How to Start Sales Forecasting Without Being Psychic

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Analytics & Reporting : 8 min read

How to Start Sales Forecasting Without Being Psychic

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, anyway?

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 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, Sales Rep Smith 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:

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

The big-picture 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 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 by the numbers.

In short, 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 coworkers 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.

Get started with sales forecasting in 3 steps.

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

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

1. Set goals and quotas.

In order to start forecasting, you need to define your sales goals and quotas.

For example, let’s say you want individual sales reps to increase their annual sales by 20%.

To determine whether this goal is realistic, it pays to understand your company data.

There are also other variables to consider which could impact your quotas and goals. Perhaps you’ve ramped up resources to your sales teams. Maybe you’re taking a more aggressive approach to acquire and close leads.

Either way, spend some time reviewing your own numbers as well as industry benchmarks to avoid setting overly lofty goals.

2. Invest in a CRM.

To avoid having to manually track metrics for forecasting, a CRM is a must-have.

Rather than guessing at customer behavior or trends, your CRM can clue you in on everything you need to come up with a comprehensive sales forecasting template.

For example, Copper has a robust Goals dashboard so you have a bird’s-eye view of how your sales reps are performing. This data is valuable for not only forecasting but also making improvements and tweaks to your sales strategy.

Copper CRM's Goals dashboard

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

3. Communicate with your sales team.

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.

Also, teams should be on the same page so there are fewer variables between how they approach and close leads. This is yet another reason to invest in a CRM: it allows reps to track each and every interaction with a lead to close more consistently.


More on CRM 👇

Learn about other ways a CRM can be used to help with sales forecasting with this free guide.

It all starts with picking the right sales forecasting template.

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.

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

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.

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 leads closing based on their behavior and position in your funnel.

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

Or perhaps sales qualified leads 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. For example: the former group might have a 15% likelihood of being closed and the latter group a 35% chance.

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.

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. Typically, these opportunities are assessed monthly or quarterly.

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

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

copper crm's dashboards
Copper's easy-to-customize dashboards can help you create more accurate sales forecasts.

Overcome the 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 three common mistakes that come with the territory of sales forecasting.

Not accounting for variables

Reality check: you don't do business in a vacuum.

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.

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 like the ones whipped up in Copper are comprehensive and provide a clear overview of your sales forecasting. Ideal for a quick email or company-wide presentation, these reports provide a bird’s-eye view of your business’ predictions and progress.

Copper crm's sales reports

Now let’s turn your forecasts into action.

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

Oh, 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?

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

What does your company forecast look like?

If you want to know where your company is going, it pays to know where you’ve been.

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