A Comprehensive Look into Sales Forecasts

a comprehensive look into sales forecasts

What is a Sales Forecast?

Sales forecasting is a business management process that seeks to predict future sales. Proper sales forecasting helps business professionals make important decisions ranging from modifying the business plan to expanding business operations.

In fact, businesses with accurate sales forecasts are 10% more likely to grow their annual revenue and 7.3% more likely to meet their quota than businesses without accurate sales forecasts.

In general, companies who have historical data about their sales performance can more easily predict future sales accurately. Newer companies must use external information to make educated guesses about their projected sales such as market research statistics.

A sales forecast provides crucial workforce management insight that can be used to optimize sales team productivity. For example, if there are sales reps who have emerged as sales leaders at your business, your sales managers may choose to pair them up with a less successful team member for training and mentorship purposes.

Mentorship, training, and coaching opportunities that take account of historical forecasting data can help underperformers on your sales team transform into successful sales reps who will likely close more deals.

When businesses forecast sales accurately they are provided an opportunity to better allocate their resources. Business owners can take account of available resources and make sure their sales team and other departments possess the right tools to perform optimally.

A major mistake that businesses make is pursuing a growth rate that is not realistic. Using sales forecast based data decreases the likelihood of a business expanding too quickly or without the resources necessary to sustain it long term.

An accurate sales forecast is a performance management, risk management, and overall workforce management solution. The combination of historical data and educated guesses can provide companies with a competitive edge, increased financial success, and business longevity.

The Importance of a Sales Forecast

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Even with only two weeks left in the quarter, a shocking 93% of sales leaders cannot accurately forecast revenue within 5%. For this reason, both small business and large corporation owners should make sales forecasting a top priority.

A sales forecast is an outstanding risk management, budgeting, and planning tool. When business's forecast sales using data, they are eliminating some of the human bias that can be deadly to business success and longevity.

Business owners and sales leaders can be overly optimistic about the future and can easily make disastrous decisions based on emotions instead of educated guesses. Understandably, your sales reps and sales teams rely on their intuition heavily in their role.

In fact, some of the best sales leaders use emotions to their benefit. However, intuition does not serve a business plan or budget in the same way it may positively impact sales abilities.

With the information provided by an accurate sales forecast, you can make more informed decisions about business operations. One area that sales forecasting can be especially valuable for is a business's growth rate and expansion potential.

For example, a business that has had immense success over the last three months may assume that it is a great time to open a second location. However, upon forecasting sales the business may realize that making a huge decision based off a limited time period is not sustainable long term and instead may wisely decide to gather more historical forecasting data.

Alternatively, being overly conservative and cautious can result in missing important opportunities for increasing growth rate or expanding business operations. An accurate forecast may encourage business owners to onboard new sales leaders or develop existing sales teams by allocating available financial resources. If financial success is continual and your existing business is adequately developed, it may be a great time to consider business expansion.

Another benefit of an accurate sales forecast is the ability to address minor issues before they develop into huge problems. For example, your forecast could indicate early warning signs about your sales pipeline that can be addressed and corrected.

How to Build a Sales Forecast

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Business planning need not be as accurate as accounting, and relies much more on educated guesses. Using a combination of educated guesses and data will provide you with the basis for building your forecast.

Although building a sales forecast may initially seem intimidating, anyone can create a forecast for their business plan by using the following-

  1. Sales projection- Break sales projections into their component parts, for example, by units. Remember, not only businesses that sell products can break down sales into units.

    For example, service industries like restaurants can break down sales by meals sold or lawyers can break down sales by hours worked.

  2. Historical data- Historical sales data is valuable when predicting future sales. Sales analytics and statistical tools combined with human common sense can create more realistic sales projections.

    Some businesses choose to use the last years of data and plot it out by month on a line chart. From there, you can visually track forward future sales projections across the same lines.

  3. New products- Unveiling a new product can be an exciting and stressful time for any business. Of course, no business knows how a new product will fair in the market, but new products should never be used as an excuse to not create sales forecasts.

    If your new product is similar to products created by another company, research how their new product launch affected their overall sales. If you are releasing completely new products onto the market, consider historical forecasting data for similar products.

    For example, when fax machines were introduced, sales analysts used typewriter and copy machine historical forecasting sales data.

  4. Breakdown factors- Similar to unit sales projections, you can choose to forecast sales based off other factors. For example, some retail businesses project sales based off the sales of businesses that have similar square footage.

  5. Project prices- Estimated guesses of unit sales is the most difficult part of the sales forecasting process. Projecting prices alongside your projected unit sales is much easier.

    Combine different sales items and their estimated prices to calculate total sales. Make sure to consider the cost of sales, including the cost of goods sold.
At minimum, your sales forecast should account for the upcoming twelve months. Some sales forecasts extend to five years, but three years into the future is sufficient for most business plans.

