Everything becomes more straightforward when the sales team has a sales target to work with. However, without the necessary sales data to create a sales process, sales teams can easily get lost and have their sales and marketing efforts dangling from all over the place without any meaningful or viable sales forecast model to keep themselves abreast of the future sales revenue.
Building accurate sales forecasts is both an art and a science. However, accurate forecasts ensure the success of your leadership teams. We explain everything necessary to understand sales forecasts to make it easy for your company to forecast sales.
Our references guide is divided between sales teams and focuses mainly on internal discussions of sales projections.
Let’s quickly dive into it.
What Is Sales Forecast, And Why Is It Important To Sales Teams?
In short, a sales forecast represents a projected analysis of incoming sales revenue.
A sales forecast estimates the monthly sales the company plans to make in a particular period, mostly annually. The most reliable sales predictions do that very well. Sometimes, sales forecasts can be relied upon by the salesperson or even artificial intelligence. More about this will be found in the section on the sales forecasting tools.
All sales forecasting has two crucial problems: It’s not simple. Sales team members also factor a lot of information into how a business should plan.
Sales Forecast allows you to detect potential risks as soon as possible. For example, if your team trended 35% below your limit, that would help determine the issue or course correction. On the other hand, maybe you want to increase sales compensation to avoid losing money in an unattractive way.
Discovering these issues now compared with months or quarters ago is an enormous impact. In addition, sales projections play a role in many important decisions, including hiring and resource management goals and budgets. Imagine you predict an increased potential of 26% in the future, and it happens. Get detailed knowledge about sales analysis reports.
Sales Forecasting provides a clear idea of anticipated sales and future revenue. The sales team strives to meet or surpass expectations.
When sales forecasts are accurate, the operation runs smoothly. When the prediction has been exceeded, it can choose where to spend the cash. Nevertheless, you can adjust your forecasts for maximum precision in case of consistent errors.
A sales forecast has two dimensions. First, suppose you can see how much of your product sales target has exceeded the target in a given quarter. In that case, you have the option to hire more personnel, buy stocks before the deadline and reduce any delays your enterprise might experience later. If you run your prediction accurately, you may be less suited to the number. If you can execute remediation plans, you can increase the number of leads, increase revenues from certain accounts, or whatever. Knowing how you will operate will make you more profitable.
But the sales reps should have another goal- not just accuracy of the sales forecast – but also strive to ensure the predictions will accomplish the same goal as their internal and external processes.
Let’s talk about some sales forecasting software and what we like about them. know all about sales prospecting.
What Are Sales Forecasting Software And Tools?
Even with many advantages, businesses cannot generate realistic sales forecasts for their products. Only 45% of sales managers are very confident in sales forecast accuracy.
Research has found that these numbers are low because there have been no reliable data available to support the predictions and provide accurate forecasting.
What’s the best way to solve this?
According to the report, all sales leaders are expected to track the accuracy of the sales over time to build an accurate sales forecast. This can be achieved with sales forecast tools such as;
Spreadsheets
This is the best solution for small startups with just a few products. Spreadsheet software like Excel or Google Docs should be great for building your sales forecast.
It offers flexible and conditional operations, and you can build great charts.
But it’s also time-consuming and easily accommodates errors, so it may not work for a larger operation looking for an accurate sales forecasting process.
Customer Relationship Management Software
Combined with dedicated sales tools, CRM software helps sales reps close sales by storing and retrieving data.
These features may include lead tracking, funnel analytics, call sequences, and reporting features.
There’s a lot you can do to make the most of your CRM but there’re plenty of options, so you’ll need to choose a CRM tool based on the size and nature of your business.
Here are our top picks to improve your sales forecasting methods;
Lead Scoring Tools
With lead scoring tools, you can identify which prospects are worth pursuing and how to prioritize them.
Using them, you can grade prospects based on actions on your website, the outcomes of conversations, and any other touch points that your team considers relevant to the sales process.
