Sales Forecasting Guide: Definition, Methods, and Examples

In the world of business, sales forecasting plays a critical role. Sales forecasting is the process of projecting sales performance over a period of time, enabling management to make confident decisions regarding sales and marketing strategy.

Businesses generally have two main goals in mind when forecasting future sales: 1. To forecast the sales of a product, brand, or category in advance to plan their inventory and marketing strategies, and to calculate their unit costs and profitability, 2. To forecast the sales of a product, brand, or category in advance to estimate their demand and supply, and to calculate their unit costs and profits, The first goal is accomplished by using forecasts. The second goal can be accomplished by using either unit costs or profits.

Sales forecasting is one of the most important tasks for any company. This is because it provides a valuable opportunity to prepare for the future and prepare for changes in the demand for the product. If you don’t have a solid sales forecasting strategy in place, then you are missing out on opportunities to grow your business.. Read more about methods of sales forecasting ppt and let us know what you think.

Forecasting sales is an important business practice. Accurate sales projections enable company executives to make more informed choices regarding goal-setting, budgeting, recruiting, and other cash-flow-related issues.

Meanwhile, a faulty sales estimate leaves sales managers unsure if they will meet their target. As a consequence, they may not detect any issues in the sales funnel in time to correct them.

Let’s take a look at what sales forecasting is and some of the fundamentals you’ll need to succeed.

Contents Table of Contents

What is the definition of a sales forecast?

A sales forecast is a projection of future revenue from sales. The majority of sales predictions are based on historical data, industry trends, and the present state of the sales pipeline. The sales forecast is used by businesses to predict weekly, monthly, quarterly, and yearly sales totals.

Your sales forecast, like the weather forecast, should be seen as a strategy to work from rather than a solid prediction.

Sales forecasting and sales goal-setting are not the same thing. A sales forecast predicts what will happen regardless of your objective, while a sales goal specifies what you desire to happen.

What You’ll Need to Make Accurate Sales Predictions

sales forecasting methodology

The most essential need for a successful sales forecast is good data. As a result, obtaining high-quality data is critical.

New companies may have to depend on industry norms or even informed assumptions if they don’t have much data regarding their own sales process. More established businesses, on the other hand, may predict future performance using past data.

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

1. Keep a record of your sales process.

You won’t be able to anticipate if any given transaction will complete unless you have a well-documented sales process that outlines the activities and stages involved in closing a contract.

2. Establish your sales targets or quotas.

While your prediction may vary from your objectives, you won’t know whether it’s good or negative until you first set a goal. As a result, each sales agent, as well as the whole sales team, need a personal quota. More information on establishing sales quotas or objectives may be found here.

3. Establish a baseline or current average for some fundamental sales KPIs.

Forecasting will be considerably simpler if you have easy access to measurements of the following basic sales metrics:

  • The time it takes for a client to show 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 client.
  • Average renewal rates, or the frequency with which you get repeat business
  • At each step of the sales process, conversion rates are calculated.

Basically, you want to figure out how long your sales process takes on average and how well it performs.

4. Recognize the present state 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.

Methodology for Predicting Sales

You can predict sales using a variety of techniques. To generate a variety of predictions, many companies combine two or more sales forecasting methods. As a result, they have a best-case and worst-case scenario.

The following are some examples of common sales forecasting techniques:

1. Relying on the advice of salespeople

“When will this transaction close, and how much will it close for?” many sales managers simply ask their representatives.

While this is a viable option for generating a sales estimate, it is not advised. Sales representatives have a tendency to overstate sales estimates, and there is no reliable way to create a forecast using this approach. Unfortunately, many companies continue to use this technique to forecast future sales.

2. Making use of past data

You utilize a record of your previous performance under comparable circumstances to predict how you’ll do in the present using this technique. For example, you may know that your company grows at a rate of 15% year over year and that you closed $100k in new business last month. As a result, you can expect $115,000 in income this month.

This approach is somewhat more accurate, but it overlooks other variables that may have changed in the previous year, such as the amount of sales representatives you have or how your rivals are doing.

3. Making use of deal phases

You attribute a chance of completing a transaction to each step of your sales process in this forecasting technique. You may then multiply that likelihood by the size of an opportunity to get an estimate of the income you can anticipate at any given moment.

This technique of predicting is much superior, and it is extremely popular due to its simplicity. It does, however, have a flaw: it overlooks the opportunity’s age. Are two prospects equally likely to close if both have scheduled a sales demo, but one is three weeks old and the other is three months old?

Forecasting the sales cycle is number four.

As a consequence, an alternative forecasting approach is to evaluate the strength of the pipeline based on the age of the sales opportunity rather than the likelihood.

It compares the amount of time a transaction has been in the works to the average time it takes to complete a contract. If you have various goods and sales cycles based on whether you got a referral or followed up on a lead from prospecting, you’ll need to split them out to obtain an estimate of how likely a transaction will close.

This technique requires precise data. Everything must be properly recorded in the CRM so that you can see what kind of lead it is and how long it has been in the system. If you don’t have a CRM that can swiftly and efficiently capture all of this, your representatives will have to input a lot of data.

5. Forecasting pipelines

This technique is considerably more precise, although it still relies on high-quality data. It examines each opportunity in your pipeline and evaluates it based on a variety of criteria, including age, deal type, and deal stage.

This is a very advanced technique, so it’s unlikely to work without specialized tools capable of analyzing what’s in your pipeline.

6. Using an unique prediction model with many factors and lead scoring

This technique of predicting is based on a mixture of all of the aforementioned factors. It resembles the pipeline forecasting technique in some ways, but it has more depth and complexity. To generate these predictions, you’ll usually need an analytics tool or sophisticated CRM reports set up. You also need really excellent data to begin with, so you’re depending on your salespeople to input a lot of correct data.

