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How to Plan Smarter With Reliable Sales Forecasts

November 13, 2020

sales forecasting

A gaze into the future would be a good leg up for businesses everywhere.

World events can upend just about everything we know about business and life, calling for new approaches, strategies, and goals. And that’s why B2B companies are constantly changing the way they use software, market themselves to their customers, and make their own buying decisions. 

While predicting a global catastrophe can’t be done, getting a glimpse into your sales team’s future performance with forecasting is a bit more attainable. 

Sales forecasts can predict sales activity for an upcoming week, month, quarter, or entire year. Different positions within your sales department will use the resulting data in various ways.

For example, a manager will know how many deals one of their direct reports should close. Directors will get an idea of what to expect from the entire team. VPs will know what to tell higher ups to expect for that upcoming period. 

Companies can forecast their sales using past data, industry comparisons, economic trends, or all of those things. However, the method will likely be determined by the amount of time your company has been established. New businesses will have to rely on external factors like market research and competitive analyses, while more established businesses can look at the history of their own company. 

Sales forecasting is more than just determining how much money a company is likely to make within a given time period. This sales analytics method can be used to predict future revenue, conversions within the sales funnel, and customer acquisition rates. 

Why is sales forecasting important?

Sales forecasting is a common practice for any business that wants to perform, compete with other companies, and succeed in fulfilling its mission. The benefits of what it can mean to have a look into the future of your business speaks for themselves. 

First of all, an accurate sales forecast can act as an alert if you’re going to fall short of where your cash flow needs to be, pointing out any potential hindrances. Businesses can compare their sales quotas and projected growth against forecasts, and analyze their processes to identify areas that are causing problems.

This might include seeking support from other departments and making sure everyone is aligned. Perhaps the best part is that all of this is happening before the fact, so you have a chance to right your wrongs. 

With sales forecasted, you can also plan decisions and strategies accordingly. Actions like hiring, managing resources, setting goals, and budgeting should all be done after your sales are forecasted.

This way you have an idea of what you can afford and where you need to focus your energy. Maybe you need to hire more sales reps to support growth, or maybe you should increase your marketing spend due to low brand awareness. 

Along with your goals for a particular time period, a sales forecast can also act as a tool to motivate you, your team, and your company as a whole. 

Sales forecasting factors

Just as there are elements that will ultimately affect your sales outcomes, the same goes for your forecasting. Businesses are constantly evolving, and adapting strategies and goals to those changes is crucial in getting an accurate depiction of what your company’s future looks like. 

Here are a few internal and external factors that will affect your sales forecast. If any of them should change or be planned to change, adjust your sales forecast accordingly. 

  • Personnel: Any hiring, firing, or change in personnel will affect your sales forecast. The more people you have as designated sellers, the higher your activity levels, conversion rates, and revenue streams should be. 
  • Policies and procedures: New sales policies, like compensation plans or discount offerings, will matter when it comes to revenue and profit margins. 
  • Territories: If reps are given a new territory or type of client, it might take them some time to adjust and start contributing as they did before. 
  • Competitors: When a new competitor enters the market, or when an existing competitor cuts their prices, you could lose some of your business. 
  • Products and their pricing: New products you are introducing to the market need to be taken into account when forecasting sales, along with any modifications to your prices. 
  • Seasons: If your business booms during one season and experiences a decrease in sales in another, the forecast will look quite different for those two time periods. 
  • The economy, industry, and market: The strength of the economy, updated products in your industry, and newly tapped markets are the big overarching factors of forecasting your sales. 
  • Legislation: Any new laws, rules, or regulations that apply to your business, industry, or customers could ultimately affect your bottom line. 

How to forecast sales

It’s never a bad thing to be optimistic about the future of your business. However, it can start to get dangerous if you don’t have a firm grasp of reality. Without it, you might make poor decisions that result in the demise of your organization. 

The best way to be realistic about an upcoming period for your business is to forecast your sales and use the results to inform the rest of your strategies. Because sales is the department most directly related to generating revenue, the outcomes of their efforts will end up affecting the entire  business, what they can and can’t afford, and their overall growth. 

Here are the necessary steps you must take to create a reliable sales forecasting model. 

1. Establish a sales process

The first thing you need is an established sales process. You can’t successfully forecast sales for the upcoming period if you don’t have a concrete process that your reps follow. With these distinct phases comes predictability, and with that comes a reliable forecast of what might happen next. 

