It’s no longer enough to predict future sales.
In today’s post-COVID landscape, sales leaders are expected to predict future revenue, avoid risks, and pounce on opportunities at the exact right moment. As such, they need a reliable way to ensure forecasts align with revenue and real-time market conditions.
An accurate sales forecast can serve as that much-needed crystal ball. But, there’s a lot that can go wrong.
In this guide, I’ll break down the basics of sales forecasting, explain why you should care, and offer up some tips for nailing it on the forecasting front.
What is sales forecasting?
Sales forecasting is the process of predicting how much money you’ll make over a certain period of time. In a B2B context, it becomes a data-driven practice of projecting sales revenue accurately over a specified period. This involves assessing real-time sales data, predicting sales performance, and aligning forecasted and actual revenue effectively.
Forecasts are typically based on historical data, current pipeline status, and external data sources that represent industry trends and market conditions.
While it’s easier to create a sales forecast if you already have lots of historical data at your fingertips, companies with limited data can still benefit from forecasts done right.
Before we dive deeper, it’s important to note that sales forecasts—like weather forecasts— aren’t a sure thing.
Rather, sales forecasts are a planning tool that enables companies to prepare for future possibilities.
Why is sales forecasting important?
Accurate sales forecasting is the foundation for success. It enables smart decision-making, informs budgets, and helps detect potential threats before it’s too late.
What are the downsides associated with not running forecasts? In the worst cases, cash flow problems, layoffs, even bankruptcy, as company leaders spend without a good idea of what’s coming.
Here’s a look at the broader benefits sales forecasting brings to the table.
- Estimate future revenue. Sales forecasting allows you to know how much revenue your team will generate each month, quarter, and year—and when to expect money to come in. For instance, if sales were slow during the past three Julys, there’s a good chance that you can expect a summertime lull this year, too.
- Allocate resources. Sales forecasting also helps companies decide how to manage internal resources, cash flow, and the sales force. Predicting future sales allows sales leaders to head off problems by shifting focus in advance. Say leads are trending down. By tracking these metrics, leaders can forecast when they’ll reach critical levels and re-focus sales teams to bring more in at an appropriate time.
- Plan your growth strategy. When you have an idea of what lies ahead, you’ll be better prepared to respond to roadblocks and opportunities as they emerge. Sales forecasting allows business leaders to make healthy plans and investments for the organization as a whole. That means spending, investing, and hiring at the right rates at the right time. Sloppy forecasting or no forecasting means that leadership has no idea when they’re overspending or skimping on important resources.
Factors that can impact your sales forecast
Anything that impacts your company, customers, or industry can impact forecasting accuracy.
Here’s a look at some of the more common factors that can impact a sales forecast.
- Internal factors. Things like turnover rate, territory changes, and new company policies can impact your forecast because they impact seller performance.
- Economic conditions & and your industry. What’s the economy looking like right now? Is demand for your products/services rising or falling? Are new competitors entering the market? If so, what are the chances that those competitors might take some part of your market share? Are you likely to lose any major accounts? On the flip side, is there an opportunity to gain new customers? If you’re marketing to new audiences or you’ve launched a new product that caters to a new market, you may see some new growth—and increased revenue.
- New legislation. New laws or compliance requirements may have an impact on your sales process. It might mean you’ll need to rethink your approach in some cases. In others, you might have a solution that helps prospects meet changing requirements.
- Your products or services. Are you planning on launching new products/services with the potential to increase sales? Making major improvements to existing offerings? Or, are certain products/product lines on the wane? If sales are declining, is it because a competitor offers a better solution or a similar product at a lower price point? Or is this product/product line heading toward obsolescence?
- Marketing & advertising. How are your existing strategies performing? Do they bring in a reliable amount of qualified leads each month/quarter/year? Or are you trying something new because the old stuff isn’t working? Are you increasing your advertising budget? Launching any new campaigns? Marketing on new channels?
Who uses sales forecast?
Sales forecast is beneficial for businesses of all types. For example, it can be used by:
- Sales managers: To set goals and make strategic decisions about sales forces
- Marketing departments: To better understand how the company can meet its growth targets and where the greatest opportunities lie
- Finance departments: To better understand how much money is being spent on marketing and whether it’s effective
- Engineers and product managers: To determine how much inventory needs to be kept in stock
Who is responsible for sales forecasting?
The sales forecasting process is a collaborative one, and every member of your team has a role to play.
