Home » Bookkeeping articles » Sales Forecasting Methodologies That Will Help You Predict The Future & Grow Your Revenue

Sales Forecasting Methodologies That Will Help You Predict The Future & Grow Your Revenue

June 11, 2021
Bill Kimball

sales forecasting methods

Based on this method, you’d assume they’d sell $80,000 or more in November. prosconsIt relies on the opinions of your sales team, who works closest to your prospects.

For instance, during June if your direct competitors ran a promotional campaign for their product, you will most likely see a decline in sales and you could end up selling less than $50,000. However, despite being a data-driven prediction, it isn’t entirely accurate. Opportunity Stage Forecasting doesn’t take into account the individual characteristics of each deal like the age of the lead. For example, a prospect might be at the trial stage for around two months and they’d have the same success rate as a hot lead who reached the trial stage in a few weeks. To implement this technique, you’ll need to analyze and understand your past performance so that you can get a good estimate on the rates of success for each stage of the pipeline. Lead-driven forecasting involves analyzing each lead source and assigning a value based on what similar leads have done in the past and creating a forecast based on that source value. By assigning a value to each of your lead sources, you’ll be able to get a better sense of the probability of each lead that can turn into revenue-generating clients.

This limited rollout gives businesses the opportunity to track the performance of the new offering and monitor things like consumer awareness, repeat purchase patterns, and more. This is a data gathering exercise and it feeds businesses with the information they need to create accurate sales forecasting. This forecasting method is ideal for a business that needs a quick and easy way to project how much it is going to sell over a given period of time.

  • Forecasting future sales based on your existing pipeline does have some limitations, though.
  • Sales revenue is how businesses make money – and if you can’t even venture a guess as to how much revenue you should have available in the coming year, then you’re likely to under- or over-budget.
  • As your business gets off the ground, keeping the bookswill give you additional information to refine your future sales forecasts.
  • This is the simplest of all the methods to calculate future sales and factor any growth into the equation.
  • Usually, Sales and Marketing teams work together to define a lead scoring system and set it up.

However, it requires an advanced analytics solution, meaning it’s not always feasible if you have a small budget. You can make this prediction more sophisticated by adding your historical growth. If you consistently increase sales by 6-8% each month, a conservative estimate for November would be $84,800. Calculations are subjective and each sales rep can forecast differently. To see whether a prospect is as likely to close as the salesperson says, her sales manager would need to listen to her calls, shadow her meetings, and/or read her conversations. You can easily integrate lead sources to better forecast those opportunities. New laws and mandates can either help or hurt your business — either by creating demand for your product or making prospects reluctant to buy anything new.

You have to trust your salespeople to regularly clean up their pipelines, which isn’t always feasible. If you implement a four-month clawback on commissions, for example, revenue will decrease because your reps will only sell to best-fit prospects. However, in a quarter when far fewer customers churn, your profits will increase. Watch out for these ten internal and external factors, for which you’ll need to account in your sales forecast.

Factors That Can Impact Your Sales Forecast

This means that a sales forecast really has the potential to make or break a business. If you are wanting to structure your forecast by the month and use this forecasting method, this sales projection template from Smartsheet can help you quickly get started. So when determining your forecasted sales revenue for the next period , you simply use the shifting average figure from period 5. So, in this example, the forecasted revenue for the next 6 months would be $155,018.33. In many cases, when you are trying to forecast sales revenue for the remainder of a set period, the run rate method works best, thus making goal tracking and ensuring you hit the goals easier to do. Just as unsophisticated as the name implies, there are no formulas used with this method and it does not factor in any adjustment. The naive forecast will give you a baseline to compare with forecasts generated by more sophisticated techniques.

An accurate sales forecast helps businesses to maintain consistent pricing on their products and services. A poor sales forecast might mean that a business is forced to adjust its pricing unpredictably. This tactic is often the result of panic and without the proper strategy, it serves to jeopardize the profitability of a business. A sales forecast is very important, given that it provides the foundation for almost all other planning activities. Businesses will rely on accurate sales forecasting to better understand how they should plan financially and execute their gameplan.