In addition, a lead scoring tool can assist your marketing team with campaign segmentation by identifying who is ready and willing to buy, who needs more work, and the level and cause of engagement.
Additionally, it can assist with content personalization by identifying the prospect’s current level of interest in your business and the areas of interest that the prospect has already expressed.
Here are some of the finest lead scoring tools on the market to improve your sales forecasting methods;
Accounting Software
More basic tools are fine if all you want is a new revenue forecast. However, the value of sales is not only determined by their size, but also by the costs they create for the company.
You need to know the run-on effects on your cash flow if you want to make accurate sales forecasts.
You might need to include data from your accounting software in your forecasting exercise if you want to forecast gross margins and account for the cost of goods sold.
Ready to start, you might want to take a look at these.
Project management tools with resource allocation
Keeping in touch with your customers after the sale is the most critical part of your sales cycle.
Your team will stay on task with the help of project management tools, and you’ll ensure the team has the resources to complete the job.
Using project management tools means you can cut down on the manual work involved in tracking what was done, when, and by whom. In addition, they can help teams integrate with each other, since they may well be using the same tools.
Here are some examples of excellent project management tools you can use;
Sales Analytics Platforms
Tools for sales analytics combine data from multiple products and services, create forecasts, and do deep analysis.
Additionally, many also include helpful graphs and charts. The advantage of dedicated analytics tools is that they are constantly updated. They can help you get a better understanding of sales pipelines, products, and staff performance. This will enable you to identify any process gaps.
You can use these tools to help you identify growth opportunities, assign team members to clients, and much more.
You can start with any of these sales analytics tools;
On the other hand, sales forecasting software provides dashboards and all the tools required to forecast sales and come up with an accurate sales forecast.
They help sales reps forecast sales and can aid sales teams in preparing sales forecasts for upcoming sales activities. The software should allow for multiple views of a sales forecast (business units, product lines, markets, and so on).
Here are a few sales forecasting software you can use;
Pipedrive is best for small and mid-sized enterprises and enterprise sales teams looking for software with extensive customizable insights & reporting capabilities. It creates a more precise visualization of your current sales pipeline to ensure better insights and results.
It enables companies to see where exactly in the pipeline they need to focus their attention on and what has to happen to drive better sales.
Its reporting capabilities include deal tracking, revenue forecasts, and more. Pipedrive boasts a robust live dashboard that lets the sales team and leadership see how they are performing in real-time. It also tracks revenue and company goals to make sure everyone is on track each step of the way.
Pipedrive offers several subscription plans. But for sales forecasting and revenue projection capabilities you’ll need either the:
Professional plan = $49.90/month per user (billed annually)
Enterprise plan (unlimited user permission) = $99/month per user (billed annually)
Gong.io is a revenue intelligence platform that works to give leadership full visibility over the entire buyer’s journey. Sales typically happen over various mediums: phone, email, text, and meetings.
Gong is best for sales leaders needing sales forecasting capabilities as well as conversation & revenue intelligence.
It helps organize it all in one place so that companies know exactly where each deal is in the pipeline and can increase forecasting accuracy. Understand whether a deal is going well or not and put an end to surprises in the sales forecast.
Best for sales teams looking for a comprehensive multi-channel CRM that includes good sales forecasting capabilities.
In addition to being a sales CRM, Zoho also offers revenue and sales forecasting, keeping all of your team’s sales information in one convenient place. It uses a variety of factors, including previous data and pipeline deals, to create accurate insights into your sales forecast.
It can even be broken down by territory, team, or individual to get a look into the specifics. In this platform, you can create multiple forecasts for different forecast periods. Zoho is a low-cost option for businesses that need one tool to serve various needs.
Zoho offers several levels for its CRM, including a free plan for up to 3 users. But for sales forecasting capabilities you’ll need at least the Standard paid plan.