When structuring your sales process, you must have defined stages and different titles for customers depending on where they stand in the buying process. Consistency is key here. 

If you don’t have a properly identified sales cycle, observe your current methods, compare them with the journey your buyers typically take, and define the criteria moving forward.

No two sales processes are going to look the exact same because every business is unique. Keep in mind that as your business changes, your selling process and forecasts will do the same alongside it. 

2. Set quotas and define benchmarks

Next, you need to set quotas and define what success looks like for the time period you’re about to forecast sales for. Work with your sales department to set accurate, attainable, and challenging quotas for individual sales reps and the team as a whole. These quotas will act as the monetary baseline of measuring success.

There might be a few other sales metrics that your business is hoping to forecast. These could be other versions of monetary goals like a profit margin, or maybe a conversion rate between two stages in the sales funnel.

Whatever the case may be, make sure you have an idea of what success looks like so you know if you made it happen or if you fell short. 

3. Get the right software

Nobody does anything themselves anymore. That’s meant in a good way.  There are two software tools that are necessary to forecasting sales. 

The first one is, you guessed it, budgeting and forecasting software. Businesses will use these software tools to estimate future revenue and identify financial resources needed to support future business activities. You can use budgeting and forecasting software for your sales team, across your entire organization, or both. 

The other software is customer relationship management (CRM), which companies use to track customer information, interactions, and preferences. CRM also has a pipeline management feature, so you can easily identify the stages of all deals, showing the win rate and progress toward forecasted goals.  

Implementing software to automate the technical side of sales opens up more time for reps to focus on establishing a solid relationship with potential buyers, bettering your chances of offering a positive customer experience. 

4. Choose a method

With your sales process established, goals set, and software implemented, it’s finally time to choose a method for your sales forecast.

The one you select will likely depend on which factors listed before affect your business the most. You also need to take into account whether you are a new or established business. 

Here are a few different sales forecasting methods businesses will use to get a glimpse into their upcoming sales. No matter the method you choose, make sure to choose a time period for the forecast and stick with it to remain consistent. It’s also a good idea to freshen up on your sales KPIs to make sure you have all the data you need for an accurate calculation. 

Opportunity stage forecasting

The opportunity stage method is probably the simplest way to forecast your sales. It includes analyzing your pipeline, the stages deals are currently sitting in, and all of their potential value. You can also incorporate the closing rate of the rep handling the account. 

To get the actual forecasted sales number, follow these steps: 

  • Choose a reporting period
  • Identify the potential value of each deal
  • Determine the probability that the deal will close (check out your conversion rates in between stages here)
  • Multiply the deal value by the probability it will close
  • Add up the results of that addition for total forecasted sales

For example, say you are forecasting sales for the month of October. You have three promising opportunities lined up in your sales pipeline.

Based on your company’s conversion rates, Deal A worth $10,000 has a 50 percent chance of closing, Deal B worth $5,000 has an 80 percent chance of closing, and Deal C worth $15,000 has a 90 percent chance of closing. That would result in a projected $22,500 in sales. 

While the opportunity stage forecasting method is simple on the math side of things, the results can sometimes be inaccurate. The best way to avoid this is by having reliable conversion rates to use when predicting the likelihood of deals closing. 

Another potential issue you might run into with this strategy is neglecting the amount of time deals have been in the pipeline. A prospect that’s been in the pipeline for six months could be valued the same as one that’s only been there for two days, yet one looks more promising than the other. To  avoid this, create a pipeline management plan so dead leads are regularly removed. 

Analyzing your opportunities to forecast sales requires you to readjust every time you introduce new products, prices, messaging, or sales strategies. All of these factors can affect your sales conversion rates, and that’s a key variable in this equation. 

Pro Con
It’s a simple equation and can give a high level forecast. Inaccurate conversion rates can result in unreliable forecasts.

Sales cycle forecasting

Another sales forecasting technique includes estimating sales based on the length of your sales cycle and the current position of your prospects in the pipeline. Two key data points are used in the sales cycle forecasting method: the length of your sales cycle and the amount of time a prospect has been sitting in the pipeline.  

For example, if your average sales cycle lasts 90 days, and you have nicely moved a prospect along to a certain stage in 45 days, that deal has a 50 percent chance of closing. 

Businesses will use this method when they want an objective look at the likelihood of a deal closing. Getting input from a rep regarding how promising or hopeless a deal is isn’t required. It’s as simple as this: the further along a prospect is in your sales cycle, the more likely they are to make a purchase. 