This includes not only salespeople but also marketing directors, customer service managers, account managers, and even the CEO.
Everyone needs to understand what factors affect their ability to forecast sales and how they can work together to improve their predictions.
How to do sales forecasting
Now that we’ve gone over the “what” and the “why” of sales forecasting, let’s get into the “how.”
Below, I’ve outlined a series of tips for building an accurate sales forecast that will help you power up your strategy and boost rep performance.
1. Define and document your sales process
Without a sales process, there’s no way to create an accurate forecast. So, before doing anything else, you’ll need to define and document your sales process.
- Establish common definitions. If your team isn’t working from the same definitions, same steps, and stages, it becomes hard to predict whether an opportunity is likely to close.
- ID & document each stage. Define each “stage” from the time a lead enters the funnel, becomes a prospect, and later, a customer. Here, you’ll need to figure out what makes someone a “lead,” vs. a “prospect.” How will you define a “win” or a “close?” What stages belong in your sales cycle?
- Decide which steps belong in each stage. Once you’ve defined each stage, you’ll need to determine which steps a lead must complete before advancing to the next “level.” A “lead” might become a “prospect” after signing up for your mailing list, downloading a white paper, and booking a call or demo.
- Communicate standards & best practices. Everyone should also be on the same page about when and how to count leads entering and exiting the funnel. It’s critical that you document and communicate standards to everyone in the organization. Fail to do this and individuals will interpret standards and best practices on their own. In turn, you’ll end up with inconsistent data that undermines your forecasting capabilities.
2. Make sure you’ve got the tech to support your forecasting efforts
To “predict” future sales performance, you’ll need to start with a complete set of insights. Your CRM must be accurate, up-to-date, and integrated with all relevant sources of sales data. You’ll also need to make sure your data ecosystem is clean, connected, and accessible to the entire organization.
This allows you to gain complete visibility into individual, team, and company performance and align all business functions around a single source of truth.
Once you’ve unified your sales data, you can add AI-enabled tools to your sales stack.
Look for solutions with a built-in predictive engine, which will reduce over-reliance on subjective, human interpretation. Instead, AI can look at all data points that might impact sales and serve up a list of steps to ensure that reps always take the best action.
And finally, it’s crucial that you invest in a solution that updates and syncs data across all connected systems in real-time. That way, you can make decisions based on what’s happening now instead of hoping yesterday’s data is still relevant.
3. Understand what’s happening in your pipeline
It doesn’t matter how much data you have or what kind of advanced intelligence tools you’re using, you need to be able to quickly size up active opportunities and understand which deals are moving, stuck, or at risk.
Without a clear picture of where your pipeline is today, and where it’s headed, the entire business strategy falls apart.
At a minimum, make sure that you have easy access to the following data:
- Historical data. Make sure you can easily review sales from the previous year, quarter, month, whatever. Note that some sales forecasting tools have a limit on how far back they can pull data e.g. one or two years. As such, you’ll want to make sure that you have a plan for capturing, storing, and integrating data long-term.
- Activity data. Can you easily identify how many calls were made? Emails sent? Do you know how reps are spending their time? Make sure that you’re capturing and integrating data from every tool you use in the sales process and syncing it back to Salesforce for forecasting.
- Revenue. You’ll also want to make sure you can track performance by rep, team, territory, or anything else that’s relevant to your business model/sales process. How much are reps bringing in? What products/packages are performing best or underperforming?You’ll also want to ensure that product/service lines match what’s in your accounting system. This makes it easy to compare estimates to actual sales without any ad-hoc conversion math.
4. Select a sales forecast methodology
At this point, you’ve defined your sales process, goals, and set quotas.
You’ve made sure that your CRM connects to all relevant data sources and that it offers complete visibility into your pipeline.
Now, it’s time to choose a sales forecasting methodology. The method you select depends on factors like how long you’ve been in business, active opportunities, and how many reps are on the team.
Additionally, how much historical data you’re working with and your team’s ability to capture and interpret sales data will come into play here, too.
Here’s a look at some of the most common sales forecasting examples:
Historical forecasting is a quick way to gather insights based on past performance. The idea is to look up performance from a similar timeframe and assume the current period’s results will be equal to or greater than in the past.Think–looking at July’s sales numbers for the past few years to predict how much you’ll sell in July of this year.Depending on what you’re trying to measure, you might look at variables such as product, price, time of year, or price. Historical forecasting assumes conditions remain the same. Meaning, it’s not so hot when it comes to detecting and responding to new threats or opportunities. While this method can’t predict the future, it can help you identify the actions that close deals, allocate internal resources, and develop an adaptive business strategy.
