8 Sales Forecasting Best Practices To Improve Your Projections
In today’s shifting landscape, making sales forecasts based on gut feelings and intuition alone isn’t enough for confident business decisions. According to research, businesses with accurate sales forecasts are 7% more likely to meet sales and revenue quotas year-over-year. By leveraging forward-thinking strategies based on accurate sales forecasting, your sales leadership and teams can more effectively onboard customers, meet realistic sales goals and identify opportunities or pain points in the customer lifecycle.
In this article, we’ll talk about sales forecasting, how it can boost your business’s long-term performance and the best practices for improved accuracy.
What Is Sales Forecasting?
Sales forecasting is the practice of using data and analysis to predict your company’s earnings over a given time frame. Using factors such as economic and industry trends, past data, and your current sales pipeline, sales forecasting can estimate earnings for the overall organization, specific teams, or individual salespeople over time periods ranging from weekly to annually.
Effective sales forecasting is more than just setting a revenue benchmark. Sales forecast accuracy requires reliable data and correct analysis to determine how much revenue to expect when to expect it, and, therefore, what your company can do with it.
In other words, just as an accurate weather forecast can tell you when you can anticipate rain and be prepared with an umbrella, an accurate sales forecast can tell you when to expect revenue fluctuations so you can prepare strategically.
Why Is Accuracy Important?
Sales forecast accuracy is a crucial element in planning your business’ future, including factors such as budgets, sales quotas and strategies, and production cycles. The closer your sales forecasts are to your actual future sales, the more likely your business is able to operate with efficiency and agility in response to dynamic markets.
Aided Target Attainment
An important metric that tracks the number of deals against assigned quotas, attainment indicates how consistently sales teams close deals. Effective sales forecasting allows you to set realistic sales quotas that your business can better strategize for and actually meet.
Higher Growth Rates
If you know exactly when and where your sales should be going, it’s easier to identify when they’re off-course. Accurate sales forecasting allows you and your sales leadership to look for warning signs and correction opportunities, such as low lead generation, keeping revenue on target, and improving potential for growth.
Bolstered Sales Analysis
Accurate sales forecasts help your teams analyze sales strategies to best serve customers. By identifying a forecasted target, you can create a top-down strategy that analyzes elements such as the number of salespeople needed, how certain products or services contribute to your bottom line, and more.
Faster Strategic Planning
While you don’t need to eliminate your quarterly or annual planning, sales forecasting allows for real-time strategic planning. Fast and agile strategic planning means you and your business’ sales managers can respond to the rapid pace of today’s market and more easily respond with changes such as reallocated resources, policy changes, and hiring decisions.
Types Of Forecast Reports
There are several types of reports you can use to forecast your business’ sales. Regardless of which type you choose, it’s important to adopt a data-driven methodology to optimize forecasting accuracy rather than relying on anecdotal experience and intuition.
The main sales forecast report methods include:
- Verbal reports: In early small business stages, verbal reports can involve weekly calls and individual deal-tracking efforts.
- Spreadsheets: Use versatile forecasting functions to create simplified, customized, and flexible views of your data. Using tools such as Excel or Google Sheets, create visually appealing graphs and charts, customize according to specified requirements, and take advantage of tools such as moving averages and exponential smoothing.
- Customer relationship management reports: Use CRM systems to track key metrics, identify customer behavior trends, and analyze other data that helps inform strategic decisions. Access reports and update information from CRM dashboards.
- CRM + BI + spreadsheets: Use intuitive report creation and filtering tools to harness large data sets and complex analysis.
8 Accurate Sales Forecasting Best Practices
Inaccurate sales forecasting can cause over-forecasting or under-forecasting, which likewise translates to missed opportunities for business and revenue growth. That’s why developing accurate targets based on realistic estimates is crucial for making confident and informed business decisions. Below, you'll find some of the best practices:
Establish a Clear Sales Process
Without standardized and defined sales processes, your sales team members may not know when to move customers or lead to the next sales cycle stage. Sales reps may rely on their intuition or personal bias and make assumptions that customers are further in their buying journey than they really are. This creates subjectivity in your sales process that makes it difficult to make accurate forecasts.
To reduce gray areas, establish a standardized sales process with clearly defined parameters that describe each stage of the customer lifecycle. By creating a consistent sales process framework that standardizes opportunities, leads, prospects, and closed definitions, you can help sales leaders and teams more accurately report on sales and customer interactions.