To accurately forecast your sales based on the length of your sales process, you need to have a clear idea of how long it actually is. Educated guesses won’t cut it, so this option isn’t feasible for new businesses. 

This method also offers the choice to do lead-driven forecasting, offering uber-specific results based on how a customer was acquired. If your sales cadence started with a cold email, that process might be longer than an inbound sale where the customer initially reached out to you. As your business starts to experience multiple introductory touchpoints, you can create more reliable forecasts based on current deals.

Pro Con
It’s objective and can offer insight into various sales scenarios. This requires a highly informed metric regarding the length of your sales cycle.

Intuitive forecasting

Some sales managers will rely on the intuition of their reps to forecast sales for a particular time period. This will depend on their expertise, with both the solution at hand and with customers, as well as the likelihood of them offering reliable information. 

To go about intuitive forecasting, simply ask your reps the chances of a deal closing and when it’ll happen. This way, you can get a read on the progress from the person who is handling it.  

The obvious downside to this forecasting method is that it’s entirely subjective. It can be hard reading your customers, and reps might be more optimistic or pessimistic than they should. Also, since you are their boss, they might want it to seem like deals are close to being signed when they actually aren’t. 

Pro Con
Offers a good method for new businesses and you get a gut check from experienced salespeople. Highly subjective and reps tend to be more optimistic about deals closing than is realistic.

Historical forecasting

Historical forecasting includes looking back at past sales performance for a particular month, quarter, or even year, and using it to estimate for a future time period. To do this accurately, you need to compare two similar time periods. Seasonality and buyer demand fluctuations can make a world of difference. 

Looking at your historical sales data, you would then take any other factors into account, such as changes in personnel, new territories, or the increased presence of a competitor. If any factors will result in higher or lower sales, make that apparent in your forecast. 

For example, let’s say that every January your business, that has been established for five years, averages $50,000 in revenue. You can assume that this coming January, it will reflect that historical performance.

Or, if you want to take it a step further, you can incorporate growth rates. So if you typically see a five percent growth rate year over year, you can count on making $52,500 in January. 

Historical forecasting is only possible for businesses that have been established for some time. If the historical data doesn’t exist, you won’t be able to use it to forecast for the future. 

Pro Con
Historical data can be reliable and steady for established businesses. External factors that will affect the forecast can be hard to quantify.

Multivariable analysis forecasting

Multivariable analysis forecasting is the most complex method, as it takes into account multiple other methods of forecasting. This technique uses predictive analysis, average sales cycle length, opportunity closing rate, and the performance of individual reps. Because it incorporates the most information into the forecast, these predictions are the most accurate and reliable for businesses. 

The tricky part about multivariable forecasting is ensuring every data point that goes into calculating it is updated and accurate. Sales reps will have to be detail oriented when it comes to deal progress and data collection. 

Unfortunately, the best way to get an accurate multivariable forecast is by using advanced analytics solutions. This makes it unattainable for businesses that don’t have the budget to incorporate one into their tech stack. 

Pro Con
Offers highly accurate results using data, and can be done using software. Gets complicated and usually requires expensive software solutions.

5. Inform the team and hold them accountable

Once you’ve chosen a sales forecasting method, communicate that decision with your reps. If you start with one and decide to change things up, make sure to keep everyone in the loop at all times. Update everything in your CRM as soon as changes are made. 

It’s also important to gather feedback from your team about what’s working and what’s holding them back. Sales forecasts are going to inform your quotas, and vice versa, so you need to be sure reps are comfortable being held accountable for their performance.

5 best budgeting and forecasting software

The best part of sales forecasting is that the entire process can be simplified with software tools. Budgeting and forecasting software can help your business plan the financial resources it needs to support any future activities. By estimating future revenues and expenses, every department can remain informed and make smarter decisions. 

To qualify for this category, a product must:

  • Offer templates for different budget types
  • Help create different versions of those budgets
  • Organize budget history and use it to forecast future sales
  • Compare sales revenues and expenses with actual outcomes
  • Take budgets from all departments into account
  • Incorporate what-if scenarios to forecast potential budget changes
  • Monitor the performance of all budgeting workflows

* Below are the top five leading budgeting and forecasting software solutions from G2’s Fall 2020 Grid® Report. Some reviews may be edited for clarity. 

