Sales forecasting is a cornerstone of any company's success, but when done wrong, sales Forecast mistakes can cost companies billions of dollars. A recent study found that most sales forecasts are less than 75% accurate. The consequences? They are missing their goal, hiring based on inaccurate predictions and inadequate budgeting resources for growth opportunities.
To ensure you don't make these mistakes when producing a sales forecast, we've compiled an extensive guide for creating an accurate (and trusted) forecast.
What's in this guide?
1. What is sales forecasting?
2. Why is sales forecasting important?
3. Who is responsible for sales forecasting?
4. Objectives of sales forecasting
5. Why does accurate sales forecasting matter?
6. Sales forecasting best practices for maximizing accuracy
7. Key sales forecasting challenges
8. Key sales forecasting metrics
9. Key takeaways
1. What is sales forecasting?
Sales forecasting is the technique of projecting how much income a firm, team, or individual will make within a given timeframe. The ability to reliably estimate revenue is vital for an organization to future-proof its strategic vision and operate day-to-day operations.
The difficulty in forecasting sales varies depending on the size and age of a business. Established businesses typically have more data from which to base their forecasts. In contrast, newer ones will need other forms of market research as well as competitive benchmarks for an initial estimate until they can get accurate sales forecast numbers to establish a baseline.
Just how dubious are sales forecasts? According to Gartner, 55% of sales leaders and 57% of quota-carrying sellers lack confidence in sales forecast accuracy.
2. Why is sales forecasting important?
Forecasts are predictions. Sales forecasts assist you in identifying potential sales issues early enough to avert or manage them. This is why it’s critical for a business to develop a reliable sales forecast.
When corporate leaders can trust forecasts, privately-held organizations gain confidence in their operations. Correct sales forecasts also give publicly listed companies credibility in the market.
Forecasting sales brings endless value to a company. These forecasts are used by finance to create budgets for capacity plans and employment, but the benefits don’t stop there. Both sales and production also use sales forecasts to organize their cycles, making sure working patterns meet predicted demand.
Forecasts aid sales operations in territory and quota planning, the supply chain in material procurement and capacity planning, and a sales strategy. For instance, if you see your team is ranking 30% below quota, you can spot what's going wrong and course correct.
3. Who is responsible for sales forecasting?
Multiple teams are responsible for the sales forecast. Here are some examples of the teams that are responsible and why:
1. Product leaders - They lay the groundwork for when and what products will be offered for sale
2. Sales executives- They promise their people the statistics they will achieve. The way a leader forecasts sales differs depending on their level of seniority. First-line managers, for example, forecast collections of opportunities, whereas third-line managers make an overall projection based on a larger quantity of figures and typical closing rates.
3. Sales reps - They are responsible for reporting their numbers to their bosses. Regardless of how it is done, calculating sales predictions should be transparent and sales reps are the first drivers of sales. Whether met, surpassed, or missed, they are responsible for the sale forecast.
4. Objectives of sales forecasting
Sales forecasting's principal goal is to provide an accurate picture of predicted sales. Sales teams strive to meet or surpass their pre-determined goals. Aside from accuracy, sales teams believe that their projections will help them achieve two simple goals: seamless internal and external operations.
1. Internal operations: When the sales forecast is met, internal friction – concerning all things revenue funds – dissipates. Cutting the workforce, lowering assistance, or suspending product development are all trade-offs and sacrifices that don't need to be made.
2. External operations: Every business strives to satisfy its consumers and partners. Your company may continue supporting external marketing events, staffing adequate customer service touchpoints, investing in its community, and more after expectations are reached and internal operations are running smoothly.
5. Why does accurate sales forecasting matter?
Having a procedure that generates an accurate sales forecast can have many advantages for your business. Here are some of them:
1. A sales forecast helps businesses make better decisions. It aids in a company's overall planning, budgeting, and risk management.
2. Sales forecasts assist sales teams in achieving their objectives by detecting early warning signs in their sales funnel. It allows them to course-correct before it's too late.
3. Sales forecasting also aids firms in precisely estimating their costs and income, allowing them to foresee their short-term and long-term success.
4. Improvements in future decision-making
5. Time spent planning territorial coverage and assigning quotas is reduced.
6. Benchmarks that can be used to predict future trends
7. Gives a company the ability to focus a sales force on high-profit, high-revenue sales pipeline possibilities, resulting in increased revenue and profits.