Sales Forecasting Techniques

There are various sales forecasting methods for business professionals to choose from depending on their specific business needs and wants. Make sure you comprehensively analyze available data, business plans, and your sales team before deciding on a specific sales forecasting method.

Historical forecasting is a very easy and fast way to forecast sales but sometimes is better served as a benchmark than as a foundation for forecasting. A downside of historical forecasting is the ever-changing market.

Intuitive forecasting is ideal for newer businesses or businesses that do not have sufficient historical data for reference. Intuitive forecasting is heavily based on the intuition of your sales reps so it is entirely subjective.

The length of sales cycle forecasting and opportunity stage sales forecasting methods are excellent forecasting methods for businesses that are not seasoned forecasters but possess bustling sales pipelines. Both the length of sales cycle and opportunity stage forecasting methods are highly objective but may suffer from a lack of historical data availability.

If a business wants to pursue sales pipeline specific forecasting, pipeline forecasting and multivariable analysis forecasting are great objective sales forecasting options. One prevalent issue is that even a slight error in data can have catastrophic effects for multivariable analysis and pipeline forecasting.

Multivariable analysis is largely considered the most accurate and comprehensive forecasting method available. Multivariable analysis and pipeline forecasting are ideal for sales teams with excellent pipeline and sales data available.

How to Develop a Sales Strategy

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Developing a sales strategy is a great way to optimize your business's sales process and increase long term profitability. Tips for developing a sales strategy include-

1. Generating value- 74% of executive buyers will patron a company that has a buying vision. A value proposition will increase urgency and reveal previously unconsidered needs for your potential customer.

2. Instillling urgency- 60% of deals in the sales pipeline are not completed due to no decision as opposed to business being taken to a competitor. Motivate your client with a sense of urgency around changing, and then provide the unique solution your business offers.

3. Storytelling- Develop customer relationships and increase sales through personal storytelling and creativity. Your ultimate goal is to make sure customers can see the potential of your service or product to positively change their own reality.

4. Problem centricity- A program-centric sales plan is not always effective as each client has different needs and wants. Address specific needs of your customers and make sure the sales process is relevant to them.

5. Need consideration- Rather than focus on commodity traps or buyer personas, instead guide customers to focus on their unconsidered needs. Focusing on unconsidered needs instills a sense of urgency for purchasing your service or product.

6. Insightfulness- Instead of delivering according to customer needs, generate new needs for your customer. Develop a story that illustrates potential instead of strictly providing data points and online statistics.

7. Marketing- Make sure your sales teams and marketing department work closely together. A helpful analogy is that if your sales rep is the storyteller, then your marketing team is the story builder.

8. Existing customers- Nearly 50% of companies invest less than 10% of their marketing budget for customer expansion and retention purposes. Instead of focusing primarily on new customer acquisition, focus on expanding existing customer sales.

Renewals and upsells can generate massive profit, without the added costs of acquiring new customers.

How to Improve Sales

Beyond developing an outstanding sales strategy, there are many best practice tips available for improving sales. Various sales improvement tips include-

  1. Research competition- Take account of your competitors, researching their success and their weak points.

  2. Innovate- Instead of hyper-focusing on customer acquisition, consider the ways your business can offer new products and services to keep your existing customers engaged.

  3. Customer service- Make sure customers feel consistently appreciated by your business and are provided with easy accessibility to your sales reps and customer service team.

  4. Promote- Promotions are a great marketing tool that can attract new customers while also increasing value for existing customers. Consider providing free samples or discounts to customers on a consistent basis.

  5. Marketing- Beyond acquiring new customers, marketing should look for unique opportunities to reward existing customers. The main goal of marketing should be to highlight the high quality and uniqueness of the products or services offered by your business.

  6. Credibility- Customer testimonials and reviews are great ways to boost the credibility of your products and increase your sales.

Conclusion

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  • Sales forecasting is a risk management, performance management, and overall workforce management tool.
  • Accurate sales forecasting makes businesses 10% more likely to grow their revenue year to year and 7.3% more likely to meet their quota.
  • Forecasts based on historical data and educated guesses can provide a company with a competitive edge, financial success, and business longevity. Additional factors to consider include new product launch and market conditions.
  • Sales forecasting is much more complicated than looking at average sales generated by a company. Understanding how different factors affect sales helps your business to identify errors and maximize productivity. Gathering data on your average sales cycle and sales pipeline data can make the sales forecasting process much easier and more accurate.
  • 93% of sales leaders cannot forecast revenue within 5% accuracy, in order to obtain an accurate sales forecast there are many different methods available. Forecasting model types available range from intuitive forecasting to historical forecasting.
  • Tips for developing a sales strategy include instilling urgency, marketing techniques, and storytelling. Innovation and credibility are both best practice factors that can further increase sales.