that hinder our ability to accurately predict sales outcomes, including (but not limited to):
- Market Volatility: Sudden changes in consumer demand, economic conditions, or competitive landscape can significantly impact sales forecasts, resulting in inaccurate predictions.
- Juggling Channels: Online, mobile, social media, and in-store touchpoints make capturing and analysing data more complex.
- Changing Customer Behavior: This is making predicting preferences and purchasing patterns difficult.
- Geopolitical Factors: Like trade policies, tariffs, political instability, and regulatory changes.
- Rapid Technological Advancements: Such as artificial intelligence, automation, and digital transformation. Keeping up with the pace of technological change and accurately predicting its impact on sales can be challenging.
- Data Accuracy and Availability: When dealing with large volumes of data from multiple sources. Incomplete, inconsistent, or inaccurate data can lead to inaccurate sales forecasts.
- Shorter Forecasting Horizons: Increases the risk of inaccuracies, as there is less time to gather and analyse data and make informed predictions.
- Lack of Flexibility in Forecasting Methods: Rigid forecasting methods often don’t consider multiple scenarios or real-time data.
- Internal challenges: Like communication gaps, need for more alignment between sales and other departments, and biases.
6 Sales Forecasting Methods
There are various sales forecasting methods you can use that have different uses and benefits. Here are a few of the most popular ways to forecast sales, with some examples further illustrating each sales forecasting method.
1. Opportunity Stage Forecasting
As one of the most popular sales forecasting methods, the opportunity stage sales forecasting method is perfect for those looking to predict the probability of their leads becoming closed customers based on where the prospect currently is in the sales p
As one of the most popular sales forecasting methods, the opportunity stage sales forecasting method is perfect for those looking to predict the probability of their leads becoming closed customers based on where the prospect currently is in the sales process.
How it works
The sales forecasting model starts by picking a reporting period, often a month, quarter, or year – whichever makes sense, depending on the length of the sales cycle and your sales team’s quota. Then, all you need to do is multiply each deal’s possible value by the probability it will close. Once you’ve done this for every deal in your sales pipeline, calculate the total to determine your overall forecast.
The Pros & Cons
While the opportunity stage sales forecasting method offers easy, quick results, it doesn’t account for the age of an opportunity making it inaccurate overall. Suppose you opt to use this sales forecasting method. In that case, you must consider that a deal that’s been floating in your sales rep’s pipeline for months will be treated the same as an opportunity that’s only days or weeks old – mainly if their close dates are similar, which means that you have to either remind or trust your sales reps to maintain and clear their sales pipelines.
2. Length of Sales Cycle Forecasting
The Length of Sales Cycle Forecasting model uses data about the time it takes a prospect to convert into a paying customer. It’s perfect for sales reps to forecast their sales per month or quarter while reminding them that objectivity is the key to sales success – not just relying on “gut-feeling.”
How it works
This sales forecasting method requires constant tracking of when and how prospects enter the sales pipeline. That’s why it pays to have a robust CRM system integrated with all other functions of your organisation, alongside practising sales enablement techniques to synchronise both sales and marketing teams.
The Pros & Cons
You should first consider that if your CRM doesn’t integrate with your marketing software and automatically log interactions, sales reps will spend too much time manually entering the data – a costly and laborious activity that’s easily avoidable. Furthermore, if your sales team don’t relentlessly track data, even small mistakes can substantially affect predictions. Overall, it’s a handy objective method that you can apply to various lead sources to generate a more accurate forecast.
3. Intuitive Forecasting
If your business is brand new, but you want to forecast sales, you can’t rely on historical data – so what can you do? Ask your sales team to forecast their sales for the following required period based on their intuition. Salespeople can do this by examining their current deals in the sales pipeline alongside any prospect opportunities they have planned to produce an approximate sales forecast.
4. Historical Forecasting
The historical sales forecasting method is a quick, simple framework for estimating sales for the upcoming month, quarter, or year. The method works by using historical data to roughly determine numbers for the same period.
