Unfortunately, many sales managers and representatives struggle to achieve accurate sales forecasts.
Recent studies reveal alarming trends in sales forecasting accuracy:
Over 80% of companies missed their sales forecasts in at least one quarter over the past two years.
Only 19% of companies reported never missing a forecast during this period.
A staggering 43% of organizations missed their sales goals by more than 10%.
When sales reps’ forecasts are off, they overestimate by about $91,000 and underestimate by around $47,000.
So, what can be done to enhance forecasting accuracy? We’ve created an in-depth guide that will help you increase your accuracy and forecast effectively.
What is sales forecasting?
Sales forecasting is the process of predicting future sales revenue by analyzing data on past sales, market trends, and customer behavior.
It provides valuable insights for setting targets, identifying opportunities and risks, and creating strategies. Accurate sales forecasts help companies make informed decisions and optimize sales team performance.
Accurate sales forecasts are essential for setting realistic sales quotas and ensuring sales teams are accountable for their performance.
Why is sales forecasting important?
Understanding what lies ahead allows organizations to create actionable strategies for success. Sales forecasting guides sales representatives in the right direction and is crucial in effective sales planning.
A well-founded sales forecast minimizes guesswork and enables efficient resource allocation. By predicting future sales, businesses can better manage inventory, staffing, and marketing efforts and ensure they are prepared for demand fluctuations.
Moreover, sales forecasts are invaluable for financial teams. They provide insights into expected cash flow, enabling better capital allocation and financial planning.
Accurate forecasts help calculate potential profits for a given period, allowing businesses to make informed decisions regarding investments and expenditures.
Sales forecasting also serves as a barometer for a company’s overall health. A sales team's ability to meet or exceed forecasted figures directly correlates with revenue growth and organizational success.
For example, if a sales team only achieves 20% of the estimated sales figure, it signals a significant concern.
This discrepancy indicates that more effort and performance improvements are necessary to steer the company toward profitability.
Benefits of accurate sales forecasts
Accurate sales forecasts are essential for businesses aiming to achieve their goals and objectives. Here are some key benefits:
- Improved decision-making: With accurate sales forecasts, businesses can make well-informed decisions regarding production schedules, inventory levels, and marketing strategies. This reduces the risk of overproduction or stockouts and ensures that marketing efforts are targeted effectively.
- Increased revenue: Accurate sales forecasts help identify growth opportunities, allowing businesses to capitalize on them and increase revenue. Companies can adjust their strategies to maximize profitability by understanding potential sales trends.
- Better resource allocation: Accurate forecasts enable businesses to allocate resources more effectively, reducing waste and improving operational efficiency. This ensures that resources are directed towards areas with the highest potential for return on investment.
- Enhanced customer satisfaction: Meeting customer demand is crucial for maintaining satisfaction and loyalty. Accurate sales forecasts help businesses anticipate customer needs, ensuring that products are available when and where needed.
Who is responsible for sales forecasts?
Sales forecasting is a collaborative process that involves multiple stakeholders within an organization. Key players include:
- Sales leaders: Sales leaders are responsible for developing and implementing sales forecasting strategies. They oversee the forecasting process, ensuring it aligns with the company’s goals and objectives.
- Sales teams: Sales teams provide critical input and data to support forecasting. Their on-the-ground insights into customer behavior and market conditions are invaluable for creating accurate forecasts.
- Marketing teams: Marketing teams contribute data and insights related to market trends, customer preferences, and the effectiveness of marketing campaigns. This information helps refine sales forecasts and align them with market realities.
- Finance teams: Finance teams play a crucial role in sales forecasting by providing financial data and analysis. Their input helps ensure that forecasts are financially viable and aligned with the company’s budget and financial plans.
Factors affecting sales forecasting
A. Internal factors
1. Changes within the organization
Internal organizational changes create uncertainty and affect the numbers. Price changes, advertising, product quality, etc., can significantly affect future sales.
So, if your organization is set to undergo any changes, you must factor them into your forecast.
2. Territory shift
When a business expands into a new territory, assigns a different territory to a sales rep, or introduces a new territory management plan, there is a possibility of a temporary dip in sales.
These changes will impact sales forecasting. Sales professionals take time to adapt to changes and adjust to new territory.
However, once they explore and familiarize themselves with a new territory, sales can rise even higher.
3. Policy changes
Pay close attention to policy changes, as they can affect sales forecasting. Internal policies like sales promotion policy, advertising policy, pricing policy, profit policy, etc., are vital factors that influence an organization’s estimated sales.
B. External factors
1. Economic conditions
When the economy is strong, buyers will show interest in and invest in your product. However, this would seem difficult during a crisis where the economy is affected.
For instance, the 2020 COVID-19 crisis, that has crippled the global economy. Many businesses are affected due to this sudden pandemic.
So, the sales forecaster must consider the general economic situation- inflation or deflation, which can affect the business favorably or adversely.
2. Competitive changes
The changes that the competitors implement might capture the potential buyer’s attention and greatly affect the estimation.
For instance, if the competitor suddenly uses the price reduction strategy to increase the product’s demand, that might affect your win rate. You need to keep an eye on the competitor and act instantly.
If they slash the price, you must offer discounts to stay in the game.
3. Current industry conditions
The changes happening in your industry can significantly impact your forecasting. So, stay abreast of the industry’s know-how.
You must carefully observe your industry’s growth rate, advanced technological improvement, changing Government policies, etc.
You need to stay alert to the new players who are entering your industry and offer a similar solution at a cost-effective rate.
Types of sales forecasting
Sales forecasting can be categorized into two primary types: short-term forecasting and long-term forecasting. Each serves a distinct purpose and is essential for effective sales planning.
1. Short-term forecasting
Short-term forecasting, often called operating forecasting, typically covers one month to one year. This method can be calculated monthly, quarterly, or bi-annually.
Key benefits of short-term forecasting:
- Realistic quota setting: Helps sales teams establish achievable sales targets based on current market conditions.
- Smart hiring decisions: Informs staffing needs by predicting sales volume and customer demand.
- Profit estimation: Assists in estimating profits based on available resources and projected sales.
Short-term forecasting is particularly valuable for businesses experiencing rapid changes in market dynamics or demand fluctuations. Companies can adapt quickly to capitalize on opportunities or mitigate risks by focusing on immediate trends.
2. Long-term forecasting
Long-term forecasting looks beyond the immediate future, typically projecting sales over five years or more. This approach focuses on the company's overall strategic goals.
Key benefits of long-term forecasting:
- In-depth industry knowledge: Requires a thorough understanding of market trends, competitive landscape, and historical performance data.
- Strategic planning: Aids in aligning resources and investments with the company’s long-term growth objectives.
Long-term forecasting is crucial for organizations setting ambitious goals and planning for sustainable growth. It enables businesses to anticipate market shifts and prepare strategically for future challenges.
Sales forecasting methods
An accurate sales forecasting process can help your company generate more revenue. Several methods are used for sales forecasting.
The selection of a method depends on factors such as the forecast’s context, the specific period to be forecast, and the availability of historical data.
Here are a few sales forecasting methods most of the sales team uses. I have even provided some sales forecasting examples to help you implement them.
1. Lead value method
Using the lead value method, you can measure a lead's worth based on its potential revenue and probability of converting into sales.
Both sales value and conversion rate should be considered when calculating the lead value.
Sales value is basically the amount of money you stand to make from a sale. Leads come from different sources; therefore, they are of different types.
So, the sales values of the leads are also often different as per the source.
Example
You may find that leads that requested a demo closed at $3000 per customer, while the leads from paid advertising closed at $1000 per customer.
Lead-to-sales conversion rate refers to the percentage of leads that pass through the entire sales pipeline and convert into paying customers. Like the sales value, this metric will vary depending on the lead source you are looking at.
Lead value formula
Lead Value = Sale value x Lead-to-sale conversion rate
You can use the value assigned for each lead to estimate revenue results for your current sales pipeline and identify necessary adjustments needed.
2. Opportunity stage
B2B sales aren’t as simple as a customer walking into a store and picking his/her choice of shoes. Each sale in B2B, from beginning to end, goes through various stages within a sales cycle before the deal is closed and the product is purchased. The sales forecast here is determined based on the outcome of each deal.
Using opportunity stage forecasting, the entire pipeline is broken down into various stages. The opportunity stages will differ from company to company.
You just need to determine your customer's journey through the buying process. The stages should reflect the number of interactions you will have with customers.
Prospecting-discovery call-appointment setting-presentation-proposal-Negotiation-closed won/loss. The purpose of each stage is to hold different weights within the sales process.
More weight is given to the opportunities stages that are further along in the sales pipeline as the weight determines the likelihood that the deal will convert into a sale.
This helps you identify which leads will become opportunities. You need to multiply each deal’s value by the likelihood of closing the deal to create a sales forecast for a specific period.
Opportunity stage forecast example
Suppose you’ve created the following likely-to-close percentage based on your pipeline.
Prospecting – 10%
discovery call – 20%
appointment setting – 40%
Presentation-proposal – 60%
Negotiation – 80%
closed won/loss – 100%
Apply the opportunity stage forecast formula
Deal value x likelihood of closing = expected sale
As per this forecasting model, a $2000 deal at the appointment-setting stage is 40% likely to close. The forecasted amount for the deal would be $800.
3. Historical forecasting using historical sales data
The past, without a doubt, has a wealth of information. It can be an excellent base for forecasting. In historical forecasting, you must reflect on your past performance within a specific time frame and assume that your future performance will be equal or superior.
Historical forecasting is a simple forecasting method, but it is cent percent safe to use as it assumes that buyer demand will be constant, which is no way a given. There are risks of overestimating your sales statistics and operating using an inaccurate sales forecast.
Historical forecasting is ideal for businesses looking for a simple and quick way to project their sales volume for each period.
Historical forecasting example
Suppose your team collectively made $60000 in monthly recurring revenue (MRR) sales in January. So, you can assume the team will also make $60,000 more in February.
There is even another way of projecting sales, which is historical forecasting. You can reflect on the past sales data and look at each month’s growth. If you consistently increase sales by 5-6% each month, you can estimate 63000 to 63600 sales for February.
4. Intuitive forecasting
Sales reps deal with clients daily and know how long it takes to close a deal. So, most sales managers prefer to ask the sales rep to estimate the sales amount they can achieve in a month and set the target accordingly.
Using this sales forecasting method often helps boost the conversion ratio as a sales rep knows which deals have the potential of closing and accordingly puts the number forward and tries to achieve it.
However, a problem can even arise if the sales rep is too optimistic and gives overly generous estimates.
This method is suitable for products in the early stages or startups without historical data that could be analyzed to create a sales forecast.
Intuitive forecast example
You have just started a new business and hired a sales professional. You’ve just been operating for the last five months, so you don’t have any historical data. You ask the sales professional to forecast the sales for the next four months.
This will help you set an achievable target for your new sales rep. The sales rep mulls over the prospecting opportunities and evaluates every pipeline deal. Based on that, analyze s/he forecasts $10000 for next quarter.
5. Pipeline forecasting
To use this effective sales forecasting method, you must closely examine every opportunity in your sales pipeline. The best method is calculating the chances of closing each deal based on your average win rate and the opportunity’s value.
This method is highly dependent on the quality of your data. You won’t get an accurate sales forecast if you use imperfect data. So, to ensure the reliability of your data, it's better to use the best sales CRM software and update it regularly.
Pipeline forecasting example
Suppose you close a deal worth between $1000 to $3000 within 30 days, so all the deals in your pipeline within that value can be closed in the next month. So, like that, you can forecast monthly or quarterly sales.
Effective sales forecasting strategies
Sales forecasting can be complex, but a team leader must have a structured plan for seamless success. Here are some actionable tips to enhance your sales forecasting process:
1. Establish a baseline
Many companies aim to exceed their previous year's profits and sales. However, they often attempt this without understanding the key drivers of their past performance, which can lead to misguided decisions.
To improve your forecasting accuracy, it’s crucial to establish a baseline that reflects the relative changes in activities over time.
This baseline serves as a starting point understood by all team members. By using this approach, you can overlay new or extended activities that can be prioritized to achieve the desired sales growth.
2. Utilize percentage probability
Percentage probability, also known as weighted probability, is an effective technique for managing the uncertainty inherent in sales forecasting.
This method acknowledges that not every deal will convert into a sale and assigns a probability percentage to each estimated value based on specific deal characteristics.
Example:
Let’s say your team typically wins 3 out of every 10 deals. If you have 30 deals in the pipeline for the next quarter, you can forecast winning 9 of them. With an average sales value of $5,000, your forecast for the next quarter would be 9 deals at $5,000, totaling $45,000.
In this scenario, each deal is assigned a weighted probability of 30% at $5,000, which equates to $1,500 per deal.
Using percentage probability provides greater clarity and enhances the accuracy of forecasts—not only for individual deals but also for the overall pipeline.
3. Secure team commitment
Achieving optimal results requires full commitment from your team. If forecasted deals receive little or no attention, it can negatively impact estimated sales outcomes. Ensure that your team focuses equally on all deals and actively works to close them in real-time.
Additionally, stalled opportunities within the pipeline should be identified. Encourage your team to revive or remove these opportunities from the sales pipeline to maintain forecast accuracy.
Techniques for improving forecasting accuracy
Maintaining accuracy while forecasting can significantly enhance your win rate and overall sales performance. Here are several essential steps you can take to improve your forecasting accuracy:
1. Regularly assess your sales cycle length
Keeping track of your sales cycle length is crucial for accurate forecasting. The length of this cycle can fluctuate due to economic changes, industry shifts, and customer demands.
Regularly evaluating and adjusting your sales cycle helps predict how many deals will close within the next month or quarter.
For instance, if you notice that sales cycles are typically longer during economic downturns but shorter during periods of high demand, you can adjust your forecasts accordingly. This proactive approach ensures that you're better prepared for future outcomes.
2. Maintain a clean CRM system
Your customer relationship management (CRM) system is invaluable for enhancing forecast accuracy. By keeping your CRM updated with real-time data, you gain insights into deal probabilities and can strategize effectively.
However, sloppy record-keeping can severely undermine these efforts. Ensure all interactions with prospects are promptly recorded in the CRM system.
Remove stalled deals from the pipeline when they show no signs of converting into actual sales opportunities.
Here’s how maintaining a clean CRM benefits forecasting:
- Data integrity: Accurate data ensures that win probabilities are correctly assessed.
- Timely actions: Real-time updates help move deals forward based on prospect actions rather than arbitrary criteria set by sales reps.
3. Focus on prospect actions
Deal progress is directly tied to prospects' engagement level. To encourage faster closure, move deals through stages based on prospect actions rather than arbitrary criteria set by sales reps.
Here’s an example scenario:
- Instead of moving a deal forward simply because an appointment is about to be scheduled, wait until the prospect agrees to meet before advancing it through stages.
This approach ensures alignment between deal progression and actual prospect engagement levels, leading to more reliable forecasts.
4. Practice consistency
Consistency plays a pivotal role in maintaining forecasting accuracy over time. Once you find a helpful forecasting model or method that works well for you, stick with it rather than constantly switching models.
If your previous methods yielded close accuracy but suddenly failed, investigate reasons thoroughly instead of immediately abandoning them. Common issues include changes in customer behavior patterns or unexpected shifts in industry dynamics.
By sticking to one standardized format consistently reviewed over time:
- You build trustworthiness within your team regarding the forecasting methodologies you use.
- It simplifies review processes as everyone understands the monthly or quarterly criteria.
By following these steps—regularly assessing your sales cycle length, maintaining clean CRM records focused on prospect actions, and practicing consistency—you significantly improve your ability to predict and adapt effectively to changing business environments, ultimately leading to higher win rates and sustained long-term success!
Conclusion
Sales forecasting is not easy. It requires gathering data and setting clear goals. You must choose a method and analyze it regularly. You also need to know about factors that can affect your sales.
If a method is not working, do not rush to change it. Think about why it is failing and look for areas for improvement.
To get accurate forecasts, you need good data. A smart CRM like Salesmate can help. It keeps all your data in one place. This makes forecasting easier. You can see how your team did last quarter. You can also find out which deals are close to closing.
Salesmate gives you insights to help you make informed decisions. It does more than just forecasting. You can create sales reports and manage your sales pipeline. You can also set up email sequences for follow-ups and automate time-consuming tasks.
