Forecasting sales is an art worth learning. Accurately predicting sales performance helps organizations forecast profits and losses, plan for staffing levels, enhance productivity, and gain industry insights.
It also helps sales teams take necessary steps for growth. Historical data, industry trends, and current sales pipeline status are used as benchmarks to estimate sales totals over a specific period.
Let’s look at what we mean by sales forecasting and how your organization can accurately forecast sales.
What Does Sales Forecast Mean?
Sales forecasting is the process of predicting future sales performance. The main objective of sales forecasting is for sales professionals to achieve or exceed their anticipated target.
Accurately forecasting sales can assist businesses in making informed decisions based on expected revenue, including projecting profits or losses, organizing staffing levels and HR plans, planning production requirements to meet demand, and providing sales leaders with industry insights.
Sales forecasts are calculated by analyzing historical data, industry trends, and the current sales pipeline to predict sales figures on a weekly, monthly, quarterly, or annual basis
Sales forecasting is not the same as sales goal-setting, as the former estimates future sales based on previous data, regardless of the business’s goals.
There are two main approaches to sales forecasting: bottom-up forecasting and top-down forecasting.
Bottom-up forecasting evaluates low-level data to predict future revenue, while top-down forecasting analyzes high-level data to determine revenue. Depending on the company’s needs, both methods have their advantages and use cases, and it is up to the business leaders to determine which approach is best for their sales team.
Sales forecasting is crucial for any business as it enables them to allocate resources, increase quotas, hire new staff, and manage costs.
Accurate sales forecasts can eliminate internal conflicts over how to allocate revenue funds and avoid trade-offs and compromises, such as workforce cuts, support reductions, or product development delays.
Sales forecasts can also identify potential issues early on, allowing sales leaders to address them in real-time, such as when sales are below the quota. This approach can significantly impact the problem’s handling and the team’s response.
Top Benefits of Sales Forecasting
Sales forecasting allows sales leaders to make the right decisions that will help businesses succeed efficiently.
Plan Better Goals
Sales managers and leaders can benefit greatly from utilizing sales forecasting as a means to establish attainable objectives.
Such forecasts serve as the foundation for your overall strategy, providing valuable insights that can help steer your sales team in the right direction.
Failure to incorporate sales forecasting into your goal-setting process may result in setting unfeasible targets, thereby hindering your company’s growth potential.
Set Accurate Budgeting
Sales forecasting plays a crucial role in the financial aspect of a business as it enables the company to make more precise estimates of their costs and revenue.
The financial team benefits from sales forecasting as it enables them to create profit plans, anticipate income flows, and advocate for additional resources or materials for the production teams over an extended period.
Efficient Prospecting
By employing a CRM software for forecasting purposes, you can swiftly assess the amount of prospecting required to maintain a healthy sales pipeline.
Enhanced prospecting strategies can help minimize the time spent on unsuitable candidates or customers whose requirements do not correspond with your products or services.
Take Strategic Decisions
Utilizing sales forecasts enables businesses to make informed decisions regarding various aspects such as staffing, inventory, potential marketing efforts, and introducing new product lines.
Sales forecasting provides sales managers and representatives with the ability to identify potential issues and take corrective action in advance.
For instance, if your sales team is failing to meet their quarterly targets, you can investigate the cause and adjust your strategy and approach to generate more leads.
Efficient Hiring
Sales forecasting can also aid in making hiring decisions. If the forecast anticipates a surge in demand, it is essential for companies to allocate adequate resources and shift their focus toward recruiting and acquiring necessary resources to meet that demand.
Conversely, if the forecast indicates a decline in sales, it may be prudent to put hiring plans on hold and concentrate on generating more business.
What Are the Steps of the Sales Forecasting Process?
To create a sales forecast plan with your team, you should follow these steps:
- Establish a consistent sales process with clear definitions of opportunities, leads, prospects, and closes. Everyone needs to agree on the process, including when and how to nurture leads.
- Set individual and team sales goals that align with your sales forecast. Start with an objective definition of success and work with your team to determine sales quotas.
- Gather data from other departments like marketing, product, finance, and HR to create a well-rounded strategy. Invest in a CRM to get accurate, real-time data from your sales teams.
- Review previous forecasts to identify areas for improvement and learn from past mistakes.
- Hold your team accountable for their performance and provide regular feedback.
- Choose the right forecasting method based on the age of your business, size of your sales team, and quality of your sales data and tracking habits.
- Use a combination of sales forecasting techniques to prepare for different scenarios.
What Are Some Common Sales Forecasting Challenges
Overestimation Forecast
It is a frequent occurrence for sales representatives to inflate their sales projections. Their profession is marked by intense competition, with successful outcomes being celebrated on public leaderboards and any setbacks carrying significant weight.
This level of pressure can make it challenging for even the most skilled representatives to make precise predictions about their future performance, leading them to maintain a positive and ambitious outlook.
Regular Product Updates and Rebranding
If you’re introducing a new pricing model, rolling out a highly-requested feature, or providing a complementary product or service, your sales forecast may be affected by these changes to your product or service.
Seasonal Changes
Buyer behavior can be influenced by seasonality, which may vary depending on your industry, location, and target audience. For instance, school districts tend to evaluate new purchases during spring and make decisions in the fall.
Car buyers may take advantage of national holiday promotions to purchase a new vehicle at a discounted price, which requires dealers to monitor their inventory at specific times of the year.
Generally, B2B companies experience a downturn during the holiday season from Thanksgiving to early January. It’s essential to be aware of how seasonality affects your target buyers’ behavior.
Limited Historical Data
Having historical data makes creating a sales forecast much more straightforward.
However, newly established companies often lack a significant amount of historical data, which forces them to rely on market research and competitive intelligence to develop their sales forecasts.
Limited Forecasts
For newer businesses, it is advisable to generate several sales forecasts that encompass a range of projections.
After generating an initial forecast using the most accurate estimates available, develop an additional forecast based on optimistic and pessimistic figures. As time passes, revise your forecasts with actual values to track performance.
What are Some Best Sales Forecasting Software and Tools
Let’s look at some of the best sales forecasting software and tools for 2023:
Salesforce
Salesforce utilizes a gross roll-up of opportunities to create a forecast. A forecast is essentially a consolidation of currency or quantity data across several dimensions, including owner, time, forecast categories, product family, and territory.
With Salesforce, it is possible to collaborate with all the relevant parties to create a comprehensive forecast.
Outreach
Outreach is a customer relationship management (CRM) and email outreach tool that uses real-time analysis of pipelines and buyer engagement signals to provide more accurate sales forecasting.
This helps revenue leaders make informed decisions and take recommended actions based on data, rather than just guessing about the future.
Jirav
Jirav is a cloud-based platform that simplifies financial planning and analysis by offering comprehensive forecasting, budgeting, reporting, and dashboarding tools in one place.
With Jirav, sales teams can simulate the financial impact of important decisions, create business plans effortlessly, and use pre-designed templates to personalize reports.
Zoho
Zoho provides organizations with the tools to create precise sales forecasts using up-to-date data.
By taking into account factors such as the number of deals in the pipeline, previous year’s quotas achieved, and individual or team progress towards goals, businesses can project revenue and set targets for their team.
