What’s Sales Forecasting and How to Make Accurate Forecasts
There’s a popular saying that no one knows the future, but in sales, the future shapes the present. It’s like knowing what the weather says before you step out of the house. If you know it will rain, you go out with an umbrella.
The same logic applies to sales. Forecasting systems helps identify what and when it rains in revenue. Making it easier to know if you’re on track for a record-breaking year or stagnating.
Despite being randomly tossed around, most sales organizations often struggle with forecasting accuracy. If you find yourself in such a dilemma at the moment, this guide pinpoints what you might be doing wrong and how to correct things moving forward. But first, what’s sales forecasting in the first place?
Continue reading below to find answers.
What’s Sales Forecasting?
Sales forecasting is the process of predicting future revenue with a view to estimating the unit of products or services to be sold over a specific period. To nail an accurate prediction, you either rely on common sense or CRM automation while factoring data sets such as sales history and pipeline opportunities.
But why rely on human intuition when CRM tools provide better results? Because, for new businesses with no historical sales data, the easiest way to make forecasts is via market research and competitive analysis. However, for established companies, more informed decisions can be generated by analyzing historical data to nail accurate sales projections.
The bottom line is more data plus the right tool equals a higher degree of forecasting accuracy. But then, why is an accurate forecast a must-do for your business?
Why is Sales Forecast Important?
The simple answer is to help predict future revenue . And the complex one? To help businesses make better decisions moving forward. For example, if I can predict that the business would hit $300k in Q3, I can identify the portion of the revenue that goes into recruitment, marketing, quota planning, and also managing demand and supply chain.
From the analogy above, it’s obvious that the importance of sales forecasting is to predict the “what” and “when” regarding revenue. With the “what” being how much the business will bring and the “when” all about the estimated timeline for hitting said revenue.
Using this analogy, it’s clear to see why it’s easier for established businesses to develop a forecasting model. They can base their forecast on data sets like market trends and seasonals, buyer behavior, and size of sales pipeline. For newly established businesses, such data are out of reach. The reason for lots of guesswork.
Benefits of Having an Accurate Sales Forecast
#1. Allows for Proper Business Growth
According to sales transformational Coach, Micheal Steele, forecasting is “what might or we think is happening”. To expand on that phrase, it simply means that If we’ve identified what we think might happen, focus shifts to the steps we need to take to make things happen, likely hurdles to face, and what each quarter might look like.
Typically, if there are fewer opportunities in your pipeline, your statistical forecast might pinpoint a low revenue at a specific month. Now, the focus of your team will shifts towards how to attract more SQLs and close more deals to achieve targeted revenue.
#2. Accurate Sales Budgeting
Accurate forecasting allows businesses to allocate the right resources to revenue-generating activities and to also manage workflow. If you can predict how much you will make, it’s easier to estimate how much you can spend on hiring, marketing, and customer acquisition.
For instance, if you made over 1,000 sales the previous business year, you can expect to hit the same number or even more in the present. Factor that expected revenue into business activities and you can determine the right amount to invest in tools, talent aquisition, and lead generation.
#3. Take Correctional Measures
With an accurate forecasting, you can predict if you’re closer to meeting your goals or not. If you aren’t, you can take correctional measures- source for more leads, close more accounts or review pricing.
The forecast gives you a detailed insight into how you’re likely to perform within a certain period plus how to optimize sales activities to hit expected revenue
How to Accurately Forecast Sales
The higher the degree of forecasting accuracy, the higher the possibility of changing business operatives to market demands. With that said, here are a few tips to help you make accurate sales forecast:
#1. Use Automated Tools
Most sales organizations leverage spreadsheets for forecasts which renders the process disjointed and time-consuming. With a CRM introduced into the fold, you have a tool that automates every processes starting with data collection and calculations.
Even better, CRMs ensure databases can be shared across the entire sales team. But keep in mind that CRMs don’t manufacture data, for accuracy, ensure historical data fed into the CRM is spot on.
#2. Nail the Right Forecast Method
CRMs are only as good as the data fed into them, hence for companies just starting from scratch with no data to rely on, CRMs might be far from realistic. We often recommend you consider market maturity before settling for the best forecast method. With this, you end up avoiding unnecessary expenses you don’t need in the present.
#3. Solid Pipeline Management
Sales teams often group prospects into sales stages. However, a prospect can be moved from stage 2 to 5 overnight without taking any significant step towards conversion. As a result, the pipeline is crippled and wrong predictions on revenue expectancy sets in.
It’s therefore important for salespeople to leave prospects where they’re meant to be rather than where they think they should be. With the right prospects in the final stages, sales teams can draw up accurate predictions on the number of expected closed opportunities
As you have found out, accurate sales forecasting is required to balance up revenue and expenses. Usually, if you can predict expected income in Q3 it’s easier to determine the portion that goes into hiring, marketing, and employee training.
If you want to give your sales team a huge boost by equipping them with the right tool, SalesDeck should be a part of that tech stack. Request a quick demo to see Salesdeck in action, or join the Early Adopter Program to kickstart your journey with the software.