A sales forecast consists of two key elements: have the right data Draw the right conclusions from the data Accurate sales forecasts allow you to prepare after-sales support (implementation, materials, support, infrastructure). If you overestimate your sales, you'll start spending money that won't come in, and underestimating sales will make you underprepared. While many will argue that sales forecasting is both an art and a science, this eBook will outline specific ways any business can get started with sales forecasting. At Base, we work with thousands of businesses to develop sales processes, build forecasts, and increase sales rep adoption. We've learned a lot along the way, and today we'll share an introduction to sales forecasting. What is a sales forecast It's no secret that sales forecasting, or the process of predicting future sales revenue for a specific time period, can be a major headache for sales leaders. In fact, only 31% of businesses believe their forecasts are effective in terms of accuracy and helping guide pipeline management. Inaccurate sales forecasts can have serious repercussions across the business, from product shortages to overhiring. On the other hand, the Institute for Sales Management found a correlation between a firm's forecast effectiveness and the achievement of its annual revenue goals. Specific areas that may be affected include: Prepare for after-sale success Whether you're selling software or solar panels, aftermarket activities are required.
This may involve purchasing more materials, preparing for customer support, or developing an implementation timeline. Regardless of the situation, the more accurate and earlier you know your expected sales numbers, the better prepared your business will be. Courses correct faster Knowing exactly which deals will close can sometimes paint a bleak picture of missed targets. The sooner you can determine that you won't be able to achieve your goals, the faster you can work with marketing to get more leads (the pipeline) and get it right. Sales Forecast 101 introduce To fairly evaluate all opportunities in your sales funnel, you need some type of basic forecasting criteria. Think of this as a "scorecard" for evaluating opportunities. At a basic level, this "scorecard" will contain one variable. Then, based on the "score", you can predict that the industry mailing list be completed within a given time period. Beginners: Sales Forecasting by Pipeline Stage If you are not already using a defined sales process, start now. Once you have a sales process (often called a sales funnel), start assigning a percentage to each stage of the sales process. This percentage represents the likelihood that the deal will win if this stage of the sales process is reached. The percentage should increase as the sales pipeline stage approaches win/loss. Below is an example:
Sales forecast pipeline Each stage of the pipeline has a defined win probability. Most CRMs will support this feature, but you can also do this in Excel or Google Sheets. To generate a base forecast of expected earnings, you simply multiply the deal value by the probability of winning. For example, a $10,000 qualifying trade in the pipeline stage with a 10% win rate would yield a $1,000 prediction ($10,000 * .10 win probability). Remember, this is the most basic prediction. In most cases, success will be binary, you won't close the deal for $1000, it will be sold for $10,000 or lost, however, it's a quick throwback to the napkin way of estimating revenue. Beginners: Sales Forecasting by Sales Rep Another easy way to add forecasts to your sales process is to incorporate forecast fields into your CRM. Expect any transactions in your sales process to be completed by a sales representative in this field. This field will contain multiple options for what will happen to this opportunity during the given time frame (month/quarter). Common values for forecast drop-down fields include: Best case: A deal that you think might be done but isn't sure. In order to close it, everything needs to be right. Commitment: A transaction that you believe will be completed within a given forecast period. Pipeline:
All transactions in your pipeline that are not classified as Win/Loss/Fail Closed/Won: Transactions that have been transferred to "Won" and contributed to the generated forecast. Advantage Forecast is done by the salesperson closest to the opportunity/deal harm Sales reps are often pessimistic or optimistic Sales reps want to focus their time on customer development rather than sales forecasting Intermediate: Using the Framework for Sales Forecasting Forecasting by transaction stage or representative is a quick and easy solution, but it can often be inaccurate due to sentiment and opinion. One strategy to remove the impact of sentiment on sales forecasts is to use a sales framework/method to generate a score for each transaction. It can then be used for prediction. One sales method we really like at Base is MEDDIC. Created by Dick Dunkel and Jack Napoli in the mid-'90s while they were at the legendary sales organization PTC, MEDDIC outlined six core areas to consider for deal eligibility. The team at Lucid Chart has a nice breakdown of MEDDIC here. At a high level, MEDDIC states the following: