An In-depth Guide to Sales Forecasting

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Analytics & Reporting : 11 min read

An In-depth Guide to Sales Forecasting

Attempting to predict the future of your business often feels futile, doesn’t it? Competitors come and go. Markets change over time.

The wants and needs of our customers do, too.

Does that mean that companies should be totally blind to what’s around the corner, though?

Absolutely not.

With so much customer data available at our fingertips, spotting trends and planning ahead doesn’t have to feel like a total guessing game.

And combined with a solid sales forecasting strategy, you can paint a more accurate picture of where your company is headed.

In this guide, we’ll break down the benefits of sales forecasting, what makes an effective strategy, and how to get started.

With that, let’s dive right in.

What is sales forecasting?

Sales forecasting is the practice of predicting and estimating future sales based on data.

Sales forecasts are often broken down by factors such as:

  • Time
    • Forecasts can be conducted weekly, monthly, quarterly, annually, and so on. Although businesses may forecast beyond that, sales forecasting within the immediate future typically produces more accurate results. Ex: “For the year of 2019, our sales forecast predicts…”
  • Department vs. individuals
    • Forecasts can be made on behalf of your sales department at large or drill down to individual reps. Ex: “Based on our analysis, Natalie will close at least $100,000 in deals by the end of March 2019.”
  • Units or cash
    • Forecasts are typically concerned with a dollar goal, but could also be made to predict a certain amount of units or inventory sold. Ex: “According to our forecast, Company X will sell 15,000 units during Q1 2019.”

Of course, these forecasts don’t come from a crystal ball.

Effective sales forecasting is a combination of analysis and a strong pulse on your industry. For example, companies can make predictions based on factors like:

  • Customer data
  • Industry trends
  • Competitive analysis
  • Economic conditions

The benefits of sales forecasting:

Bear in mind that your predictions don’t need to be 100% accurate.

Chances are, they never will be.

The purpose of sales forecasting isn’t to be “correct,” but rather to assess the performance of your sales team and company at large. Here’s a quick rundown of the big-picture benefits of forecasting for your company.

Actionable company-wide goals

Your business’ ability to make predictions impacts much more than just your sales team. Effective forecasting gives you a sense of confidence when making decisions and setting goals.

Want to bring on new hires? Looking to rev up your ad spend? Your forecasting can clue you in on what’s realistic and what’s not based on the numbers.

Basically, it’s much easier to set—and reach—your business’ goals when they’re defined by data.

Much-needed motivation for your team

On a related note, goal-setting and awareness have a direct influence on employee engagement and motivation.

Rather than keep your team in the dark, sales forecasting presents an opportunity to let everyone know where your company is headed. This encourages a more connected company culture where departments are working toward a common goal.

Forecasting can also pump up your sales reps, creating a friendly sense of competition to close more deals.

Increased accountability

Through forecasting, you can see at a glance which sales reps are exceeding expectations.

And likewise, you can identify those who need a bit of help to reach their quotas.

Regularly checking your sales reps’ performance against a forecast keeps your overall sales strategy in check. It also ensures that your reps are getting the job done on an individual level.

4 things you need to get started with sales forecasting:

If you’re sold on the benefits of sales forecasting, you’re probably wondering how to get started.

Here’s a quick breakdown of what you need to do to roll out sales forecasting:

1. Set goals and quotas.

In order to start forecasting, you need to define your sales goals and quotas for individual reps and your team as a whole. This gives you an objective baseline to make your forecasts, as well as determine if your forecasting is successful.

But there’s one common problem: how do you know what goals and quotas are reasonable for your company?

The simple answer is that it should depend on how you’re doing now—and this is where having data really helps.

If you have a CRM, it should be simple to get your hands on this data.

For example, you can look at how your team has performed on a weekly, monthly, quarterly, or annual basis, then aim to boost these numbers incrementally.

Copper shows this performance data through reports that can zero in on several facets of your performance, like:

Opportunity source: This report shows you the dollar value tied to each source, like cold calls, pay-per-click advertising, referrals, or custom sources your company tracks:

opportunity source report in copper

Individual rep: This report shows the volume and value of deals each rep has closed in the selected period. I’ll get into this a bit more later, but you can also drill down into Pipeline by Owner reports to see where each rep excels or needs some extra support:

pipelines by owner report in copper crm

Sales pipeline: Pipeline reports show you what is (and was) in your sales pipeline, based on stages like lead qualification, follow-up, presentation, contract sent, negotiation, and your own custom stages. Pipelines can help you track the value of your team’s efforts so you can zero in on which actions are (and aren’t) working.

sales pipeline report

2. Document and standardize your sales process and definitions.

Essentially, sales forecasting is trying to predict which opportunities are going to close.

Here’s the thing: if your reps each have different sales processes with varying approaches, steps, and stages, you won’t be able to make accurate and consistent predictions.