This forecasting method aims to predict future revenues by sizing up where your pipeline is right now. Here, you’ll look at each opportunity to determine its likelihood of closing. The variables you’ll measure should be determined by your company and sales process. Using tools that can score your opportunities for how likely they are to really close can greatly increase the reliability of pipeline forecasting, which is why they’re starting to become mainstay sales tech for many organizations.
Opportunity stage forecasting.
Opportunity stage forecasting is a method that uses deal stage to determine the likelihood of closing. How it works is, you’ll select a reporting period (quarter, month, year) based on your team’s targets and the length of the sales cycle. From there, you’ll multiply each deal’s potential value by its chances of closing. Then, after you’ve calculated the projected win rates for each deal, you’ll add up the total to get the total forecast for your pipeline. While this method is straightforward, it can produce inaccurate results. One of the biggest issues here is, it doesn’t factor age into the calculation. It treats stalled opportunities the same as deals blowing through each stage if they have the same projected close dates. To avoid this issue, reps must be vigilant about removing cold leads and opportunities clogging up the pipeline.
Intuitive sales forecasting.
Intuitive sales forecasting uses anecdotal data sourced from the front-lines. While intuitive forecasting alone isn’t exactly scientific, it’s still a valuable tool. To pull it off, you’ll need to use other data-driven forecasting methods to supplement anecdotal evidence. Despite the downsides, intuitive forecasting helps teams understand the intangibles that influence deals.
Length of sales cycle forecasting.
Length of sales cycle forecasting looks at data related to how long it takes a lead to close to forecast reps’ future sales.One of the key benefits of this method is it allows you to gather a ton of data. Say you’re tracking how leads interact with different touchpoints throughout the buying process. You can measure the impact of content, messaging, and sales tactics against different variables at a granular level. Insights can be applied to determine the content and messaging used at different points in the process.This method can also be used to forecast multiple sales cycles based on persona, rep, etc. As such, it’s an effective tool for evaluating and improving your sales process, tactics, and coaching strategy.
Multi-variable sales forecasting.
Multivariable analysis forecasting is a sophisticated method that combines predictive analytics with elements from the above methods. Here, you’ll apply predictive analytics tools to your data ecosystem, which analyze relationships between variables that could impact sales outcomes. Variables might include opportunity size, buyer persona, individual rep performance stats, etc.
You’ll want to mix and match your sales forecasting methods based on what you’re trying to measure and what kind of data sources you’re working with.
For example, newer businesses with little historical data might start with intuitive forecasting. Their reports will be based simply on what their teams think is likely to close in the given timeframe, based on their experience.
For more established firms, a combination of pipeline and multivariable analysis forecasting might work best. These methods offer a holistic view of both the existing pipeline and the external factors that impact deals.
5. Forecast regularly and often
Sales forecasts need to be updated regularly to remain a relevant part of your company’s strategy and market navigation. Additionally, regular forecasts help leadership keep their finger on the pulse of how things are going on the front line.
- Make forecasting part of the routine. Monthly forecasts offer a more accurate estimate of how your sales team will perform than running the numbers once a year. The more often you forecast, the more likely it is that your estimates reflect where things are today.
- Consider the impact of your sales process. Changes to the business strategy, market, and key priorities impact the sales process, and by extension, your forecast. If the process changes, your sales forecast changes along with it.
- Model different scenarios. Create multiple sales forecasts that reflect a range of perspectives. So, you might start with a pipeline forecast and then use intuitive forecasting to add a human element from your sellers.
How to benefit from forecasting software
Forecasting software is helpful because it takes the guesswork out of forecasting. It can be hard to keep track of all the variables involved in predicting future trends, but with forecasting software, you can just set a few parameters, and the tool will do the rest for you.
Here are some ways forecasting software can benefit your business:
- Helps you plan for growth by helping you forecast how many units of inventory you’ll need and when they’ll be needed.
- Helps you spot trends so that you can adapt quickly to changes in the market.
- Helps you predict what’ll happen in the future by providing historical data on sales figures, production costs, demand for specific products or services, and more.
What forecasting software to use?
While this is by no means an exhaustive list, here are some of the best sales forecasting tools that will bring you closer to predicting the future.
