Common Forecasting Methods to Consider
Businesses with accurate sales forecasts are 10% more likely to grow their revenue year to year and 7.3% more likely to meet their quota. Proper sales forecastingsales forecasting assists business professionals with making important decisions ranging from their short term sales strategy to their long term growth rate objectives.
However, even with just two weeks left in the quarter, only 7% of sales leaders can forecast revenue within 5% accuracy. Finding the best forecasting method for your specific business should be a top priority and there are many forecasting techniques to choose from, including-
1. Length of sales cycle forecasting- The length of sales cycle forecasting method uses sales lead data and is completely objective. Business professionals can apply this method to various different sales cycles simultaneously.
Tracking and collecting accurate data on sales pipeline progression is important for this forecasting method. A strong collaboration between your sales teams and marketing teams is also crucial to length of sales cycle forecasting successfulness.
2. Intuitive forecasting method- Inquiring directly with your sales reps about their anticipated success is the foundation of the intuitive forecasting method. Businesses that do not have very much historical data available or are newly established often use intuitive forecasting.
A benefit of this method is that it collects information from your sales leaders about future sales instead of relying on the educated guesses of sales management professionals. A consequence of the intuitive forecasting method is that sales reps tend to be overly optimistic about future sales and their ability to close deals which creates a bias.
3. Multivariable analysis forecasting- Multivariable analysis is generally considered the most accurate and sophisticated sales forecasting method. The multivariable analysis forecasting method considers average sales cycle length, sales rep performance, and sales closing probability.
Due to the advanced analysis required, a small business without a large budget may not be able to use this forecasting method. Additionally, any errors in data can create huge issues with multivariable analysis so clean and accurate data are necessary.
4. Historical forecasting- Generally considered the easiest and fastest forecasting method, historical forecasting matches historical data to future dates in order to predict sales. Assuming sales will be the same or higher than they were in a similar time period, historical forecasting can be used to predict sales by months, quarters, or years.
A consequence of historical forecasting is the lack of consideration of seasonality or buyer demand variations. For these reasons, historical forecasting may be much more beneficial as a benchmark than as a foundation for your sales forecast.
5. Opportunity stage forecasting- Opportunity stage forecasting views where a deal is within the sales process to determine the likelihood of successfully closing the deal. Using sales cycle length and sales quotas, simply multiply every potential deal value by the probability of it being closed.
Opportunity stage forecasting is heavily dependent on sales pipeline and historical data accuracy. Even so, opportunity stage forecasting can be widely inaccurate as it does not account for variations in variables such as changes in your sales process or a new product introduction.
6. Pipelines sales forecasting- Pipeline sales forecasting evaluates where each sales opportunity is located on your sales pipeline to determine the likelihood of closing the deal. Analyzing your sales pipeline and factoring in unique variables such as sales rep statistics and opportunity value, pipeline forecasting relies heavily on high quality, clean data.
How to Choose the Right Sales Forecasting Method
With a wide range of sales forecasting methods to choose from, it can be difficult to decide which method is best for your specific business needs. Before choosing a forecasting method make sure to comprehensively analyze your business plan as well as any available data.
The availability of data is an important consideration when deciding between forecasting methods. For example, intuitive forecasting is best for businesses that have not collected enough historical data or a newly established businesses.
Your proficiency and experience with forecasting may influence your decision regarding forecasting methods. For example, a historical forecast might be chosen by someone who is not very comfortable with forecasting.
There are also forecasting methods that analyze specific factors such as your sales pipeline including the multivariable analysis and pipeline forecasting methods. Or, you may choose to use a variety of different forecasting methods to get a more comprehensive view of your future sales prospects.
Forecasting based on your data, overall business plan, and educated guesses is a great way to increase your close rate and impact sales positively. Although it is close to impossible to predict future sales with 100% certainty, using proper sales forecasting methods can greatly increase your accuracy.
- Forecasting sales accurately increases the likelihood of a business growing their revenue year to year by 10%.
- Businesses with a proper forecasting process are also 7.3% more likely to meet their quota.
- Forecasting allows businesses to make important decisions ranging from pipeline management to expansion ventures.
- There is no best sales forecasting method, but multivariable analysis forecasting is generally considered the most accurate and comprehensive. Alternatively, historical forecasting is generally considered the easiest and fastest sales forecasting method.
- Accurate data is essential to forecasting sales for the majority of forecasting techniques available. However, each forecast method has its own considerations and focuses.
- Businesses may also choose to forecast sales based on sales rep opinions or sales pipeline placement. Alternatively, evaluating past sales and growth rate leads to different predictions. Some businesses chose to use a combination of forecasting techniques simultaneously.
- A sales forecast based on educated guesses, overall business plan, and historical sales data helps business professionals to more accurately predict future sales revenue and close deals more effectively.