Frequently asked questions
1. What are the signs of poor sales forecasting?
Signs include consistently missing sales targets, frequent forecast changes, and a lack of alignment between sales and marketing teams. These issues can indicate that the forecasting process needs improvement.
2. How can I train my team to improve sales forecasting skills?
Training can involve workshops on data analysis, sharing best practices, and using forecasting tools. Encourage team members to share their experiences and insights to foster a collaborative learning environment.
3. What role does customer feedback play in sales forecasting?
Customer feedback provides valuable insights into buying behavior and preferences. Analyzing this feedback can help refine forecasts and make them more accurate.
4. How do seasonal trends affect sales forecasting?
Seasonal trends can fluctuate sales. Analyzing past seasonal data to adjust forecasts accordingly and prepare for peak and off-peak periods is important.
5. What is the impact of economic changes on sales forecasting?
Economic changes like recessions or booms can significantly affect consumer spending. Staying informed about economic indicators helps businesses adjust their forecasts to reflect these changes.
6. How do I choose the right sales forecasting method for my business?
The right method depends on your business type, data availability, and specific goals. Evaluate each method’s strengths and weaknesses to find the best fit for your needs.
Key Takeaways
Unfortunately, many sales managers and representatives struggle to achieve accurate sales forecasts.
Recent studies reveal alarming trends in sales forecasting accuracy:
Over 80% of companies missed their sales forecasts in at least one quarter over the past two years.
Only 19% of companies reported never missing a forecast during this period.
A staggering 43% of organizations missed their sales goals by more than 10%.
When sales reps’ forecasts are off, they overestimate by about $91,000 and underestimate by around $47,000.
So, what can be done to enhance forecasting accuracy? We’ve created an in-depth guide that will help you increase your accuracy and forecast effectively.
What is sales forecasting?
Sales forecasting is the process of predicting future sales revenue by analyzing data on past sales, market trends, and customer behavior.
It provides valuable insights for setting targets, identifying opportunities and risks, and creating strategies. Accurate sales forecasts help companies make informed decisions and optimize sales team performance.
Accurate sales forecasts are essential for setting realistic sales quotas and ensuring sales teams are accountable for their performance.
Why is sales forecasting important?
Understanding what lies ahead allows organizations to create actionable strategies for success. Sales forecasting guides sales representatives in the right direction and is crucial in effective sales planning.
A well-founded sales forecast minimizes guesswork and enables efficient resource allocation. By predicting future sales, businesses can better manage inventory, staffing, and marketing efforts and ensure they are prepared for demand fluctuations.
Moreover, sales forecasts are invaluable for financial teams. They provide insights into expected cash flow, enabling better capital allocation and financial planning.
Accurate forecasts help calculate potential profits for a given period, allowing businesses to make informed decisions regarding investments and expenditures.
Sales forecasting also serves as a barometer for a company’s overall health. A sales team's ability to meet or exceed forecasted figures directly correlates with revenue growth and organizational success.
For example, if a sales team only achieves 20% of the estimated sales figure, it signals a significant concern.
This discrepancy indicates that more effort and performance improvements are necessary to steer the company toward profitability.
Benefits of accurate sales forecasts
Accurate sales forecasts are essential for businesses aiming to achieve their goals and objectives. Here are some key benefits:
Who is responsible for sales forecasts?
Sales forecasting is a collaborative process that involves multiple stakeholders within an organization. Key players include:
Factors affecting sales forecasting
A. Internal factors
1. Changes within the organization
Internal organizational changes create uncertainty and affect the numbers. Price changes, advertising, product quality, etc., can significantly affect future sales.
So, if your organization is set to undergo any changes, you must factor them into your forecast.
2. Territory shift
When a business expands into a new territory, assigns a different territory to a sales rep, or introduces a new territory management plan, there is a possibility of a temporary dip in sales.
These changes will impact sales forecasting. Sales professionals take time to adapt to changes and adjust to new territory.
However, once they explore and familiarize themselves with a new territory, sales can rise even higher.
3. Policy changes
Pay close attention to policy changes, as they can affect sales forecasting. Internal policies like sales promotion policy, advertising policy, pricing policy, profit policy, etc., are vital factors that influence an organization’s estimated sales.
B. External factors
1. Economic conditions
When the economy is strong, buyers will show interest in and invest in your product. However, this would seem difficult during a crisis where the economy is affected.