- Standard = $14/month per user (billed annually)
- Professional = $23/month per user (billed annually)
- Enterprise = $40/month per user (billed annually)
- Ultimate = $52/month per user (billed annually)
Best for sales leaders and managers who want to improve sales forecasting efforts through powerful AI. Aviso is a revenue intelligence platform that integrates with most CRMs to offer both real-time and historical sales data to increase insights and inform decision-making.
With the use of AI and big data, the Aviso Predict feature can make predictive forecasts based on both sales and pipeline performance. This platform provides sales leaders with the in-depth information they need to create an accurate sales and revenue forecast and improve their team’s sales performance.
InsightSquared takes care of all the math and manual forecasting to free leadership up to concentrate on making informed sales decisions.
The platform’s algorithms take a variety of concerns into consideration, including previous patterns, rep performance, sales pipeline, and average deal size, to get as accurate an estimate as possible.
It also provides insights into closing rates, revenue forecasts, KPIs, marketing processes, and more. InsightSquared helps significantly improve the accuracy and ease of your sales forecasting. It is Best for sales managers looking for a way to integrate powerful automation into their sales forecasting.
Sales Forecast Methodology
There are many ways for a sales forecasting model. Some businesses combine sales forecasts using two different methods. This gives a better scenario and an even worse scenario. Some typical sales forecast techniques are:
There are tons of sales forecasting methods to choose from, however, it is noteworthy that they were not built alike. There are myriad ways to forecast sales, all of which are highly dependent on your business model.
Here are a few of the most common and effective methods to forecast sales;
Opportunity Stage Forecasting
In the opportunity stage method of sales forecasting, the various stages of a deal’s sales process are accounted for. As a result, a deal is more likely to close the further along it is in the pipeline.
When you choose a reporting period – typically a month, quarter, or year, depending on how long your sales cycle is and your team’s quota – you simply multiply the potential value of each deal by the probability of it closing.
Then add up the totals for each deal in your pipeline to arrive at the overall forecast.
However, these forecasts are often inaccurate, even though it is relatively easy to create them this way. Age is not considered in this model.
Thus, if your rep has a deal sitting in his pipeline for three months, he will be able to treat it the same way as one he has a week old – as long as their closing dates are the same. Unfortunately, regular pipeline cleanup isn’t always possible if you rely on your salespeople.
Forecasts for opportunity stages may also be based heavily on many historical data. Changes in messaging, products, sales process or any other variable will affect the closing percentage of your deals by stage.
Length of Sales Cycle Forecasting Method
Using the age of individual opportunities, the length of the sales cycle forecasting method predicts when they will close.
With this technique, you’re less likely to get an overly generous prediction since it relies solely on objective data rather than the rep’s feedback and sales quotas.
Imagine a salesperson scheduling a demo with a prospect before the prospect is ready. They might tell you the prospect is close to buying, but this method calculates they’d be unlikely to buy since they only recently began talking to the salesperson.
In addition, this technique can be applied to different sales cycles. For example, an average lead may take approximately six months to convert, whereas referrals may only require one month, and leads coming from trade shows might take approximately eight months. Each deal type can then be grouped based on the average sales cycle duration.
If you want accurate results, you will need to track how and when prospects enter your salespeople’s pipelines. Your reps will be spending a lot of time manually entering data if your CRM does not integrate with your marketing software. Check out some sales-related guides, sales prospecting, sales funnel templates, sales pipeline stages and sales productivity.
Intuitive Sales Forecasting Method
In some sales management situations, reps are simply asked to estimate the closing likelihood. It is intuitive sales forecasting when the salesperson says, “I am confident that they will buy within 14 days, and the deal will be worth X.”
This method takes into account the opinion of your salespeople, who are closest to your prospects. Reps, however, tend to offer overly optimistic estimates due to their natural optimism.
It is also impossible to verify their assessment in a scalable manner. The sales manager will need to listen to calls, shadow meetings, and/or read discussions to see whether a prospect has the potential to close, as the salesperson says.