Managers work with reps to inspect pipeline, understand projections and look through sales activity data in order to justify the forecast. Sales forecasting by product is usually reserved for more mature businesses. If a company has multiple product lines that generate varying levels of revenue, it may be wise to choose a forecast method that allows you to account for each product or product line individually. If you’re just getting started with sales forecasting and have busy sales pipelines, opportunity stage forecasting, length of sales cycle forecasting. The pipeline sales forecasting method can take some time — maybe too much time — if you don’t have a program in place to handle your calculations. It reviews each opportunity currently sitting in your pipeline and calculates its chances of closing based on unique company variables including the rep’s win rate and opportunity value.

Learn how leading B2B companies are leveraging AI to predict business outcomes more accurately. AI-dirven automations and user experiences that make all members of your revenue team more productive and efficient, from sales to marketing to customer success. AI-powered visibility into all engagement and activity data to show you where you have sales pipeline risk and opportunity to help you allocate resources.

sales forecasting methods

The template also relies on a weighted sales forecasting method that is based on the probability of closing each opportunity. Multivariable forecasting is most appropriate for larger and well-organized businesses that have the data and tools necessary to blend a range of forecasting methods into one.

Sales Forecasting By Total Revenue

If you stick with the same forecasting techniques for each time period and identify the factors that really move the needle on your revenue, you can create more accurate financial forecasts. Multivariable sales forecasting is a more sophisticated form of analysis that incorporates multiple sales forecasting methods. It may yield more accurate results, but often requires sophisticated software to create comprehensive reports.

So, in this modern age, a data-driven sales forecasting is must have to drive your business successfully. Unlike this example, forecasts based on Multivariable Analysis are highly complex, it requires advanced analytics solution, making it impractical for small businesses or startups. You’ll also need clean data – sales reps should track the deal progresses and activities or else your results will be inaccurate no matter what software you use. Rep A is working an $8000 deal and has just finished the demo; according to the opportunity stage forecasting, the win rate for a completed demo stage is 60%, hence the sales forecast for this deal is $4800. Sales forecasting allows you to spot potential issues and gives you time to avoid or alleviate them. For instance, midway through the quarter, you notice that your sales team is not hitting their targets. You dig deep and find out that there aren’t enough leads being generated for the sales team to convert.

The hope is that the experts will work toward a clearer agreement and further the discussion on relevant topics with each round. President Trump’s tax reform bill created opportunity zones to encourage development in distressed communities. Step 4 Test your model – Run the model through past sales cycle to see how well it performs and fine tune for errors. The marketing department can share insights on market trends, current marketing strategies, buyer behavior, audience targeting, and brand perception. These details will provide insights on the likelihood of converting prospects into clients.

Without it, you’re essentially flying blind – and that can cost your business in a lot of different ways. They may also analyze clothing market trends and what’s popular on social media, increasing sales predictions if they sell many of the season’s hottest styles. An ecommerce clothing retailer might use a combination of the above factors, but add in seasonality to account for a spike in sales during the holidays, back-to-school season, and the beginning of summer. Using this data, you can find the probability of closing for each type of deal, as well as the dollar amount for each sale. For instance, if the first two months moved an average of $100,000 worth of apparel, they might predict $1,200,000 in sales over the next year. Track discrepancies and exceptions – You’ll make the biggest impact by focusing your efforts on aberrations in your reports. In other words, look for unexpectedly low numbers and seek to make adjustments to put your forecast in line with your sales goals.

Unsurprisingly, what your competitors are doing will impact your win rates. If another company in the space slashes their prices, your reps may need to discount more aggressively or risk losing business.

sales forecasting methods

Use multiple forecasts to get a full picture of your sales approach. Decide which ones will be most effective for your company and begin applying. Although accurate data is important, the aim is for valuable, not perfect, information. Forecasting by the length of your sales cycle is a quantitative method that helps you predict when a deal is likely to close.