For instance, the 2020 COVID-19 crisis, that has crippled the global economy. Many businesses are affected due to this sudden pandemic.
So, the sales forecaster must consider the general economic situation- inflation or deflation, which can affect the business favorably or adversely.
2. Competitive changes
The changes that the competitors implement might capture the potential buyer’s attention and greatly affect the estimation.
For instance, if the competitor suddenly uses the price reduction strategy to increase the product’s demand, that might affect your win rate. You need to keep an eye on the competitor and act instantly.
If they slash the price, you must offer discounts to stay in the game.
3. Current industry conditions
The changes happening in your industry can significantly impact your forecasting. So, stay abreast of the industry’s know-how.
You must carefully observe your industry’s growth rate, advanced technological improvement, changing Government policies, etc.
You need to stay alert to the new players who are entering your industry and offer a similar solution at a cost-effective rate.
Types of sales forecasting
Sales forecasting can be categorized into two primary types: short-term forecasting and long-term forecasting. Each serves a distinct purpose and is essential for effective sales planning.
1. Short-term forecasting
Short-term forecasting, often called operating forecasting, typically covers one month to one year. This method can be calculated monthly, quarterly, or bi-annually.
Key benefits of short-term forecasting:
Short-term forecasting is particularly valuable for businesses experiencing rapid changes in market dynamics or demand fluctuations. Companies can adapt quickly to capitalize on opportunities or mitigate risks by focusing on immediate trends.
2. Long-term forecasting
Long-term forecasting looks beyond the immediate future, typically projecting sales over five years or more. This approach focuses on the company's overall strategic goals.
Key benefits of long-term forecasting:
Long-term forecasting is crucial for organizations setting ambitious goals and planning for sustainable growth. It enables businesses to anticipate market shifts and prepare strategically for future challenges.
Sales forecasting methods
An accurate sales forecasting process can help your company generate more revenue. Several methods are used for sales forecasting.
The selection of a method depends on factors such as the forecast’s context, the specific period to be forecast, and the availability of historical data.
Here are a few sales forecasting methods most of the sales team uses. I have even provided some sales forecasting examples to help you implement them.
1. Lead value method
Using the lead value method, you can measure a lead's worth based on its potential revenue and probability of converting into sales.
Both sales value and conversion rate should be considered when calculating the lead value.
Sales value is basically the amount of money you stand to make from a sale. Leads come from different sources; therefore, they are of different types.
So, the sales values of the leads are also often different as per the source.
Example
You may find that leads that requested a demo closed at $3000 per customer, while the leads from paid advertising closed at $1000 per customer.
Lead-to-sales conversion rate refers to the percentage of leads that pass through the entire sales pipeline and convert into paying customers. Like the sales value, this metric will vary depending on the lead source you are looking at.
Lead value formula
Lead Value = Sale value x Lead-to-sale conversion rate
You can use the value assigned for each lead to estimate revenue results for your current sales pipeline and identify necessary adjustments needed.
2. Opportunity stage
B2B sales aren’t as simple as a customer walking into a store and picking his/her choice of shoes. Each sale in B2B, from beginning to end, goes through various stages within a sales cycle before the deal is closed and the product is purchased. The sales forecast here is determined based on the outcome of each deal.
Using opportunity stage forecasting, the entire pipeline is broken down into various stages. The opportunity stages will differ from company to company.
You just need to determine your customer's journey through the buying process. The stages should reflect the number of interactions you will have with customers.
Prospecting-discovery call-appointment setting-presentation-proposal-Negotiation-closed won/loss. The purpose of each stage is to hold different weights within the sales process.
More weight is given to the opportunities stages that are further along in the sales pipeline as the weight determines the likelihood that the deal will convert into a sale.
This helps you identify which leads will become opportunities. You need to multiply each deal’s value by the likelihood of closing the deal to create a sales forecast for a specific period.
Opportunity stage forecast example
Suppose you’ve created the following likely-to-close percentage based on your pipeline.