There should be the smallest possible amount of variables between how your team members approach and close leads.

This concept extends into the definitions your team use when opportunities are entering and exiting all the stages of your sales process.

What makes a lead, prospect, opportunity, and close—and how can each rep be certain that a contact has graduated to the next stage?

Here are some suggestions for standardizing your process and laying out definitions:

Create an ideal customer profile (ICP) and customer personas so that the standardization starts right out of the gate. This can help your team maximize their prospecting efforts by only focusing on leads and prospects who fit the bill with your offering.

Pro-tip

Need ICP help?

Here's an ICP worksheet you can download and use.

Establish a lead scoring system so that reps have a better understanding of which leads are more likely to become customers. There are signs that can lead a rep to believe that a deal is committed (or the rep may just be inexperienced), when in reality it may be more like 80%—make sure your reps are able to judge this accurately.

Document the most common roadblocks. For example, say that your team falls victim to what I like to call the “license fallacy”: just because a prospect has a team of 50 doesn’t mean that they’ll need 50 software licenses. It’s typically a pilot of 5 to 10 core members who test it out first. If this is a common cause of over-forecasting, make sure that your team is aware of it and not making assumptions.

If you’re using a CRM, you’ll be able to easily share these documents in real-time with your team.

Pro-tip: On the initial qualification call (whether it's with an SDR or AE), clarify how many people the prospect envisions being initial users of your product—then you can have a better estimate of the license count.

More on sharing and communication in 3… 2… 1…

3. Lead your team with communication and accountability.

Your sales goals and quotas shouldn't be kept secret from your reps. Be completely transparent with your team about what’s expected of them in terms of performance.

This is yet another reason to invest in a CRM: it allows reps to track each and every relevant interaction with leads and with each other. In the end, this means more consistent and reliable closing.

In Copper, teams can access overviews of each record to see every point of communication and information exchange, like emails, phone calls, files, tasks, and calendar events.

They can also @ mention members to ensure that they’re seeing and collaborating on important stages of the sales process:

collaboration in copper crm

Sales managers can also create separate teams with unique visibility settings, which is a great way to build efficiency into your teams’ work.

How?

By allowing them to see only the information that’s crucial to their work, you’re removing the noise of having too much irrelevant information. Often, efficient teams are efficient by design—this is one way to do it.

In addition to communication, it’s critical that as a sales manager, you lead by example.

Part of this means holding all of your reps accountable for their contribution to their own goals and the team’s goals.

Use the data you have and keep your feedback objective. If someone didn’t meet their individual goal or quota, it’s on you to investigate and provide the support and empowerment they need to catch up to the pack.

Plus, if you’re not a beacon of accountability, the whole mission will be compromised—your team will take it less seriously, and all of those goals will just get harder and harder to reach.

4. Invest in a CRM.

In addition to swift and efficient communication, a CRM is also a must-have for avoiding the horrors of manually tracking metrics for forecasting.

One big advantage of having a CRM is it gives you real-time updates of where opportunities and deals are in the sales cycle and helps you easily identify any roadblocks that may prevent the deal from moving forward. This control is necessary if you want accurate forecasts.

For example, Copper has a Goals dashboard with several types of reports and focus points to look at, giving a bird’s-eye view of how sales reps are performing. This data is valuable for not only forecasting but also making improvements and tweaks to your sales strategy:

goals dashboard in copper crm

If you don’t want to spend hours every day inside a complicated spreadsheet, sales forecasting via your CRM is your best bet.

How to pick the right sales forecasting method:

Alright. Goals are set. You’ve got your data.

Now what?

There is no “right” approach to sales forecasting. There are multiple methods for making predictions, many of which are effective but require varying degrees of data and analysis.

Here are three common strategies that are staples of sales forecasting, friendly to both first-timers and veterans.

1. Historical forecasting

This is the most straightforward, “big picture” approach to sales forecasting.

Through historical forecasting, companies set goals for a specific period of time based on their past performance.

Let’s say your average quarterly revenue growth for Q1 was 10%, which is in line with your past quarters.

As a result, you forecast a growth rate of 10-12% based on confidence in your recent company initiatives.

So if your quarterly revenue for Q1 was $500,000, your estimate would be between $550,000 and $560,000 for Q2.

In your CRM, you can calculate historical forecasts based on reports. With Copper, the Sales Performance report shows how many opportunities were won, lost, abandoned, and left open during your selected timeframe.

It also shows the win rate, which can be used to forecast how many opportunities your team needs to hit your sales goals:

copper crm's dashboards

COPPER'S CUSTOMIZABLE DASHBOARDS HELP YOU CREATE MORE ACCURATE SALES FORECASTS.

You can also look at Sales by Owner, Sales by Source, and Loss Reasons reports to get a better understanding of ideal forecasts for each rep, which lead sources to go after more aggressively, and how to circumvent losses.

