Business’s can benefit greatly from using data-driven sales forecasting processes to identify factors that could have an effect on their sales, such as new technological improvements or shifting consumer behaviors.
Additionally, it helps companies stay ahead of competitors by identifying growth opportunities and allocating resources effectively. To meet this objective, the process must be fast, straightforward, and mandatory.
1. Collect Data
Data-driven forecasting processes that emphasize open communication and collaboration among sales leaders and frontline teams are crucial to accurate forecasting, as this method allows for adjustments based on recent sales results and market trends.
External factors, like holidays, local festivals or economic crises can all have an effect on sales forecasts; however, many are predictable and can be considered during planning processes.
Internal factors, on the other hand, are usually within your reach and can be adjusted as necessary – this includes things such as marketing campaigns, product releases and seasonal fluctuations in demand.
2. Analyze It
No matter if your business is brick-and-mortar with cash registers or an online consultancy that bills by the hour, sales represent any time money is earned through goods or services provided to customers. Unfortunately, every sale also incurs expenses; if these exceed revenue generated then your company won’t operate profitably.
Sales forecasting allows you to identify and avoid such potential pitfalls by comparing actual results against projected numbers. To begin this process, determine how long you would like to analyze sales data; some businesses might benefit from doing it for up to one year while other may require shorter analysis periods. You should also decide what metrics or breakdown of sales you would like to track: revenue figures or more intricate breakdowns by product and customer – this will allow more precise modeling and analysis.
3. Analyze Trends
An effective sales forecast requires reliable data. This can be especially challenging for newer companies with little sales history; they must rely on market research, competitive benchmarking and other sources to produce accurate projections.
Certain forecasting methods can be more reliable than others depending on the accuracy and external influences of data. A simple moving average is quick to calculate while more complex models such as exponential smoothing can support seasonality trends or seasonal patterns.
Another key aspect of forecasting success is understanding your sales units. Some companies define sales as dollars; other use units such as lunches or hours of consulting work as sales units. It’s crucial that you recognize all types of sales units being utilized and which ones may pose potential forecasting difficulties, so as to take steps that improve forecasting processes.
4. Find the Red Flags
There are numerous factors that could thwart sales forecasting. Some are internal, such as turnover rates and territory changes; others could include external factors like economic conditions and new competitors.
Sometimes issues with lead generation strategies can be easily detected when you compare actual results to forecasts. For instance, if sales fall short of expectations but were predicted in your forecasts for one month only then this may indicate something amiss with your lead generation strategy that needs addressing immediately.
Forecasts that are too high may also be an indicator that your team is not meeting its targets and could make maintaining or growing revenue difficult if left unaddressed. CRM tools can be helpful in spotting trends that indicate these potential issues. But you can go a step further and remember that an open source CRM is usually more cost effective.
5. Make It Realistic
As sales leaders are expected to do more with less, accurate sales forecasting is vital in setting budgets, identifying risks and opportunities, and managing resources effectively.
Use of the appropriate sales forecasting methodology for your company is key to its success. Some industries experience large variations between months, making it smarter to spread out forecasting over a longer timeframe (say, one year).
Thinking in units rather than dollars when creating sales forecasts can also help make more accurate projections. Doing this allows you to take into account factors like average length of the sales cycle and likelihood that prospects convert into customers more accurately, providing your team with greater insight into its pipeline allowing them to quickly identify any problems early and avoid overcommitting themselves.
6. Account for the Length of the Sales Cycle
If your sales team tries to close deals in too little time, they run the risk of having one stall out – damaging both your business’s reputation and creating unrealistic expectations for themselves and their team members.
Consider accounting for the length of your sales cycle when forecasting prospects to your sales pipeline, rather than racing them through quickly in an attempt to close sales and convert customers as quickly as possible. Doing this will enable your team to focus on closing deals instead of racing to beat time!
Forecasting accurately can help the whole business plan resources for shipping products, hiring employees, and more. Furthermore, accurate forecasting helps avoid surprises, such as summertime slowdowns and adjustment needs, making sure everyone remains on the same page when it comes to revenue growth expectations. An accurate sales forecast keeps both sales leaders and their collaborators satisfied – just like an on-time shipment!
7. Focus on the High-Value Deals
One of the key challenges associated with creating an accurate sales forecast for newer companies is lack of historical data to draw upon. Though market research can provide solutions, this takes both time and money.
Forecasting past performance can provide invaluable insights without requiring extensive time or effort on your part. This technique examines your team’s past results over a given time period and assumes they will remain similar or improve over the following timeframe.
This can be accomplished using various factors, including the length and performance of your sales cycle and marketing campaigns, internal factors like product strategy or sales tactics or even industry benchmarking studies. No matter which method is employed to forecast sales performance accurately. Keeping results of forecasted performance close to actual performance is crucial.
8. Make It Collaborative
Forecasting should be conducted collaboratively so that leaders can integrate input from various roles and business units into one consolidated forecast. Leveraging frontline sales rep input may reveal unique insights not otherwise seen.
An integrated CRM platform can assist in minimizing data slippage and inefficiency during collaboration to ensure the most accurate forecast numbers are reflected in the final document, cutting time spent on manual processes while increasing sales forecast accuracy.
Sales forecast numbers can be used to create other financial documents, such as a profit-and-loss statement, cash flow statement and balance sheet. They’re useful when making business decisions or communicating with stakeholders or auditors and also ensure revenue goals are realistic. A good sales forecast helps prevent overspending or underspending to keep your business healthy and profitable.
9. Make It Simple
Accurate sales forecasts can be an enormous obstacle for new companies, particularly without much or any past sales data to draw upon. To create more accurate forecasts, a more streamlined forecast process may also prove invaluable.
Use a bottom-up forecasting approach that uses your sales pipeline to provide more precise estimations for closing probability, using conversion rates at each stage as your measure. This approach offers more granular forecasting data while being easier to modify than top-down approaches.
Forecasting can provide invaluable insights into how your business works and the performance you can expect from your team. A good forecast allows you to plan for external factors like seasonality (i.e. holiday shopping season or slow summer months for candle companies) while helping sales organizations determine how best to optimize operations.