For example, if an average sales cycle lasts four months and your sales rep has been working a prospect for two months, there is a 50% chance that your rep will close the deal. Sales forecasts are what will help you keep your startup alive and know you have the resources to go after big leads or take on new team members. Even if that’s just asking your sales team what’s in their pipeline and whether or not they think they’ll close. You’ve just started your company and while you understand the value of sales forecasting, so many of these methods rely on historic data to get up and running. I won’t lie, it helps to have benchmarks to work off of, but if you don’t, it’s not an excuse to just go running out there blindly. However, if you think about it, sales forecasting is basically like sprinkling a little fairy dust on your sales plan (ok, I promise that’s the end of the magic metaphor).

Tools To Implement Sales Forecasting Methods

If your business incorporates a subscription business model, the total revenue number would include net new ARR, renewals, cross sell and upsell. This sales forecasting template is ideal when you’re just starting out. However, if your company is more established, consider using a CRM instead. A CRM will calculate all of the above on its own — so you don’t need to lift a finger. Your sales process will also set standard opportunity, lead, prospect, and close definitions. Everyone needs to agree about when and how to count leads entering and exiting the funnel. Make sure your reps regularly enter accurate, timely data into their CRM to glean the most insight from this method.

With a sales forecast, you get a detailed prediction of what an individual salesperson, sales team, or your entire organization, will sell in a given time period—weekly, monthly, or annually. The average this yields typically reduces the absolute error because it reacts quickly to changes in the market while retaining insights from past data. Sales results in any industry are rarely stable from one month to the next and one year after the other. While the moving average model gives important weighted information based on the most recent numbers, those numbers will fluctuate. Because it includes both actual results AND past forecasts, this method is consistently the most accurate.

sales forecasting methods

To gauge performance, you need an objective definition of “success”. These will serve as financial baseline goals to compare alongside your sales forecasting. These steps will ensure an accurate sales forecast for your business. Some sales managers simply ask their reps to estimate the likelihood of closing. The salesperson might say, “I’m confident they’ll buy within 14 days, and the deal will be worth X.” This is intuitive sales forecasting. To get accurate results, you’ll need to carefully track how and when prospects enter your salespeople’s pipelines. If your CRM doesn’t integrate with your marketing software as well as automatically log interactions, your reps will be spending a lot of time manually entering data.

Sales Forecasting Methods & Examples

So, let’s say you have three prospects at different stages in your pipeline, with potential deal values of $10,000, $12,000, and $20,000, respectively. Then just multiply that by your price point to determine a basic estimate of future revenue. For long-term forecasting, in particular, you need to account for potential inflation and how it will affect your costs and pricing strategies.

If you’re reading this right now, chances are it’s because you’re not sure what sales forecasting method is best for you and your organization. And you have a goal to get it right, whether it’s for short-term growth to decide budget plans or if you’re gearing up for an IPO. With a thoughtful sales forecasting strategy, you can be ready for the future — whatever it brings. Get more simple strategies for creating a better sales forecasting model here.

your sales team to come up with better quotas, decide where to best focus their energy, and ensure proper staffing levels are met and maintained. Sales revenue is how businesses make money – and if you can’t even venture a guess as to how much revenue you should have available in the coming year, then you’re likely to under- or over-budget. And really, that’s the main takeaway here – no plan or forecast is perfect. Preparing for contingencies is something that all good forecasts take into consideration. the peaks and valleys of your business’s sales cycle must be taken into account. Failure to do so can dramatically impact the accuracy of your projections.

This intuitive forecasting method is particularly useful for businesses that lack historical data. Without the quantifiable data to provide the basis for your sales forecast, you might have to turn to the more qualitative assessments from your salespeople. Historical forecasting is a very quick and simple sales forecasting technique.