Sales Forecasting - the Complete Guide

Nitya Viswanath
December 14, 2021

Sales forecasting is the process that allows you to predict the estimated future sales of your company for a specific timeframe.

Did you know, sales professionals spend about 2.5 hours weekly on sales forecasting, which is less than 75% accurate

Managers and directors at different levels forecast their sales to foresee the department or organization’s sales. Every department in the organization depends on sales forecasts. 

The finance department relies on sales forecasts to develop budgets, production to plan cycles, sales reps with quota planning, and supply chain with material purchases. 


What is Sales Forecasting?

Sales forecasting is the process that allows you to predict the estimated future sales of your company for a specific timeframe. 

The forecast is based on industry trends, benchmarks, historical data, and the current status of the sales pipeline. Your workforce, cash flow, and all the resources that may affect sales and revenue can be organized with the help of a sales forecast. 

One can achieve the predicted sales forecast by setting motivating sales goals for your team.

Sales forecast answers two main important questions

1.      How much amount will a certain project bring into the business?

2.      When will the sales team expect to hit the revenue?

Why is it so Important?

It is hard to overstate how crucial it is for the company to produce an accurate sales forecast. A poor sales forecast can negatively impact the credibility of the business.

Did you know sales forecast not only lets you predict your future sales but also allows you to spot potential issues?  As Paul Saffo said, “The goal of forecasting is not to predict the future but to tell you what you need to know to take meaningful action in the present.”

Imagine an organization that has not predicted its sales, an organization with no targets set. The business will not be able to manage the workflow, cash flow, and resources meticulously, and the sales reps will not have the motivation to work. 

The business will not be able to predict its future transactions and hence will create obstacles in the business process. This will lead to discouraged sales reps and customers. Discovering the problems well in advance will help develop various solutions before the issue arises or even help prevent the problem from happening.

Sales forecasting is essential to derive several decisions, from hiring and resource management to goal setting and budgeting. Sales forecasts does not need to be perfect to be valued. It will often be slightly different from the prediction.

How to Forecast Sales with Accuracy?

Keep in mind you don’t get exact numbers through the sales forecast; there is only an estimate derived. 

The difference between the estimated and derived can be minimized only when the sales forecast is accurately carried out. To help you precisely forecast your sales, here is a step-by-step guide.

  1. Evaluate your trends, both historic and industry-related alongside the current status of your pipeline.
  2. Embody these trends in your process and modify them in keeping with the changes in the market.
  3. Consider the future trends in the market.
  4. Set sales goals and quota for the department and set a benchmark.
  5. Establish a sales forecasting method across all departments. 

This will help you predict accurately and provide you with an idea of what to look forward to. Regularly gather information from your department to see what's working and what’s not. There are various methods that can also be used to help you accurately forecast.  

Methods of Sales Forecasting

The most crucial part of sales forecasting is choosing the method that best suits your business. Forecasting methods are not created equally. 

The method selected depends on various factors such as the number of years you have been in business, organization size (no of sales reps), opportunities in the market, etc. 

Some companies even use two different types of forecasting methods to create a range of the forecast. Here are some methods you can use:

1. Historical Data.

A quick way to predict the forecast is by looking at your previous sales data. By looking at your past data, you can match the time and assume your results to be equal or more than those results. Historical forecasting assumes that the factors do not change. It does not consider the seasonal changes.

The historical method should be used as a tool for benchmarking rather than to create an accurate forecast.

 2. Opportunity Stage Forecast.

Opportunity forecasting is a method that uses various stages to determine if the deal will close or not. You can break down your pipeline into various stages such as prospecting, qualification, demo,  and closing. The further along the pipeline the deal is, the greater the chance that it will be won.

To get an estimate, you need to analyze your conversion rates at each stage of the pipeline. 

The opportunity stage method is popular because of its simplicity. 

3. Pipeline Forecasting.

It aims to predict future sales by analyzing what currently is in the pipeline. You have to look at each and every opportunity to determine the probability of it closing. It relies on high-quality data to carry out an accurate forecast.  

Using various tools that can help you determine the probability of your sales closing, will help you increase the reliability of pipeline forecasting. 

4. Intuitive Forecasting.

Who better to ask about the future sales, than your own sales professionals.

This method begins by asking your sales reps, the estimate of their sales and how confident they are of closing it. This method alone is not scientific, but it’s a valuable tool, as it factors the opinions of the sales reps who are closest to prospects.

The main downside of this method is that you are asking the reps who are naturally optimistic and often overestimate.  Despite this downside, it is used to help reps understand the intangibles that affect deals. 

This method is valuable when the business is in the early stages and has no historical data.


Types of Sales Forecasting Tools

CRM

Customer Relationship Management software is one of the best tools for sales forecasting. CRM solutions not only help you to find new prospects but also win them and keep them happy.

It helps you make an informed prediction of the future, set goals for your teams, and track progress, all under the same umbrella. You can choose CRM software based on your needs and the size of your organization.

Excel

Microsoft Excel is the most diverse and accessible software for drawing up sales forecasts. No one needs to be a statistical guru for forecasting on Excel. For such an accessible tool, it’s flexible, conditional, and can help you build great charts.

It helps to accelerate the work and decrease the time spent on forecasting. But for large companies, forecasting on excel can be time-consuming and can increase the risk of errors. 

Sales Analytical Software

Automating your sales forecast methods can help you create a more organized, smooth, and thorough process. This enables you to derive accurate results. They help to streamline reporting, seamlessly calculate projections, and increase cross-departmental visibility (centralized software). 

While selecting the best sales analytical software it is crucial to look for software that matches your requirement, allows customizable revenue projections, if it compares historical data and future projections, and most importantly does it offer additional features. 

Accounting Software

A simpler tool would suffice if all you have to do is a new revenue forecast. However, the value of the sale is determined not just by the amount of the transaction, but also by the costs it incurs elsewhere in the company.

You must comprehend the run-on effect in order to develop truly accurate sales estimates. You may need to integrate data from your accounting software in your forecasting exercise if you want to anticipate gross margins and account for cost of goods sold.

Revenue Operations Tool

Revenue Operation integrates all the revenue relating functions in an organization. It is a tool that can be used by companies to forecast sales for the short run. 

Revenue Operation Software uses AI to help understand the historical trend and patterns that can in the future help you review the sales in the pipeline and predict your future sales. It can be personalized to align with your business and sales forecasting process to view, update and track your future predictions. 

You can also collaborate with departments to update the numbers based on real-time, historical trend, and predictive insights.