Shabnam Kakar
Contributor
The fact that sales forecasting is important is no secret.
There are tons of stats out there reinforcing this, boasting all the different reasons why sales forecasting is critical for incremental business growth.
The Harvard Business Review has done particularly extensive research on sales pipeline management (of which sales forecasting is a major part). For example, they found that on average, companies with effective pipeline management had a 15% higher revenue growth rate than companies that reported having ineffective pipeline management.
Despite this, many sales managers struggle to produce accurate sales forecasts that hold true when the actual results come in at the end of the year. (Sound familiar?)
We’ve put together some pointers on how to forecast sales more accurately, using a fine balance of data and educated “guesses”—not dreams and wishes. After all, if you wanted to learn how to make a dream board, you’d be on Pinterest.
So let’s get right into it.
Here’s why sales forecasting is a big deal.
Sales forecasting is a huge deal because it’s what tells you how much revenue you can expect to generate in a given amount of time.
The information gained from sales forecasting can be used to make proactive, informed, and intelligent decisions about your sales process. It's important that your sales forecast is based on facts, or at least the closest thing to it. For example, past experience and sales data make for a great starting point when forecasting for an upcoming time period as they back your sales forecast with facts, not just wishful thinking.
Sales forecasting lets you see potential problems that could impact your sales quota before they have a chance to happen. This information is crucial as it will allow you to strategize accordingly based on these potential problems to ensure that their impact isn’t negative (or at least, mitigate their impact). Recognizing and addressing a potential problem in its early stages can save you a lot of time and money in the long run.
Similarly, sales forecasting can also highlight potential opportunities to increase your sales, in which case you can proactively plan your sales process to maximize this advantage. For example, if your company sells home alarm systems and there’s been a record trend of home invasions in a city your company services, there’s a good chance that your sales for home alarm systems will go up from prospects residing in that city. Accurate sales forecasting empowers you to project things like this ahead of time and align your sales process accordingly.
Long story short, accurate sales forecasting is a need-to-have, not a nice-to-have.
What is qualitative vs. quantitative sales forecasting?
Sales forecasting is a pretty broad term, so let’s break it down a bit.
There are two primary types of sales forecasting methods: qualitative and quantitative. It’s important to know what each type is and when to use it, to ensure your sales forecasts are as accurate as possible.
Qualitative sales forecasting is mainly opinion-based. Generally speaking, qualitative forecasting isn’t as accurate as quantitative forecasting because the latter is based on actual data. Numbers. If you’re just starting your business, however, or if you’re launching a brand-new product or service offering, qualitative sales forecasting is probably the method you'd go with as you wouldn’t have past sales data to look back on.
Quantitative sales forecasting is data and numbers-based, making it a lot more accurate than qualitative forecasting methods. You should perform quantitative forecasting when you have past sales data, and when the overall sales environment is predictable.
The best part of quantitative sales forecasting is that with the right tools, most of it can be automated. An effective CRM tool should be able to generate the necessary reports to give you all the data you need in just a few clicks. For example, Copper has built-in reporting functionality, allowing you to pull custom reports and assemble accurate sales forecasts. In fact, according to a customer survey, Copper customers reported having increased the accuracy of their reporting by 44%, and sales forecasting accuracy by 35%, compared to CRM software they'd used in the past. Those who hadn't used a CRM before reported an even higher 57% improvement in reporting accuracy and a 46% improvement in sales forecasting accuracy. (You can get a free 14-day trial of Copper, without any credit card info, here.)
Pulling reports is great, but you’ve got to know which data is going to be the most valuable in putting together accurate sales forecasts. We’ve got tips that cover both qualitative and quantitative forecasting methods next.
How to forecast sales accurately like a champ:
Tip 1: Look at past data.
If you’re lucky enough to have sales data from the previous year, use it. Last year’s sales numbers make for a great starting point when drafting a new sales forecast for the coming year.