Prospecting – 10%
discovery call – 20%
appointment setting – 40%
Presentation-proposal – 60%
Negotiation – 80%
closed won/loss – 100%
Apply the opportunity stage forecast formula
Deal value x likelihood of closing = expected sale
As per this forecasting model, a $2000 deal at the appointment-setting stage is 40% likely to close. The forecasted amount for the deal would be $800.
3. Historical forecasting using historical sales data
The past, without a doubt, has a wealth of information. It can be an excellent base for forecasting. In historical forecasting, you must reflect on your past performance within a specific time frame and assume that your future performance will be equal or superior.
Historical forecasting is a simple forecasting method, but it is cent percent safe to use as it assumes that buyer demand will be constant, which is no way a given. There are risks of overestimating your sales statistics and operating using an inaccurate sales forecast.
Historical forecasting is ideal for businesses looking for a simple and quick way to project their sales volume for each period.
Historical forecasting example
Suppose your team collectively made $60000 in monthly recurring revenue (MRR) sales in January. So, you can assume the team will also make $60,000 more in February.
There is even another way of projecting sales, which is historical forecasting. You can reflect on the past sales data and look at each month’s growth. If you consistently increase sales by 5-6% each month, you can estimate 63000 to 63600 sales for February.
4. Intuitive forecasting
Sales reps deal with clients daily and know how long it takes to close a deal. So, most sales managers prefer to ask the sales rep to estimate the sales amount they can achieve in a month and set the target accordingly.
Using this sales forecasting method often helps boost the conversion ratio as a sales rep knows which deals have the potential of closing and accordingly puts the number forward and tries to achieve it.
However, a problem can even arise if the sales rep is too optimistic and gives overly generous estimates.
This method is suitable for products in the early stages or startups without historical data that could be analyzed to create a sales forecast.
Intuitive forecast example
You have just started a new business and hired a sales professional. You’ve just been operating for the last five months, so you don’t have any historical data. You ask the sales professional to forecast the sales for the next four months.
This will help you set an achievable target for your new sales rep. The sales rep mulls over the prospecting opportunities and evaluates every pipeline deal. Based on that, analyze s/he forecasts $10000 for next quarter.
5. Pipeline forecasting
To use this effective sales forecasting method, you must closely examine every opportunity in your sales pipeline. The best method is calculating the chances of closing each deal based on your average win rate and the opportunity’s value.
This method is highly dependent on the quality of your data. You won’t get an accurate sales forecast if you use imperfect data. So, to ensure the reliability of your data, it's better to use the best sales CRM software and update it regularly.
Pipeline forecasting example
Suppose you close a deal worth between $1000 to $3000 within 30 days, so all the deals in your pipeline within that value can be closed in the next month. So, like that, you can forecast monthly or quarterly sales.
Effective sales forecasting strategies
Sales forecasting can be complex, but a team leader must have a structured plan for seamless success. Here are some actionable tips to enhance your sales forecasting process:
1. Establish a baseline
Many companies aim to exceed their previous year's profits and sales. However, they often attempt this without understanding the key drivers of their past performance, which can lead to misguided decisions.
To improve your forecasting accuracy, it’s crucial to establish a baseline that reflects the relative changes in activities over time.
This baseline serves as a starting point understood by all team members. By using this approach, you can overlay new or extended activities that can be prioritized to achieve the desired sales growth.
2. Utilize percentage probability
Percentage probability, also known as weighted probability, is an effective technique for managing the uncertainty inherent in sales forecasting.
This method acknowledges that not every deal will convert into a sale and assigns a probability percentage to each estimated value based on specific deal characteristics.
Example:
Let’s say your team typically wins 3 out of every 10 deals. If you have 30 deals in the pipeline for the next quarter, you can forecast winning 9 of them. With an average sales value of $5,000, your forecast for the next quarter would be 9 deals at $5,000, totaling $45,000.
In this scenario, each deal is assigned a weighted probability of 30% at $5,000, which equates to $1,500 per deal.
Using percentage probability provides greater clarity and enhances the accuracy of forecasts—not only for individual deals but also for the overall pipeline.
3. Secure team commitment
Achieving optimal results requires full commitment from your team. If forecasted deals receive little or no attention, it can negatively impact estimated sales outcomes. Ensure that your team focuses equally on all deals and actively works to close them in real-time.
