Sales is a fast-paced profession. As a general rule, the faster you move and the more you cover, the greater your success. The large market for sales automation tools and time management courses show how important time is to successful sales professionals.
Taking a step back and assessing your sales forecast may not seem like a crucial task when there is so much else to be done. However, sales forecasting can bring benefits to sales teams by facilitating a change from tactical to strategic sales.
Here’s the what, why, and how of successful sales forecasting.
What is Sales Forecasting?
Here’s a simple definition of sales forecasting from Track Maven:
“Sales forecasting is the process of estimating future sales.”
More than that, sales forecasting is the process of creating a well-informed idea of what the future of your sales might look like based on the current knowledge and data you hold.
To do this accurately, you must first have a clear understanding of your sales process and the level at which it is currently performing. This should inform your sales decision making moving forward.
For example, imagine that your sales forecast is similar to a weather forecast. If you know it is going to be raining, then you can narrow down your options to staying inside, taking an umbrella, taking a raincoat, or getting wet.
No sales forecast will tell you exactly what to do, but it will let you make decisions based on what is likely to happen.
Why do Sales Forecasting?
Creating a forecast will help sales leaders to motivate others in their teams by applying likely scenarios and leveraging motivational factors. For example, bonuses may be allocated based on meeting or exceeding a month’s sales forecast, this can work much better than a flat target, as external forces are considered and individual success can be rewarded with these in mind.
Sales forecasting can also serve to highlight potential problem areas and allow you to allocate resources in the smartest possible way. If a business sees a dip in a month’s potential sales due to a key challenge being faced by one customer, they may choose to allocate resources to support that customer during that period. This will ultimately increase their potential sales and secure a solid future relationship.
Building a Sales Forecast for Your Business
A successful sales forecast has 4 crucial building blocks:
To reach successful sales forecasting, you must first define exactly what you mean by success.
The act of forecasting is only useful when it is measured and compared to what you are trying to achieve. Again we can relate this to our weather forecast. It is pointless to find out how you should dress for the weather tomorrow if you have no idea whether you plan on leaving the house.
To put this in context, you cannot know what data you need to collect and what you need to do with that data until you know exactly what it is you are trying to achieve.
Start by defining your top-level goals. These may relate to overarching business goals and how the sales function feeds into achieving them. These goals will help you set Key Performance Indicators, which will highlight your progress.
Using your sales forecast and comparing it to your KPIs will give a clear picture of whether you are likely to reach your goals based on your current actions, or whether changes need to be made.
Consolidate Your Sales Process
All businesses have a sales process, but few take the time to understand how each element links together and impacts success. To build a reliable sales forecast you must first consolidate each stage of sales into one clear sales process.
Your sales process is the journey that your average customer takes to a sale. For example, your sales process may begin with cold calling and go through stages such as initial meetings, proposals, and negotiation before a sale is finally closed.
Different stages of your sales process will have different probabilities of success. At the cold calling stage, perhaps only 3% of effort results in a sale, but perhaps 75% of proposals result in a closed deal.
Using historical data you should be able to identify the probability of success at each stage. Combining this with the average time it takes for a prospect to move from each stage to the next and knowing where each prospect currently is in your pipeline will allow you to start building a reliable sales forecast.
If you don’t hold any historical data on your sales pipeline you may start with an educated guess on success rates to create a weighted funnel that can be adjusted as more data is gathered.
Develop Your Action Plan
Successful sales professionals will set up regular reviews of their pipelines to identify any potential issues and take action to remedy them. You may also set forecast markers, which trigger certain actions. For example, a drop in forecasted sales in February may trigger a rise in the marketing budget in January.
Adjust and Tweak
Sales forecasting will never be 100% correct. As you learn and build more historical data, consistently update your metrics and how forecasts are calculated to increase accuracy.
Sales Forecasting Means More Sales
Sales forecasting is a crucial and powerful tool for any business that wants to increase sales. Although it is almost impossible to create complete accuracy, well-informed forecasting will help you base decision making on the best information you have to hand.
How will you utilize sales forecasting in your team?