How to Plan Smarter With Reliable Sales Forecasts

A gaze into the future would be a good leg up for businesses everywhere.

World events can upend just about everything we know about business and life, calling for new approaches, strategies, and goals. And that’s why B2B companies are constantly changing the way they use software, market themselves to their customers, and make their own buying decisions. 

While predicting a global catastrophe can’t be done, getting a glimpse into your sales team’s future performance with forecasting is a bit more attainable. 

Sales forecasts can predict sales activity for an upcoming week, month, quarter, or entire year. Different positions within your sales department will use the resulting data in various ways.

For example, a manager will know how many deals one of their direct reports should close. Directors will get an idea of what to expect from the entire team. VPs will know what to tell higher ups to expect for that upcoming period. 

Companies can forecast their sales using past data, industry comparisons, economic trends, or all of those things. However, the method will likely be determined by the amount of time your company has been established. New businesses will have to rely on external factors like market research and competitive analyses, while more established businesses can look at the history of their own company. 

Sales forecasting is more than just determining how much money a company is likely to make within a given time period. This sales analytics method can be used to predict future revenue, conversions within the sales funnel, and customer acquisition rates. 

Why is sales forecasting important?

Sales forecasting is a common practice for any business that wants to perform, compete with other companies, and succeed in fulfilling its mission. The benefits of what it can mean to have a look into the future of your business speaks for themselves. 

First of all, an accurate sales forecast can act as an alert if you’re going to fall short of where your cash flow needs to be, pointing out any potential hindrances. Businesses can compare their sales quotas and projected growth against forecasts, and analyze their processes to identify areas that are causing problems.

This might include seeking support from other departments and making sure everyone is aligned. Perhaps the best part is that all of this is happening before the fact, so you have a chance to right your wrongs. 

With sales forecasted, you can also plan decisions and strategies accordingly. Actions like hiring, managing resources, setting goals, and budgeting should all be done after your sales are forecasted.

This way you have an idea of what you can afford and where you need to focus your energy. Maybe you need to hire more sales reps to support growth, or maybe you should increase your marketing spend due to low brand awareness. 

Along with your goals for a particular time period, a sales forecast can also act as a tool to motivate you, your team, and your company as a whole. 

Sales forecasting factors

Just as there are elements that will ultimately affect your sales outcomes, the same goes for your forecasting. Businesses are constantly evolving, and adapting strategies and goals to those changes is crucial in getting an accurate depiction of what your company’s future looks like. 

Here are a few internal and external factors that will affect your sales forecast. If any of them should change or be planned to change, adjust your sales forecast accordingly. 

• Personnel: Any hiring, firing, or change in personnel will affect your sales forecast. The more people you have as designated sellers, the higher your activity levels, conversion rates, and revenue streams should be. 
• Policies and procedures: New sales policies, like compensation plans or discount offerings, will matter when it comes to revenue and profit margins. 
• Territories: If reps are given a new territory or type of client, it might take them some time to adjust and start contributing as they did before. 
• Competitors: When a new competitor enters the market, or when an existing competitor cuts their prices, you could lose some of your business. 
• Products and their pricing: New products you are introducing to the market need to be taken into account when forecasting sales, along with any modifications to your prices. 
• Seasons: If your business booms during one season and experiences a decrease in sales in another, the forecast will look quite different for those two time periods. 
• The economy, industry, and market: The strength of the economy, updated products in your industry, and newly tapped markets are the big overarching factors of forecasting your sales. 
• Legislation: Any new laws, rules, or regulations that apply to your business, industry, or customers could ultimately affect your bottom line. 

How to forecast sales

It’s never a bad thing to be optimistic about the future of your business. However, it can start to get dangerous if you don’t have a firm grasp of reality. Without it, you might make poor decisions that result in the demise of your organization. 

The best way to be realistic about an upcoming period for your business is to forecast your sales and use the results to inform the rest of your strategies. Because sales is the department most directly related to generating revenue, the outcomes of their efforts will end up affecting the entire  business, what they can and can’t afford, and their overall growth. 

Here are the necessary steps you must take to create a reliable sales forecasting model. 

1. Establish a sales process

The first thing you need is an established sales process. You can’t successfully forecast sales for the upcoming period if you don’t have a concrete process that your reps follow. With these distinct phases comes predictability, and with that comes a reliable forecast of what might happen next. 

When structuring your sales process, you must have defined stages and different titles for customers depending on where they stand in the buying process. Consistency is key here. 

If you don’t have a properly identified sales cycle, observe your current methods, compare them with the journey your buyers typically take, and define the criteria moving forward.

No two sales processes are going to look the exact same because every business is unique. Keep in mind that as your business changes, your selling process and forecasts will do the same alongside it. 

2. Set quotas and define benchmarks

Next, you need to set quotas and define what success looks like for the time period you’re about to forecast sales for. Work with your sales department to set accurate, attainable, and challenging quotas for individual sales reps and the team as a whole. These quotas will act as the monetary baseline of measuring success.