Okay, we’re a little biased, but Revenue Grid helps teams nail their sales forecasting strategy on multiple levels. Here’s the basic rundown:
- Automates data capture & organization. The platform automatically captures, categorizes, and syncs sales data across all connected sources. That way, you’re always working with the latest, most accurate insights—no data entry required.
- Predict future sales team performance. Revenue Grid allows sales leaders to automate playbooks to build in consistent sales execution. More predictable performance translates to more predictable revenue since reps are reminded to use the best-performing tactics.
- Risk assessment. Decision-makers can use Revenue Grid as a risk management and strategic planning tool. Users can run reports to identify risks that could change sales outcomes and drill down to understand the severity of incoming risks.
- Signals. Revenue Grid allows users to create interactive contextual alerts—called Signals—that use AI-driven insights to drive sellers toward the right action at the right time. Create custom triggers that notify sales leaders as soon as there’s a change in any part of the sales forecast. Examples include cancellations, deals falling out of the pipeline, etc.
- Sales coaching. Sales coaches can identify winning behaviors and struggling reps, and point sellers toward actions proven to deliver desired outcomes.
See sales forecasting in action
Streamline your sales process with Revenue Grid
MapMyCustomers helps sales leaders identify critical locations for growth using its built-in mapping features. This platform is ideal for helping teams understand their sales territories better, identify new opportunities, and gather insights into what’s happening in more challenging areas.
Anaplan allows sales leaders to generate and share dynamic sales forecasts with real-time data. Teams can update their plan based on current market conditions, so forecasts change with circumstances. The platform allows users to analyze forecasts by account, territory, product line, even specific SKUs. What’s more, it uses predictive insights to ID opportunities and focuses team resources on the right goals.
SalesDirector.AI is a conversational analytics platform that gives organizations a complete view of revenue streams, sales performance, and growth opportunities. This software enables Salesforce forecasting, connects to BI tools like Tableau, Einstein, and Google Data Studio, and uses AI/ML to enrich data, analyze buyer sentiment, and automate workflows.
Adaptive Planning is an enterprise planning software designed for the “Agile enterprise.” The platform offers planning tools for financial teams, HR, and sales, making it a helpful, cross-departmental tool.
Sales forecasting 101: how to forecast sales with Revenue Grid
When the sales forecast is accurate and predictable, companies can invest in the business confidently. When it’s not, it can wreak havoc across departments.
Luckily, with all the tools and data available to revenue teams today, it’s gotten a lot easier for reps and managers to call their numbers with a very high degree of accuracy, making it possible for sales leaders to build a culture centered on accurate forecasting.
Revenue intelligence platform is a unique tool that can help build a well-designed sales forecasting process and improve sales forecasting accuracy in your organization. Here’s how to forecast sales with Revenue Grid revenue intelligence solution:
1. Submit accurate forecasts across your sales team and update them in time with sales forecasting cadences:
- Standardize weekly, monthly, and quarterly forecast submission process across your team’s hierarchy (VPs, AЕs, Managers, reps)
- Create forecasts for a specific business segment (for example, new business)
- Submit and adjust individual and team forecasts for future periods
- Review your quota, override, and track changes across all forecast categories (Commit, Best Case, Pipeline, Booked revenue)
- Slice and dice any forecast by vertical, product, or time period.
2. See the pipeline growth during the selected period with pipeline evolution reports and adjust your revenue projections when needed
- See the total pipeline value at the beginning and end of a selected period
- Analyze opportunities across Forecast Categories
- Understand the Forecast Category and Opportunity Stage relationship
3. See exactly where you’ll end your quarter with Salesforce-native forecast evolution reports
- Create reports for forecast categories (Commit, Best Case, Pipeline, Booked revenue)
- Perform retrospective analysis per specific sales teams or reps
- Understand what has changed since the previous week’s forecast call with a single click
4. Guide your team at each stage of the sales forecasting process with Revenue Signals
- Set up Revenue Signals to remind your team to submit forecasts on time.
- Update forecast figures in one click as soon as the opportunity category changes
- Receive Revenue Signals about important changes in the forecast in real-time
- Utilize Signals as Salesforce task reminders with specific time and date
- Create, assign, modify or resolve Revenue Signals right from Microsoft Teams without opening Salesforce
Following these simple steps with a revenue intelligence solution will make your revenue process more efficient and predictable, and your forecasts more accurate
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