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Sales Forecasting: What is It, And How Do You Implement it?

sales forecasting methods

 

Which industry does your company operate in? You can ignore this question because it doesn’t matter when we discuss sales forecasting. The fundamental thing in today’s business environment is that you have no other option but to make wise choices about everything that impacts the foundation of your company and potential yearly growth. 

 

Accurate forecasts increase a company’s chances of revenue growth year over year by 10% and enhance its chances of being at the pinnacle of its industry by two times. Accurate forecasting can help you manage your resources, identify opportunities and threats early, and adjust your strategy.

 

For better outcomes, you may combine sales forecasting tactics with your inside sales management strategy.

 

What is Sales Forecasting?

 

Sales forecasting is the process that predicts how much a sales unit, which may include a single salesperson, a sales team, or an entire company, will sell for the upcoming week, month, quarter, or year. It also concerns the buyers who will purchase the products or services that the company will sell.

 

It’s more like weather forecasts. There’s no guarantee, but you can be ready for future business possibilities. Sales managers, directors, and VPs usually predict future revenue using sales forecasting.

 

Why is Sales Forecasting Important?

 

  1. Strategic Planning: Sales forecasts provide valuable insights for strategic planning, allowing businesses to allocate resources effectively and set achievable targets.
  2. Budgeting and Resource Allocation: Accurate sales forecasts enable firms to allocate resources such as workforce, inventory, and marketing budgets more efficiently.
  3. Inventory Management: By predicting future sales, companies can optimize inventory levels, minimizing excess stock or shortages.
  4. Performance Evaluation: Sales forecasts are benchmarks for evaluating sales teams’ performance and overall business operations.
  5. Investor Confidence: Reliable sales forecasts enhance investor confidence by clearly understanding market dynamics and growth potential.

Implementation of Sales Forecasting

 

Sales forecasting is not a one-time task to cross off your list. Sales managers should create a foundation for their sales forecasting strategy each year, but you should occasionally switch up your tactics. Coming up with a convincing sales projection is challenging. But, together, you make informed, accurate predictions.

 

Steps to Implement the Sales Forecasting Process

 

1. Develop a sales process

 

Your sales forecasting depends on having a clear understanding of your sales process. 

 

Sales forecasting is only as accurate as the sales process that provides the input for the forecast. For example, if your sales team isn’t using a consistent strategy – with standard definitions for the opportunity, lead, prospect, and close – then you can’t accurately predict the likelihood of an opportunity closing. 

 

Ensure that everyone follows the same procedures, such as utilizing the sales tech stack to its full potential and simultaneously focusing on potential customers’ buying signals to close more deals.

 

2. Establish the team’s and each rep’s quotas

 

Setting out on a journey without knowing where to go does not make sense. When running a company, you can’t be clueless about your destination. You must set goals for sales performance. Establish attainable quotas for each sales representative and the entire team. 

 

If you don’t first set a target, you won’t know if your prediction is effective. Everyone needs objectives to assess performance. These denote the starting points for comparison and reference with your sales forecasting.

 

3. Utilize your CRM

 

Your sales representatives require a database with reliable data to manage and monitor opportunities. Therefore, having and effectively utilizing customer relationship management (CRM) is crucial. In real-time, you can see the deal status and pipeline precisely using a CRM platform.

 

Also Read: Why CRM is necessary for your business?

 

Also, reps can sync alerts and reminders to calendars using your CRM to miss a lead opportunity. So don’t just invest in a CRM; use and strengthen it.

 

4. Adopt a suitable sales forecasting method

 

Once you ensure that you have a well-defined sales process, practical sales quotas, and a reliable CRM, it’s time to choose a forecasting method. However, the method you select will depend on some variables, including the age of your business, the size of your sales staff and their pipelines, and the accuracy of your sales data and your data tracking practices.

 

Although the types of forecast methods have been proposed in many ways by different experts, there are three general types which are,

  • Qualitative techniques, 
  • Time series analysis and projection and 
  • Causal models. (source)

Together with your sales teams, choose the method that will benefit your business.

 

Also Read: Top 5 Sales Forecasting Examples for Sales Revenue Projections

 

5. Collect data from every department

 

Although maintaining and understanding your past recorded sales data is essential for producing accurate sales forecasts, other departments within your business can also offer insightful information. Think about incorporating data from these teams into your forecasting process:

  • Marketing team – It is directly related to and contributes equally to the sales pipeline.
  • Product management team – Information like new product launches and updates of existing products are essential for the sales team.
  • Finance department – Knowing and understanding the alignment of your company’s financial goals helps set accurate sales forecasting. 
  • HR department – It helps you to measure the bandwidth of the required staff to reach the target.

6. Evaluate previously made forecasts

 

You need to evaluate the prior projections to set up new sales forecasts. Think about how your sales staff performed the last time. Remember to note any differences or disagreements and compare the current data to the data from the previous year. 

 

You can get past conversion rates that provide information on the number of prospects who successfully converted during a specific time frame. As a result, you’ll have a clearer view of the future sales your team can produce.

 

7. Ensure your team’s accountability

 

Keeping your salespeople informed about changes to your sales forecasting strategy is vital. Train your sales team members on proper practices and how to accomplish their goals and hold them accountable for their actions. 

 

Ensure you get periodic feedback from your team about what’s working and what’s not. After all, your sales representatives are most in tune with your prospects and your business’s overall sales performance.

 

Benefits of Sales Forecasting

 

  1. Strategic Planning: Sales forecasting enables businesses to develop long-term strategies by predicting future sales trends and market demands.
  2. Resource Allocation: By accurately estimating future sales volumes, businesses can allocate resources such as workforce, inventory, and capital more efficiently, reducing waste and maximizing productivity.
  3. Risk Management: Forecasting helps businesses identify potential risks and uncertainties, allowing them to proactively mitigate these risks and adapt their strategies to changing market conditions.
  4. Goal Setting: Sales forecasts provide benchmarks for setting realistic and achievable sales targets, motivating teams, and guiding performance toward organizational objectives.
  5. Improved Decision-making: With insights gained from sales forecasting, businesses can make informed decisions regarding product development, pricing strategies, marketing campaigns, and expansion plans.
  6. Budget and Financial Planning: Forecasted sales figures are the foundation for budgeting and planning, helping businesses allocate budgets effectively and ensure financial stability.
  7. Enhanced Customer Service: Anticipating future demand allows businesses to better serve their customers by ensuring product availability, reducing lead times, and providing timely support.
  8. Competitive Advantage: Businesses that effectively forecast sales gain a competitive edge by staying ahead of market trends, identifying emerging opportunities, and outmaneuvering competitors.

Conclusion

 

Although sales forecasting may seem like a straightforward undertaking, there are numerous small details you need to consider. It helps to project a company’s monthly, quarterly, and annual sales totals. Additionally, knowing that you can adjust your sales prediction when circumstances change is crucial.

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