The Pros & Cons
While this method seems pretty cut and dry, it’s also a little too simple to give the most accurate projections. Mainly because the model assumes that your buyer demand is consistent and constant, alongside not accounting for seasonality, this sales forecasting model is best suited to being used as a benchmark tool rather than the foundation of your projections.
5. Multivariable Analysis Forecasting
Possibly the most advanced sales forecasting method, multivariable analysis forecasting uses predictive analytics and several other vital components such as the sales cycle length, probability of closing based on opportunity type, and individual rep performance.
The Pros & Cons
While the multivariable analysis forecasting model is one of the most accurate, it’s also data-driven, which means you’ll need a robust analytics solution or forecasting tool to get the job done while also ensuring sales reps are consistently cleaning and tracking data.
6. Pipeline Forecasting
The pipeline forecasting method reviews each opportunity currently in your pipeline and calculates its possibilities of closing based on unique company variables, including the rep’s win rate and opportunity value.
The Pros & Cons
While one of the most accurate sales forecasting methods because it takes into account the unique factors of each opportunity, it also heavily relies on your ability to provide high-quality data. If you provide insufficient data, you’ll end up with forecasting that provides zero value.
How to Forecast Sales in 7 Steps
Ready to get started building your forecast and improving the backbone of your business? Follow these steps.
1. Establish a Sales Process
We’re not saying one size fits all here, but it’s likely your ideal customers all have various goals in common, so it’s fair to assume that their hidden agenda for buying your product or service is also very similar. Once identified, you can begin standardising your sales process, which will enable you to scale up, grow, and dominate your industry. That’s why the first step is to have an efficient, reliable and consistent sales process for each stage of the sales pipeline optimised to your sales teams strengths.
2. Set Individual and Team Quotas
If you want to gauge sales performance, you need to define what “success” looks like. To do this, work with sales reps to set achievable and realistic sales quotas, as these will serve as financial baseline goals to compare alongside your sales forecasting.
3. Invest in a Robust CRM
Having robust customer relationship management (CRM) software is critical to accurate sales forecasting because your sales reps need precise information to organise and track their opportunities.
However, it’s crucial to involve any employees using the CRM in the discussion process because their essential insights will help you understand their needs and create a CRM that best suits your organisation’s workflow. Some CRMs even allow sales reps to synchronise alerts and reminders to their calendars so they can be sure they never miss an opportunity!
4. Choose a Sales Forecasting Method
Now you have a clearly defined sales process, sales quotas, and a robust CRM in place – you can choose a sales forecasting method that suits you best. However, the sales forecast method you choose will depend on several factors, such as your business’s age, the size of your sales team and their pipelines, alongside the quality of your sales data and data tracking habits.
5. Include Data from Other Departments
While having and understanding your past sales data is crucial for creating accurate sales forecasts, there are several other valuable insights in your company, which is why you need to ensure you include the following data in your forecasting process:
- Marketing: Your marketing data can directly correlate to the quality of your sales pipeline. That’s why you need to communicate with your marketing team to understand their tactics and strategies for the forecasting period.
- Finance: Working with your financial analysts to understand how well your sales forecast aligns with the overall financial goals of your company.
- Product: How do product launches factor into your overall forecast? Create a well-rounded sales forecast by including data about any new products you’re considering launching.
6. Review Prior Sales Forecasts
Consider how did your sales team perform this year and last year? Remember to compare the data you currently have to the prior year’s forecast alongside noting discrepancies or variations you notice. While working through this data, ask yourself:
- Did your organization underdeliver anywhere?
- Were your previous year’s goals unrealistic in any way?
- Did any significant events or seasonality affect business?
7. Keep Your Sales Team Accountable
Whichever sales forecasting method you decide to use, you must immediately communicate changes and decisions to sales reps – another reason to invest in a robust CRM that helps inform sales reps about every interaction between them and leads.