Additionally, stalled opportunities within the pipeline should be identified. Encourage your team to revive or remove these opportunities from the sales pipeline to maintain forecast accuracy.
Techniques for improving forecasting accuracy
Maintaining accuracy while forecasting can significantly enhance your win rate and overall sales performance. Here are several essential steps you can take to improve your forecasting accuracy:
1. Regularly assess your sales cycle length
Keeping track of your sales cycle length is crucial for accurate forecasting. The length of this cycle can fluctuate due to economic changes, industry shifts, and customer demands.
Regularly evaluating and adjusting your sales cycle helps predict how many deals will close within the next month or quarter.
For instance, if you notice that sales cycles are typically longer during economic downturns but shorter during periods of high demand, you can adjust your forecasts accordingly. This proactive approach ensures that you're better prepared for future outcomes.
2. Maintain a clean CRM system
Your customer relationship management (CRM) system is invaluable for enhancing forecast accuracy. By keeping your CRM updated with real-time data, you gain insights into deal probabilities and can strategize effectively.
However, sloppy record-keeping can severely undermine these efforts. Ensure all interactions with prospects are promptly recorded in the CRM system.
Remove stalled deals from the pipeline when they show no signs of converting into actual sales opportunities.
Here’s how maintaining a clean CRM benefits forecasting:
3. Focus on prospect actions
Deal progress is directly tied to prospects' engagement level. To encourage faster closure, move deals through stages based on prospect actions rather than arbitrary criteria set by sales reps.
Here’s an example scenario:
This approach ensures alignment between deal progression and actual prospect engagement levels, leading to more reliable forecasts.
4. Practice consistency
Consistency plays a pivotal role in maintaining forecasting accuracy over time. Once you find a helpful forecasting model or method that works well for you, stick with it rather than constantly switching models.
If your previous methods yielded close accuracy but suddenly failed, investigate reasons thoroughly instead of immediately abandoning them. Common issues include changes in customer behavior patterns or unexpected shifts in industry dynamics.
By sticking to one standardized format consistently reviewed over time:
By following these steps—regularly assessing your sales cycle length, maintaining clean CRM records focused on prospect actions, and practicing consistency—you significantly improve your ability to predict and adapt effectively to changing business environments, ultimately leading to higher win rates and sustained long-term success!
Conclusion
Sales forecasting is not easy. It requires gathering data and setting clear goals. You must choose a method and analyze it regularly. You also need to know about factors that can affect your sales.
If a method is not working, do not rush to change it. Think about why it is failing and look for areas for improvement.
To get accurate forecasts, you need good data. A smart CRM like Salesmate can help. It keeps all your data in one place. This makes forecasting easier. You can see how your team did last quarter. You can also find out which deals are close to closing.
Salesmate gives you insights to help you make informed decisions. It does more than just forecasting. You can create sales reports and manage your sales pipeline. You can also set up email sequences for follow-ups and automate time-consuming tasks.
Frequently asked questions
1. What are the signs of poor sales forecasting?
Signs include consistently missing sales targets, frequent forecast changes, and a lack of alignment between sales and marketing teams. These issues can indicate that the forecasting process needs improvement.
2. How can I train my team to improve sales forecasting skills?
Training can involve workshops on data analysis, sharing best practices, and using forecasting tools. Encourage team members to share their experiences and insights to foster a collaborative learning environment.
3. What role does customer feedback play in sales forecasting?
Customer feedback provides valuable insights into buying behavior and preferences. Analyzing this feedback can help refine forecasts and make them more accurate.
4. How do seasonal trends affect sales forecasting?
Seasonal trends can fluctuate sales. Analyzing past seasonal data to adjust forecasts accordingly and prepare for peak and off-peak periods is important.
5. What is the impact of economic changes on sales forecasting?
Economic changes like recessions or booms can significantly affect consumer spending. Staying informed about economic indicators helps businesses adjust their forecasts to reflect these changes.
6. How do I choose the right sales forecasting method for my business?
The right method depends on your business type, data availability, and specific goals. Evaluate each method’s strengths and weaknesses to find the best fit for your needs.
Riyanshi Chaplot
Riyanshi is an enthusiastic content creator and SEO strategist at Salesmate who curates information on marketing, sales, and customer experience. She loves to explore new places and meet new people when she is not working.