Use your previous data as a base, then list all the factors that could increase sales this year. For example, are there new trends relevant to your business offering? Are there new opportunities in the market? Is there a rising demand for your product or service? If yes, increase your sales forecast accordingly.
Next, list all the factors that could decrease your sales. Is there new competition in the industry? Are there any upcoming regulation changes that could affect your business offering? If yes, decrease your sales forecast accordingly.
Now that you’ve put together an accurate sales forecast, you can look at the individual factors that will affect your sales and plan your sales process to proactively address them.
Tip 2: Consult an expert in the field.
Consulting an expert is always a smart thing to do, but is especially impactful if you don’t have a lot of (or any) past data to work off of because you’re just starting out, or you’re launching a completely new product or service.
An expert in your field, whoever it may be, is someone who knows the nature of the market, has insights on competitors, and has industry-specific experience. You can research something all you want, but no amount of research is equivalent to the first-hand experience an expert possesses. This is someone who can make “educated guesses” that you can trust.
The best experts aren’t always outsiders. Often, the biggest experts are your most seasoned front-line sales staff. The accuracy of your sales forecasting definitely warrants a team meeting with these experts!
Tip 3: Focus on demand, not supply.
When forecasting sales, don’t focus on the supply of your product or service. Focus on the demand, then account for supply accordingly. This will ensure you don’t under- or overestimate how much supply you’ll need, ultimately saving you—or making you—money.
For example, if you can supply 100 TVs a month, but data shows that your demand is actually 150 TVs a month, forecasting this demand ahead of time will allow you the time needed to figure out how you’re going to expand your production and meet this projected demand, maximizing sales.
That's the power of sales forecasting.
Tip 4: Keep your forecast up to date.
A lot can happen in a year. It’s important that your sales forecast stays up to date so it maintains its value.
Your sales process goes hand-in-hand with your sales forecast, so if your process changes, your forecast inevitably needs to change with it. Remember that the impact of your sales process is not exclusive to your sales team. Any major change in your company, like a new marketing direction, reprioritization of milestones, or a shift in company OKRs, can affect your sales process. These things would also then affect your sales forecast, and you’d need to update it to incorporate any new factors accordingly.
By keeping your sales forecast updated, you’re ensuring you always have the most accurate numbers at hand—and that your corresponding sales process is operating at maximum efficiency.
Tip 5: Make sure all teams are on board.
Ideally, your CRM is going to be where you pull your data from for your sales forecast, so it’s important that your CRM has all the facts. To ensure this, all teams should be using the CRM—even if they're not in sales.
Your CRM should be the one source of truth when it comes to your client and sales data. This means that all teams that use that data including Sales, Product, Marketing, Finance and so on, are using the CRM and inputting their data accordingly.
Again, a CRM like Copper makes it easy for all teams to work together with unique collaboration features, seamless integrations, and a central location for housing client data and interactions. The benefit of a CRM is that it can encompass the needs of multiple departments, making it easier for everyone to contribute to accurate sales forecast reporting.
Tip 6: Never underestimate the power of relationship-making.
Having good, solid relationships with customers and prospects can also help you forecast sales more accurately.
Consumers are now more critical than ever when it comes to making purchases. An attractive product with a decent price isn’t good enough anymore. Consumers seek positive relationships with the companies they do business with. To add to our previous tip, this means it’s also now more vital than ever to have a strong CRM in place (notice a trend?) that can handle every stage in the modern-day sales pipeline of the Relationship Era.
It truly pays to know your audience.
Time to get forecasting!
So, we’ve established that sales forecasting is important because it gives you the power to see potential problems (or advantages) that could impact your sales before they happen, and then come up with a game plan accordingly.
We’ve also shown you that accurate sales forecasting is a big deal because it maximizes company-wide efficiency and profit—and that with an effective CRM, it’s not hard to do either!
To learn more on the impact of CRM in the Relationship Era, download the infographic.
