Exploring Sales Forecasting

Introduction & Importance

A sales forecast is an estimation of future revenue from sales. The majority of sales estimates are based on historical data, industry trends, and the present state of the sales pipeline. The sales forecast is used by businesses to forecast weekly, monthly, quarterly, and annual sales totals.

Sales forecasting is an important business practice. Accurate sales predictions enable business leaders to make more informed decisions regarding goal-setting, budgeting, hiring, and other cash-flow-related issues.

How to get Accurate Sales Forecasts?

The most critical element for a strong sales forecast is good data. As a result, obtaining high-quality data is critical.

New businesses may have to rely on industry norms or even informed estimates if they don’t have much data regarding their own sales process. More established businesses, on the other hand, may estimate future performance using existing data.

Here’s what you need to do first, step by step, before you start thinking about how to anticipate sales:

1. Keep a record of your sales process

You won’t be able to anticipate if any given deal will go through unless you have a well-documented sales process. Your sales process must outline the actions and procedures involved in closing a deal.

2. Set sales targets or quotas

While your prognosis may differ from your objectives, you won’t know if it’s good enough or negative unless you first set a goal. As a result, each sales agent, as well as the entire sales team, requires a personal quota.

3. Establish a baseline or current average for some basic sales indicators

These should include:

The time it takes for a customer to exhibit interest in your product.
How long does it take to complete a transaction?
The average cost of a transaction
The length of time it takes to onboard a new customer.
Average renewal rates, or the frequency with which you receive repeat business
At each level of the sales process, conversion rates are calculated.

4. Recognize the status of your sales funnel

Ascertain that you are aware of what is currently in your pipeline and that your CRM is correct and up-to-date. Forecasting is more difficult, but not impossible, if you don’t have a CRM.

Methods to Forecast Sales

You can forecast sales using a variety of methods. To develop a range of forecasts, many organizations combine two or more sales forecasting methodologies. As a result, they have a best-case and worst-case scenario. Some popular methods include:

Taking the advice of sales reps

“When will this deal close, and how much will it close for?” Many sales managers simply ask their reps.

Using historical information

You use a record of your past performance under similar situations to predict how you’ll do in the present with this strategy.

Making use of deal stages

You assign a probability of closing a deal to each stage in the sales process when using this forecasting method.

Forecasting the sales cycle

As a result, an alternative forecasting strategy is to measure the strength of the pipeline based on the age of the sales opportunity rather than the probability.

Forecasting of pipelines

This strategy examines each opportunity in your pipeline and analyses it based on a variety of factors like age, deal type, and deal stage.

Why Should You Forecast Sales

Regardless of what the process might look like for you, accurate sales forecasts create:

Alignment between sales and marketing
Trust between the entire organization
Opportunities to reinvest revenue
Shareholder confidence
New technology investment opportunities