What Is Sales Forecasting?

Sales forecasting entails predicting future revenue by estimating the quantity of products or services a sales unit will sell in the coming week, month, quarter, or year.

Sales forecasts enable you to identify potential issues while there's still an opportunity to address or mitigate them. For instance, if you observe that your team is 35% below quota, you can investigate the cause and make adjustments.

It could be that a competitor has launched an aggressive discount campaign, or your new sales compensation plan inadvertently promotes undesirable behavior.

Detecting these issues early—rather than at the end of the month or quarter—can have a significant impact.

Sales forecasts also play a role in various decisions, ranging from hiring and resource allocation to goal-setting and budgeting.

For example, if your sales forecast anticipates a 80% increase in opportunities, you should begin recruiting to keep up with the demand. Conversely, if opportunities are predicted to decrease, it would be prudent to hold off on hiring. At the same time, consider increasing marketing expenditures and investing in prospecting training for your sales representatives.

Why is Sales forecasting Important?

Sales forecasts are crucial for a company's future planning. Accurate sales forecasts build confidence and credibility, helping private and publicly traded companies alike. Sales forecasting benefits various departments, such as finance, production, sales operations, supply chain, and sales strategy. However, disconnected methodologies can lead to adverse business outcomes. Regular, quality sales forecasting helps prevent costly mistakes.

Benefits of having an accurate sales forecast An accurate sales forecast offers numerous advantages, including: Enhanced decision-making for the future Reduced sales pipeline and forecast risks Alignment of sales quotas and revenue expectations Decreased time spent on territory planning and quota assignments Benchmarks for assessing future trends The ability to concentrate on high-revenue, high-profit sales pipeline opportunities, resulting in improved win rates Bottom-up sales forecast or a top-down sales forecast.

How to accurately forecast sales

To create a precise sales forecast, follow these steps:

Assess historical trends Incorporate changes, such as pricing, customers, promotions, channels, and product changes Anticipate market trends
Monitor competitors Include business plans Keys to success in sales forecasting To enhance sales forecasting accuracy and efficiency, organizations should focus on collaboration, data-driven methods, real-time capability, single-sourced data with multiple views, and continuous improvement.

What is Pipeline Forecasting?

The pipeline sales forecasting method can be time-consuming if you don't have a system in place to manage your calculations. It examines each opportunity currently in your pipeline and estimates the probability of closing based on specific company factors such as the representative's win rate and the opportunity's value. This forecasting approach depends on your ability to provide high-quality data. If the numbers are incorrect or the data is flawed, the forecasting will be worthless.

Ensure that your representatives consistently enter precise and up-to-date data into their CRM to gain the most insights from this method.

Pros:

Highly data-dependent, making it one of the most accurate methods.
Takes into consideration the unique aspects of each opportunity.

Cons:

Extremely reliant on data and can be easily distorted.
Often necessitates the use of a sales forecasting tool.

How to calculate sales forecast?

A straightforward formula for sales forecasting is: sales forecast = sales from the previous period + estimated sales growth (or decline) for the next period.

Estimated growth can be determined using either a growth rate-based (top-down) approach or an acquisition-based (bottom-up) approach, relying on crucial assumptions about your business and its environment.

There are two fundamental forecasting methods: growth rate-based forecasting (often referred to as top-down forecasting) and acquisition-based forecasting (also known as bottom-up forecasting).

Pipeline Forecasting Example: If your sales team usually closes deals valued between$200,000 and $800,000 within 120 days, all current deals in your team's pipeline would be assigned a high probability of closing. You can then use this information to determine your monthly or quarterly forecast.

The Meow open source CRM application supports you accurately forecasting your sales. Every opprtunity is saved with a close date and the statistics view allows you to check the progress you have made in your quarter.