Quick and easy, right? These same rules could be applied to annual forecasting as well.

While it may not be the most accurate method, historical forecasting is worthwhile for gauging your company’s sales performance in broader terms.

In other words, you can spot historical trends such as “good” months and seasons versus “bad” ones.

2. Opportunity forecasting

Forecasting based on opportunities requires looking at more granular data than historical forecasting.

Opportunity forecasting assesses the probability of your prospects closing based on their behavior and position in your funnel.

Maybe that means marketing qualified leads (MQLs) who’ve signed up for a trial.

Or perhaps sales qualified leads (SQLs) who’ve gone through a full-blown product demo.

These actions and qualifiers all have different weights and likelihoods of becoming sales based on your customer history. It’s up to your Account Executives to move your SQLs through the sales funnel and increase the probability of them becoming won opportunities (aka. customers).

With these probabilities measured against the average deal size for these types of leads, you can come up with a forecast for any given period of time.

In Copper, these are called “win probability percentages,” and these weighted opportunities are displayed through various pipeline reports, like the weighted Pipeline Projection report.

To calculate weighted projections, this report takes the total value of opportunities in different stages of your pipeline, then multiplies them by your win probability percentage for that stage:

copper crm's weighted pipeline projection report

This approach requires a significant amount of customer data to be truly effective. That said, opportunity forecasting makes your leads (and their worth) more tangible to the sales reps trying to close them.

3. Pipeline forecasting

Forecasting based on pipelines pretty much requires a CRM. That’s because this type of predicting is rooted in data to provide more accurate predictions than the other methods above.

Basically, pipeline forecasting is defined by the expected revenues from all the opportunities currently in your pipeline based on several variables that are unique to your team’s performance. Typically, these opportunities are assessed monthly or quarterly.

Metrics such as lead source, average deal size, close ratio, and win rates for individual reps are broken down to determine just how much your current pipeline is worth as it stands.

Copper’s Sales Forecast report does this by calculating the total value of your won opportunities with the weighted value and win probability percentages of your open opportunities:

copper crm's sales forecast report

This approach provides in-depth, accurate predictions—but only if your sales reps are consistently collecting data.

Now let’s look at what to avoid when forecasting.

Overcome 3 common pitfalls of sales forecasting.

Although companies certainly have plenty to gain through sales forecasting, it can come with its share of challenges.

Let’s quickly talk about common mistakes that come with the territory of sales forecasting.

1. Not accounting for variables

Context is so important for both forecasting and analyzing sales.

How so? When coming up with a forecast, consider how the following could have a direct or indirect impact on your sales performance:

  • Employee turnover, including hires and fires among your sales team
  • Seasonality, with some months typically outperforming others
  • Competition, including competitor discounts and new blood entering your market
  • Economic conditions, as widespread events like a recession could skew your numbers

Don’t stress out too much about these variables as they’re often out of your control. Simply make sure that you’re taking them into consideration when looking at your goals.

2. Sharing your data

Food for thought: employees are more engaged when company goals and results are presented in friendly, easy-to-understand terms.

Guess what? Your projections are no different.

Reports should be comprehensive and provide a clear overview of your sales forecasting. Whether you’re sending a quick email or prepping a company-wide presentation, your reports should provide a bird’s-eye view of your business’ predictions and progress.

3. Now let’s turn your forecasts into action.

Lastly, don’t lose sight of the end-game of sales forecasting.

You know. Improving sales.

Even if your predictions aren’t 100% correct (don’t worry, they won’t be), analyzing hard data versus forecasts is key to understanding what you need to do to improve your business.

Are there individual sales reps who need a hand? Is there a weak point in your sales funnel? (More on managing a funnel here.)

Through sales forecasting, you can stop second-guessing and start taking action.

Here are some tips for making that happen:

  • Always review your historical sales data when creating a benchmark. Whether you’re looking to increase weekly, monthly, or yearly sales, be consistent in how you set goals for the future.
  • Keep your pipeline at 2–3x coverage. For example, if I have a quota of $30,000 this month, I should have about 2.5 times that amount in my opportunities—or $75,000 minimum—to cover what’s expected.
  • Get familiar with the procurement process. Who are all the stakeholders who can hold up your deal? This is critical to do—otherwise, you might think that you're safe when in fact you have an inflated pipeline and you're actually in danger of falling short of your goals.

What does your company forecast look like? 

Sales forecasting is crucial for ensuring that your company meets its goals and is consistently moving the needle forward.

From boosting sales to sorting out your budget, making informed predictions will always beat flying blindly. By forecasting now, you can collect information to influence your sales strategy in the near future. Rinse and repeat.

With the help of your CRM, gathering that data to make the most accurate forecast possible is just a few clicks away.