6. Sales forecasting best practices for maximizing accuracy
Adopting sales forecasting is vital to a company's success, so it’s important that sales forecasts are accurate. Here are a few tips to help you enhance the accuracy of your forecasts:
1. Assess historical trends- Sales performance in the past is a good predictor of future sales performance. It’s vital to examine the prior year's sales.
This includes price, product, rep, sales time, and other all other pertinent variables that should be considered while analyzing past data.
By looking at past data you can create a "sales run rate," which estimates the number of sales in each sales period. This will serve as the foundation for your sales forecast.
Historical conversion rates indicate how many prospects, teams, or individuals were able to convert during a specific period.
For instance, if you want to accomplish 50 deals this year and your sales team closes 20% of deals with leads who have gone through a product demo, and 10% with leads who agree to sign up for a demo, you'll need to produce 2500 leads. (2500 x 20% x 10% = 50 deals).
This means, based on historical data, you may enhance the accuracy of your sales forecasts by examining the deals in your pipeline and the performance of your sales reps.
2. Document your sales process- The key to closing more deals is simple - have a defined sales process. You won't be able to forecast if contracts are affected by an inefficient sales process.
You should have a well-documented sales process that outlines the actions and procedures involved in closing a deal.
Your documented sales process should define how to qualify a lead, an opportunity, a prospect, and a close. It should outline the steps in the sales process that can be employed when converting a pointer to a customer.
If these standards aren't shared, each team member will perceive each stage of the sales process differently. This will result in inconsistencies in your data, affecting your ability to anticipate the likelihood of a deal closing.
3. Improve your CRM- Since you can alter your pipeline estimations based on lead confidence, a sales forecasting CRM helps sales teams predict future revenue growth more precisely.
It also aids in the streamlining of the sales process by providing detailed information on the team's productivity, success rate, and sales bottlenecks.
It’s important to ensure that your CRM is integrated with your financial system to boost the efficiency of your sales agents.
It will provide sales professionals with contextualized information about their consumers, resulting in smoother processes and stronger customer relationships.
4. Choose a sales forecasting method- As a business owner, you must ensure that your sales process and CRM are in place before choosing the forecasting method.
The model type will depend on the maturity of your company and what size team is currently working for it, along with their current pipeline information- all these helps factor into the decision about which sales forecasting techniques would work best!
5. Examine the external and internal factors- Several external elements, such as changing economic conditions, market competition, and the firm's seasonality, must be considered when preparing your annual forecast. As a result, you should never complete sales forecasting at the start of the year.
Unpredictable occurrences like worldwide pandemics and economic crises can completely change your prediction; therefore, in a dynamic situation, it's best to re-forecast at the end of each quarter and track progress daily.
In addition to external considerations, internal factors such as expanding your sales force, changing your pricing strategy, implementing a promotional campaign, and launching new products must be factored into your forecasts.
7. Key sales forecasting challenges
1. Accuracy and Mistrust
2. Usability
3. Subjectivity
4. Inefficiency
8.Key sales forecasting metrics
1. Quota- Sales quotas may seem like a blunt instrument, but they can be an efficient way of measuring performance. When individuals and teams meet their monthly or annual target,
it helps the company achieve its overall revenue goal by rolling up all individual accomplishments into one number calculated using your experience level with products in regions you serve, and how many users interact per month on average.
2. Attainment–This is a key parameter that measures how many agreements were closed against the quota. It must be monitored daily to ensure that the sales staff is continuously closing agreements throughout the quarter and that there is no last-minute scrambling to meet targets at the end.
3. Pipeline coverage- Pipeline coverage measures how much buffer you have in your sales pipeline to achieve your goals.
4. Sales activity data- Sales activity data is essential to understanding how your business operates. It provides insight into what's happening with prospects and customers, which can help you make better decisions for plans or goals that will affect the success rate in closing deals with these individuals.
9. Key Takeaways
1.Sales forecasting is an informed prediction on future sales income that combines historical data, market influences and common sense to project a company's monthly, quarterly, and annual sales totals.
2.The sales forecast should be viewed as an operational plan rather than a hard prediction by your team.
3.Determine the length of your overall sales cycle and conversion rate before attempting to develop a sales forecast prediction.
4.You can create various types of forecasts for your company, test.
Billsby is uniquely configured to improve sales forecasting by putting all your relevant advanced reports under one platform!