1. Vena

Vena is a corporate performance management software that focuses on enabling businesses to plan their future around finances. By connecting people, systems, and data, Vena’s Excel interface allows for detailed, informed, and accurate planning and company-wide knowledge of the outcomes.

What users like:

“Overall, this is an analyst's dream. Ease of use hands down. The learning curve is minimal. The task binding to control privacy, choose function to quickly go between members, and the most important tool - the audit function for obvious reasons. I wish I would have had this available earlier in my career.”

- Vena Review, Michael E.

What users dislike:

“I like the tool, but it requires users to have knowledge of Excel r to understand it and take full advantage of it.”

- Vena Review, Revant Q.

2. Prophix

Prophix is a corporate performance management tool that automates the forecasting process, all while increasing profitability and reducing risk of human error. Features of this solution include budgeting, planning, consolidating, and reporting. Prophix comes as both an on-premise and cloud-based solution. 

What users like:

“The dashboards make it easy to see important information quickly, and they are customizable for each audience in the company. My executives can get information that is clear, concise, and valuable in rapid fashion. I'm also a fan of the ability to use "reports" for data entry. With Prophix, my users can see live data and, by making adjustments to certain data points, see (almost immediately) what impact their change will have on the rest of the information. That's very useful when generating our planning and forecasting scenarios.”

- Prophix Review, Andrew C.

What users dislike: 

“It can be difficult sometimes to translate something that you did in Excel to Prophix. Having said that, the CSP team is a great resource to work through those type situations.”

- Prophix Review, Tom S.

3. Planful

Planful is a financial planning and analysis platform that focuses on continuous forecasting and accelerates the process. This option ensures that the entire business is involved in the planning process and on the same page with forecasting results and decision making.

What users like:

“The tool from both a planning and modeling perspective has Excel as it's foundation and user interface. This makes it user friendly and easy to navigate and understand, increasing the adoption in the business. At the same time you get the full leverage and scalability of a cloud solution and multidimensional database. Planful is also very customer focused and their seasonal updates are largely influenced by customer feedback as well as industry innovation. User interface and capabilities have come a long way since our original implementation.”

- Planful Review, Luis M.

What users dislike:

“I think the "planing" should be more flexible, like a possibility to download and upload directly from Excel in each template created. This would make the forecast/budget process easier and faster.”

- Planful Review, Geovane R.

4. Oracle Planning Cloud

Oracle Planning Cloud is a complete planning, budgeting, and forecasting tool. The main focus of this solution is to enable businesses of all sizes to have access to world-class planning capabilities to enhance the accuracy, efficiency, and reliability of their sales forecasts. 

What users like:

“Setting up Oracle Planning and Budgeting Cloud is very easy. Oracle Planning and Budgeting permitted us to limit the cost of time and repetitive procedures in estimation. Since we have everything in one device, it gives you reports and reviews which is advantageous for better arranging. It’s down to earth, flexible, sheltered and solid.”

- Oracle Planning Cloud Review, Dharrmeshi H.

What users dislike:

“It requires a lot of customization for all the reports which takes a lot of time and requires internal experts to do it correctly.”

- Oracle Planning Cloud Review, Lindsay M.

5. Idu-Concept

Idu-Concept is a forecasting and budgeting tool that focuses primarily on reporting for midsize to large companies in a variety of industries. This option helps businesses track their spend and manage assets to plan better for the future. 

What users like:

“The interface is user friendly and provides all information in a central space. Users can easily export budgeting/reporting information, as well as import larger amounts of budget input. Supporting documentation can be uploaded in any file format.”

- Idu-Concept Review, User

What users dislike:

“The level of detail and depth in the tool can sometimes make it seem daunting for new users to be onboarded. Some of the setup can be complex, like creating reallocation cycles and activity based budgeting. If you want to use this functionality, you really need a resource dedicated to understanding this part of the tool well.”

- Idu-Concept Review, Clive S.

Gaze into the future

Thinking ahead is never a bad idea, especially when it comes to your business’ finances. Implementing a sales forecasting strategy is the best way to plan for the future, make informed decisions, and gauge your overall success. Don’t waste any more time. Implement it today. 

Forecasting requires looking at the bottom line, which can be represented by annual contract value. Learn what to make of that crucial metric.

sales analytics
Check as you go

Sales analytics software updates performance in real-time for an accurate forecast.

sales analytics
Check as you go

Sales analytics software updates performance in real-time for an accurate forecast.

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