Focus on Accurate Data
Accurate sales forecasting can’t happen without accurate and quantitative sales data. To promote accuracy across your data, incentivize your team with tactics such as competitions, public scoreboards, and prizes in return for meeting quarterly quotas.
Include Historical Data
Although historical data can’t necessarily predict all of your business’s future sales performance with total accuracy, it can set a solid foundation on which to base other dynamic factors such as new products, seasons or markets. Historical data that are linked to various conversion rates and other goals can contribute toward predictive analytics, which can likewise provide guidelines about various strategies used in the past, highlight successful tactics, and identify strategies that need further refinement.
Include Sales Rep Classification
Sales rep classification is a subjective forecasting method that requires sales reps to identify the stage and outlook for certain deals. Incorporate a field in your CRM where sales reps can suggest their intuitive or experience-based opinions about how the opportunity may progress over a given time frame.
Common sales rep classifications include:
- Best case
- Commit
- Pipeline
- Closed/won
- Forecast stages
By implementing a classification system, you can reduce sales rep behaviors that may throw off your forecasting accuracy, such as avoiding labeling opportunities as lost or overestimating the success of others. To cover gaps in classification system compliance, ensure your reps have standardized definitions for each classification.
Use a Time-Series Analysis
Time-series analysis is a method of analyzing data points and trends over a given time period. By using sets of chronologically ordered raw data points around factors such as weather, customer satisfaction, or economic conditions, you can estimate future business performance as well as any recurrent peaks or lows.
By using this type of analysis, you can find:
- Growth rates and trends for various data sets
- Seasonal data variations
- Cyclical revenue patterns over given weeks, months, or years
This analysis method is most accurate when you have at least several years of a product or service’s historical revenue data available. Keep in mind that unpredictable factors such as economic crises or environmental events can make your time-series analysis less accurate. Instead of making this analysis the foundation of your sales forecast, use it to set benchmarks and measure buyer consistency.
Incorporate Qualitative Data
Getting stuck in certain data set views can make you blind to other opportunities within your business. By looking at your business from different or unexpected views, you can unlock insights and opportunities.
If you’re trying to boost your average ticket amount on your online shop, for example, you can track small items that complement top-selling products. Understanding customer behaviors around these products can help you reveal informed strategies and business objectives. In this case, you might create special promotions to bundle certain items or to get free shipping on carts over a certain value.
Use Sales Metrics
Using basic sales metrics can help you gauge your organization’s and sales team’s performance toward revenue goals and quotas. By tracking these metrics, you can identify sales process pain points, support sales reps who need extra assistance with their targets, and reward sales reps who are performing well.
Some basic sales metrics to track for sales forecasting include:
- Quota: Assigned to sales teams to meet over given time periods, sales quotas contribute to your overall revenue goal. Based on certain products, sales rep experience, and other factors, quotas help measure individual performance and serve as a motivational tool.
- Pipeline coverage: Measures the ratio between the dollar value of your sales pipeline and your sales target to identify buffer room. By analyzing pipeline coverage your business needed for past targets, you can inform future targets and strategies.
- Sales activity data: Tracks any activity between your sales, marketing, or customer success team with prospects or customers. Including everything from phone calls to marketing campaign exposure, this data provides insight into which activities resonated with customers and helped progress them along the buyer’s journey.
- Attainment: Compares the number of deals closed or against the assigned quota on a consistent basis to monitor short-term sales team performance. In addition to keeping sales reps on track, this metric can provide insights on committed deals that failed to close. You can also measure win rate, which is the ratio of deals won to the total number of closed opportunities.
Leverage Forecasting Tools
Tools, techniques, and other specialized sales forecasting methods can help improve your overall efficiency. In addition to the spreadsheets previously discussed, these tools can include:
- CRM: An all-in-one CRM tool can help you store, record, and streamline information about your sales. Using this information, your CRM can track leads, track customer and sales interactions, and view funnel analytics to generate sales forecast reports and help predict when and how you should target customers.
- Accounting software: Accounting software can integrate with other tools to provide complex information and data sets that are necessary for accurate predictions.
- Lead scoring tool: Qualifies leads based on interactions with your website, marketing or sales emails, or any other trigger.
Accurate Sales Forecasting For Business Growth
Ready to leverage accurate sales forecasting and grow your business? We've got the formula you've been looking for, plus more lists of our preferred tools and software. To learn more about forecasting models, forecasting techniques, and how to implement data-driven strategies, make sure to subscribe to our newsletter.