This technique of sales forecasting may be the most accurate if you have those resources. You may also consider an opportunity’s age, its present state in the sales process, the qualities of the prospect that make them more inclined to buy, and other factors.

Examples of Sales Forecasting

Reading about predicting isn’t always as helpful as looking at examples. Here are some fundamental hypothetical situations to examine in order to have a better understanding of how sales forecasting is done in the real world.

Example 1: Sales Forecasting Using Historical Data

Let’s suppose you made $150,000 in monthly recurring income last month, and your sales revenue has increased by 12% per month for the last 12 months. Your monthly churn has been about 1% each month during the same time period.

Your expected income for the next month is $166,500.

You take the previous month’s revenue and increase it by your anticipated growth, then remove your expected churn:

$166,500 ($150,000 * 1.12) – ($150,000 *.01)

Example 2: Using Your Current Funnel to Forecast

sales forecast example

Let’s pretend you have three job openings this month:

  1. One in which you’ve just received a short phone conversation with a $1,000 anticipated value.
  2. One that has had a thorough demo and is estimated to be worth $1,500.
  3. And there’s one with an offer of $1,200.

You’ve done the math, and you know that at each of these phases, every given opportunity has a 50% chance of closing:

  • “Connect Call” indicates a 30% probability of closure.
  • “Demo” indicates a 40% probability of closure.
  • “Offer” indicates a 70% probability of closing.

You multiply that likelihood by the deal’s expected value and add them all together to get a total sales estimate of $1,740, as shown in the following example:

how to project sales

Example 3: Forecasting Using Multiple Variables and Lead Scores

You’ve done your homework and got your CRM set up with lead scoring. You divide your leads into three categories based on their quality: A, B, and C. These factors influence the likelihood of a deal closing.

You may also be aware that businesses with less than 50 workers are less likely to shut, whereas those with more than 50 employees are more likely to do so.

Using a table like this, you could then use typical opportunity sizes to determine the projected value of each particular chance:

how to forecast sales based on lead scoring

3 Proven Sales Forecasting Methods for Greater Accuracy (Related)

how to forecast sales

CRM software combines the database’s storage and retrieval capability with specialized sales features to assist representatives close transactions. Lead tracking, funnel analytics, call sequences, and reporting are examples of these capabilities. Depending on the size and type of your company, you’ll need to choose a CRM. There’s a lot you can do with your CRM to get the most out of it.

Excel: If your business is just getting started or has a small number of goods, spreadsheet software like Excel should serve. It’s versatile, conditional, and allows you to create beautiful charts for a low price. However, it is time-consuming and prone to mistakes, thus it may not be suitable for a bigger operation.

Platforms for Sales Insights: Platforms for Sales Analytics integrate data from a variety of goods and services, create predictions, and provide deep analytics. Many of them also provide useful graphs and charts. Dedicated analytics tools also offer the benefit of being constantly updated. They may provide more information on sales pipelines, goods, and employee performance. They may also provide more information about any gaps in the procedure. They may assist with anything from identifying development possibilities to determining which team members should be assigned to which customers.

Lead Scoring Tools: Lead scoring tools assist you in determining which prospects are worth pursuing for sales and assigning them a priority. They enable you to rank prospects based on their activities on your website, the outcomes of discussions, and any other factors that your sales team considers important to the sales process. A lead scoring tool may also assist your marketing team with campaign segmentation by identifying who is ready to purchase and who needs more effort, as well as the degree and reason for interaction. It may also assist with content customization by assisting you in determining the prospect’s current degree of interest in your company as well as the areas in which the prospect has previously shown interest.

Tools for project management and resource allocation include: The most essential element of your sales cycle is follow-through, since it is the only way to develop solid client connections. Project management software keeps your team on track and ensures that they have the resources they need to finish the job. Project management software eliminates most of the time-consuming manual labor of keeping track of what has been completed and when. They may also make it easier to collaborate with other teams who use the same technologies.

Accounting Software: Simpler tools can suffice if all you need is a fresh revenue estimate. However, the value of a sale is determined not just by the amount of the transaction, but also by the expenses it incurs elsewhere in the company. You must comprehend the run-on effect in order to create really accurate sales predictions. You may need to incorporate data from your accounting software in your forecasting exercise if you want to predict gross margins and account for cost of goods sold.

Important Points to Remember

  • Sales forecasting is an informed estimate about future sales income that utilizes historical data and common sense to anticipate a company’s monthly, quarterly, and annual sales totals.
  • The sales estimate should be seen as a working plan rather than a solid prediction by your team.
  • Estimate the duration of your typical sales cycle and conversion rate before attempting to create a prediction.
  • You may create many different kinds of predictions. Within your company, test different techniques for accuracy.

Also available on Medium.

This article details the forecasting methods used by sales executives to forecast sales. These methods may be used to forecast the sales of a product over a specific period of time (such as daily, weekly, or monthly), or to forecast the sales of a company over a certain period (such as annual, quarterly, or semi-annual).. Read more about sales forecasting formula and let us know what you think.

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Frequently Asked Questions

What are the methods of sales forecasting?

There are many methods of sales forecasting, but the most common is to use linear regression.

What is sales forecasting what are the sales forecasting methods?

Sales forecasting is the process of predicting future sales based on past trends. There are many different methods, including linear regression, exponential smoothing, and neural networks.

What are the methods of forecasting?

There are many methods of forecasting. Some include the use of a computer program, such as a spreadsheet or an Excel file. Others include using charts and graphs to track trends in order to predict future outcomes.

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