However, you must also hold them accountable for their sales performance and the sales quotas and forecasts you’ve provided. Ultimately, we can’t control what goes on outside our business, but we can control what goes on inside them. We want to help your team perform at their best, so download your free sales performance improvement plan and support them in staying motivated, focused, and accountable.
Tips for Better Sales Forecasting
Take a Data-Driven Approach: While past performance does not always indicate future results, analysing historical sales data can provide valuable insights into sales patterns, trends, and seasonality, all aspects that help to create accurate sales forecasts.
Use Sales Forecasting Software: To accurately forecast sales, you’re going to need the following:
- A CRM
- Leading Scoring Tools
- Accounting Software
- Google Docs & Sheets
Conduct a Sensitivity Analysis: This can involve scenario testing and “what-if” analysis to understand how market conditions or assumptions can affect sales forecasts.
Monitor Leading Indicators: Identify leading indicators, such as customer inquiries, website traffic, or social media engagement, that can provide early signals of sales trends.
Monitor these indicators closely to spot changes in customer behaviour or market dynamics that may impact sales.
Foster Communication with Customers: Engage in regular conversations to understand their needs, challenges, and expectations to help you anticipate changes in demand and adjust your forecasts accordingly.
Carefully Monitor Competitors: Changes in the competitive landscape can impact your sales, so stay informed about their strategies, promotions, and market positioning to anticipate market shifts better.
Seek External Expertise: Consider seeking external expertise, such as market research reports, industry analysts, or consultants, to gain additional insights and perspectives on the market.
Use Multiple Forecasting Methods: Different methods may be appropriate for different situations, and combining approaches can provide a more comprehensive and accurate forecast.
Plan for Different Scenarios: This can help you better understand the potential range of outcomes and prepare contingency plans accordingly.
Monitor and Measure Results: Continuously track and measure actual sales performance against your forecast to evaluate the accuracy of your forecasts.
What Goes into a Sales Forecast?
Wondering what exactly the essential components of an accurate sales forecast are? Check them out below and begin to communicate critical information to sales management about future business growth.
Sales Processes: A salesperson may only be actively involved in a few steps of the company’s entire sales process, but everyone must understand the big picture to see how their role fits in with others. That’s why including your documented sales processes from prospecting to closing is essential for ensuring your sales team are following the same formula.
CRM Data: With a CRM, you can look at your dashboard and see what’s in your pipeline. See which sales are forecasted to close this month, so you know how close you are to your targets. Some sales forecasting information to keep track of in your CRM include:
- The product they are interested in
- The forecasted amount of the sale
- The date of your last contact with a customer
- The date of the next contact
- The date expected to close
- List of supporting materials you should be sending them
- Names of the other stakeholders who will be involved in the buying decision
Sales Quotas: A sales quota is a financial goal that sales reps or teams need to reach within a specific time period, usually once a month or quarter. These are the goals that you are directly compensating for.
Funnel Definitions: What’s the use of a sales forecast if the terms aren’t clearly understood? Your sales forecast should include the definitions for each stage of the sales funnel, like a lead, opportunity, prospect and close – that way; all sales team members can be held accountable to the same standards.
Essential Sales Forecasting Software
While this list is by no means exhaustive, here are some of the best sales forecasting tools that will help come closer to accurately predicting the future.
- CRM: A CRM tool will help you store and record information vital to closing sales – while benefitting you from being a dedicated sales tool that supports your sales reps close deals. Use this tool to lead track, view your funnel analytics, call sequences and record how prospects heard about you to help determine when you should follow up with prospects and existing customers. There’s a lot to consider when choosing a CRM tool based on the size and nature of your business.
- Lead Scoring Tool: You’ll need a lead scoring system that helps you grade leads according to their actions on your website or any other trigger you want to follow.
- Accounting Software: Forecasting complex data like gross margins will require data usually connected to accounting software – luckily, most have integrations that allow for convenient transfer of information and data.
- Excel or Google Sheets: Sales forecasting often involves creating simple spreadsheets; when making calculations, consider all the internal and external factors that may affect creating an accurate report.
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