What Is Sales Pipeline Forecasting and How Does It Work?

Enable the healthiest pipelines and most accurate forecasts by taking unique approaches.

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Sales pipeline forecasting is crucial for your sales performance. Accurate pipeline forecasts allow you to define the right stages of your sales cycle, create a sales process that lands deals every time, and not miss any opportunities to close deals.

In this article, let’s look at what sales pipeline forecasting is, why you need to do it, and some tips to get it right from the start.

Pipeline Forecast Definition

Sales pipeline forecasting is the process of predicting your future sales pipeline. It’s usually based on your historical sales data, industry trends, and current sales pipeline status. Businesses can do pipeline forecasting manually or adopt professional sales forecasting platforms like Revenue Grid.

Note that pipeline forecasting is all about what will happen in the following weeks, months, quarters, or years. It may or may not align with your goals and expectations.

Benefits of Sales Pipeline Forecasting

One of the most crucial benefits of sales pipeline forecasting is that it informs your decision-making. For example, knowing how much revenue you can generate next year can help you plan your business operations. You can have an idea of how much you should invest, how many additional sales reps you should hire, and how you can allocate resources to departments efficiently.

Implementing sales pipeline forecasting is also useful to identify and mitigate potential problems. It’s because when you do forecasting, you’ll have to look at data and review your team’s current performance. In doing that, you’re likely to notice the problems your team are having and where they need your support. Hence, you can provide immediate feedback and training to get your team back on track.

Pipeline Forecasting Problems

Pipeline forecasting is critical, but it’s not easy to implement for several reasons, as described below:

  • Sales reps’ subjectivity: Traditional sales managers ask sales reps how likely a deal is closing. They rely on their own gut feelings or sales reps’ to predict future sales rather than objective data, which can lead to inaccurate forecasts.
  • Lack of predictive data: This can happen when a business doesn’t have the right tool to retrieve historical data across departments and channels or when data isn’t collected sufficiently.
  • Technology limitations: Many problems can occur when your tech stack doesn’t provide your team with everything they need. Your sales reps may have to spend a lot of time gathering data, switch back and forth between tools, or miss what changes in the sales process at a particular time. All of these can lead to an inaccuracy in pipeline forecasting.

Other factors that can affect your sales forecasting process include changes in the size of your sales team, product or service offerings, market fluctuations, and competitors.

Sales Pipeline Forecasting Methodologies

Each business may have a different approach to do sales pipeline forecasting. That said, most companies use any of the following methods:

  • Based on historical sales data: Review past performance, analyze trends over time, consider some external environmental factors, and project future sales.
  • Based on current sales pipelines: Forecast based on existing sales pipelines. For example, what stages each deal is at, how likely it’ll be closed on that stage, and the potential value of each opportunity.
  • Based on lead values: Analyze historical sales data from each lead source and then use that information to forecast based on the value of each source. This method requires tracking sales metrics like the total number of leads, average sales price per lead, and average lead value.
  • Based on opportunity stage: Forecast based on where a prospect currently is in your sales process. To use this, you’ll need to have clearly-defined deal stages, which might include appointment scheduled, qualified to buy, proposal sent, deal won, deal lost.
  • Based on sale cycle length: Sales pipeline forecasting models based on how much time it takes to convert a prospect into a paying customer.

How to Start with Pipeline Forecasting

1. Understand Your Sales Process

When forecasting future sales pipelines, it’s critical to review historical sales data, metrics, pipeline review meetings, sales performance reports, and other relevant documents. You may also want to conduct surveys to ask your sales reps’ opinions about sales processes.

Doing that will give you a comprehensive understanding of what your pipeline looks like, how your sales team has been performing over time, and where the gaps are.

2. Get Buy-in From All Relevant Departments

Sales, marketing, finance, human resource (HR) and customer service teams may look at forecasts differently. For example, a marketing team uses forecasting to develop lead generation strategies and create more targeted campaigns. Meanwhile, finance use predictions to allocate budget and develop operating plans.

Hence, you should ensure that everyone in your company has a clear understanding of what pipeline forecasting means and how they’ll contribute to it. Doing that also helps you create transparency and make collective decisions.

3. Adopt a Sales Forecasting Tool

A sales forecasting tool can be a game-changer for your sales performance as it provides you with many benefits.

Take Revenue Grid as an example. Powered by artificial intelligence, Revenue Gird gives you an easy and quick way to access historical data to predict future revenue. You can see who on the team is overpromising or underperforming, how much a sales rep has closed over a period, and what their sales progress looks like. You can also discover what deals are at risk, why it happens, and what actions you can take to mitigate the risk.

Apart from that, Revenue Grid sends you alerts for trends in buyers’ behaviors and sales forecast changes. You can then use the insights to update your forecasts or coach your team for the next steps.

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