There might be a few other sales metrics that your business is hoping to forecast. These could be other versions of monetary goals like a profit margin, or maybe a conversion rate between two stages in the sales funnel.

Whatever the case may be, make sure you have an idea of what success looks like so you know if you made it happen or if you fell short. 

3. Get the right software

Nobody does anything themselves anymore. That’s meant in a good way.  There are two software tools that are necessary to forecasting sales. 

The first one is, you guessed it, budgeting and forecasting software. Businesses will use these software tools to estimate future revenue and identify financial resources needed to support future business activities. You can use budgeting and forecasting software for your sales team, across your entire organization, or both. 

The other software is customer relationship management (CRM), which companies use to track customer information, interactions, and preferences. CRM also has a pipeline management feature, so you can easily identify the stages of all deals, showing the win rate and progress toward forecasted goals.  

Implementing software to automate the technical side of sales opens up more time for reps to focus on establishing a solid relationship with potential buyers, bettering your chances of offering a positive customer experience. 

4. Choose a method

With your sales process established, goals set, and software implemented, it’s finally time to choose a method for your sales forecast.

The one you select will likely depend on which factors listed before affect your business the most. You also need to take into account whether you are a new or established business. 

Here are a few different sales forecasting methods businesses will use to get a glimpse into their upcoming sales. No matter the method you choose, make sure to choose a time period for the forecast and stick with it to remain consistent. It’s also a good idea to freshen up on your sales KPIs to make sure you have all the data you need for an accurate calculation. 

Opportunity stage forecasting

The opportunity stage method is probably the simplest way to forecast your sales. It includes analyzing your pipeline, the stages deals are currently sitting in, and all of their potential value. You can also incorporate the closing rate of the rep handling the account. 

To get the actual forecasted sales number, follow these steps: 

• Choose a reporting period
• Identify the potential value of each deal
• Determine the probability that the deal will close (check out your conversion rates in between stages here)
• Multiply the deal value by the probability it will close
• Add up the results of that addition for total forecasted sales

For example, say you are forecasting sales for the month of October. You have three promising opportunities lined up in your sales pipeline.

Based on your company’s conversion rates, Deal A worth $10,000 has a 50 percent chance of closing, Deal B worth $5,000 has an 80 percent chance of closing, and Deal C worth $15,000 has a 90 percent chance of closing. That would result in a projected $22,500 in sales. 

While the opportunity stage forecasting method is simple on the math side of things, the results can sometimes be inaccurate. The best way to avoid this is by having reliable conversion rates to use when predicting the likelihood of deals closing. 

Another potential issue you might run into with this strategy is neglecting the amount of time deals have been in the pipeline. A prospect that’s been in the pipeline for six months could be valued the same as one that’s only been there for two days, yet one looks more promising than the other. To  avoid this, create a pipeline management plan so dead leads are regularly removed. 

Analyzing your opportunities to forecast sales requires you to readjust every time you introduce new products, prices, messaging, or sales strategies. All of these factors can affect your sales conversion rates, and that’s a key variable in this equation. 

Sales cycle forecasting

Another sales forecasting technique includes estimating sales based on the length of your sales cycle and the current position of your prospects in the pipeline. Two key data points are used in the sales cycle forecasting method: the length of your sales cycle and the amount of time a prospect has been sitting in the pipeline.  

For example, if your average sales cycle lasts 90 days, and you have nicely moved a prospect along to a certain stage in 45 days, that deal has a 50 percent chance of closing. 

Businesses will use this method when they want an objective look at the likelihood of a deal closing. Getting input from a rep regarding how promising or hopeless a deal is isn’t required. It’s as simple as this: the further along a prospect is in your sales cycle, the more likely they are to make a purchase. 

To accurately forecast your sales based on the length of your sales process, you need to have a clear idea of how long it actually is. Educated guesses won’t cut it, so this option isn’t feasible for new businesses. 

This method also offers the choice to do lead-driven forecasting, offering uber-specific results based on how a customer was acquired. If your sales cadence started with a cold email, that process might be longer than an inbound sale where the customer initially reached out to you. As your business starts to experience multiple introductory touchpoints, you can create more reliable forecasts based on current deals.

Intuitive forecasting

Some sales managers will rely on the intuition of their reps to forecast sales for a particular time period. This will depend on their expertise, with both the solution at hand and with customers, as well as the likelihood of them offering reliable information. 

To go about intuitive forecasting, simply ask your reps the chances of a deal closing and when it’ll happen. This way, you can get a read on the progress from the person who is handling it.  

The obvious downside to this forecasting method is that it’s entirely subjective. It can be hard reading your customers, and reps might be more optimistic or pessimistic than they should. Also, since you are their boss, they might want it to seem like deals are close to being signed when they actually aren’t.