Historical Data Sales Forecasting Method
In order to predict how much you’ll sell in a month, quarter, or year, you can look at the results from the matching time period and assume your results will be equal to or greater than those results. That’s an example of historical sales forecasting. This forecasting method relies on much historical sales data and assumes present ones will be the same or more remarkable for the sales organizations.
The problem with this method is that it has a few drawbacks. The first problem is that it does not take seasonality into account. Additionally, it assumes that buyer demand will remain constant over time. As a result, you can’t rely on your model if something out of the ordinary happens.
A business’s sales revenues from the same month in a previous year, combined with knowledge of general economic and industry trends, work well for predicting a business’s sales in a particular future month. If your business has repeat customers, you can check with them to see if their purchase levels are likely to continue in the future.
In the very beginning when there is no historical data for a new business unit or product, this technique is mostly invaluable and won’t provide forecast accuracy.
You should use historical demand as a benchmark rather than as your basis for forecasting sales.
Multivariable Analysis Sales Forecasting Method
In the most sophisticated sales forecasting method, called multivariable analysis forecasting, the sales forecast is based on several incorporated factors, including average sales cycle length, probability of closing based on opportunity type, and individual rep performance. This forecasting method relies on a combination of all of the above. It has some similarities to the pipeline forecasting method, but it has greater depth and complexity.
Furthermore, you’ll need clean data – no matter how good your software is, your results will be inaccurate if your reps don’t monitor their progress and activity.
Final Words On Sales Forecasting
Each organization owns its sales forecasts, and different employees are responsible, depending on how many employees are available in the sales team. Product Leaders stake the ground on what products should be sold at the moment and at what average price. The typical sales leader promises to deliver numbers.
According to the seniority, the leadership’s forecast differs. First-line managers forecast opportunities, and third-line managers look at various numbers and rates to make a global forecast. Finally, the sales reps ensure the numbers are achieved. How companies estimate revenue should always be transparent so the business leaders can understand.
Sales Forecast allows you to detect potential risks as soon as possible.
If your team trended 35% below your limit, that would help determine the issue or course correction. But, on the other hand, you may want to increase sales compensation to avoid losing money unattractively.
Discovering these issues now compared with months or quarters ago is an enormous impact. In addition, sales projections play a role in many important decisions, including hiring and resource management goals and budgets. Imagine you predict an increased potential of 26% in the future.
Sales Forecasting provides a clear idea of anticipated sales. Sales teams strive to meet or surpass expectations. When sales forecasts are accurate, the operation runs smoothly. When the prediction has been exceeded, it can choose where to spend the cash.
Nevertheless, you can adjust your forecasts for maximum precision in case of consistent errors. But the sales staff have a goal other – not just accuracy – in ensuring the predictions will accomplish the same goal as their internal and external processes.
Frequently Asked Questions About Sales Forecasts
What is sales forecasting?
The sales forecasting indicates projected sales revenue. A sales forecast’s primary goal is estimating future sales, the number of goods that you plan on selling within a given period, and how many sales/total sales you plan to make with the available resources.
How do you create a sales forecast?
Have your sales organization or sales managers simply get the right sales forecasting tool and gather the right past sales data. With these basic sales metrics from the past sales data, your sales manager should be able to provide an accurate forecast that would ultimately lead to sales growth and increased monthly recurring revenue.
What are the types of sales forecasts?
Sales prediction technology includes quantitative and qualitative data. However, almost all sales organizations still use quantitative or qualitative sales forecasts for their forecasts.
What is the accurate sales forecast?
With the right and accurate data, you can prevent your systems from producing inaccurate forecasts and misleading your sales rep.
Why is sales forecasting important?
Your sales forecast is the foundation of the financial story that you are creating for your business. Once you have your sales forecast complete, it makes your profit and loss statement, the cash flow statement, and the balance sheet easy to track