Sales forecasting is a necessary — occasionally painful — part of preparing for the upcoming fiscal year and managing sales goals along the way. Since leaders can’t use a crystal ball to predict the future, they are left analyzing quantitative, and sometimes qualitative, data to anticipate future sales. This sales forecasting process becomes problematic when sales teams and executives confuse "optimistic goals" and "accurate forecasting."

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Instead of looking at historical data and making forecasts based on previous trends and realistic parameters, salespeople (who are optimistic by nature) tend to create forecast numbers weighted toward the best hopes of the sales team and C-suite.

Ironically, excessive optimism in the sales forecast often creates unnecessary negativity and disappointment among team members down the road. It’s better to identify and exceed realistic targets based on solid data than it is to set your sales team up for disappointment.

Let’s look at ten simple strategies that sales teams and executives can use to create better forecasting models for their business.

1. Use historical data.

Most large companies have historical data they can use to determine realistic sales forecasts. If your company hasn’t implemented analytics and other forms of tracking methods that can be tied to goals and conversion rates, do so now. You need to know where you’ve been so you can accurately forecast where you’re going.

It’s true past sales are not always accurate predictors of future performance. This year you might release new products, expand into new markets, face an increase in competition, and so on and so forth.

But historical data is a solid foundation on which you can stand as you weigh additional, unpredictable factors that could increase or decrease sales in the upcoming year. These are scenarios you can weave into your presentation of firm numbers for your final forecast.

2. Ensure your team is keeping clean records.

If no clear standards are communicated to the team, sales reps may come up with their own definitions and use cases, leading to inconsistent data entry. Or, if they don't know how important a property is, reps may fail to use it altogether.

You can't make good decisions on dirty data, so for any numbers that aren't as concrete as sales and revenue — like current deals in the pipeline or number of deals per customer segment — make sure your team is on the same page.

You can do this by:

  • Providing ongoing training on CRM use
  • Continuously referring to the forecast in team meetings
  • Checking up on deals during one-on-one meetings
  • Performing spot checks on records and deals to note inconsistencies

3. Implement a sales pipeline action plan.

For life and sales leads, quality is more important than quantity. While a lead’s quality can certainly affect its conversion potential, increased quantity of leads typically increases the number of closed deals.

That’s why you should build an action plan for getting the minimum number of necessary leads. For example, if you know your reps close 25% of their deals from well-qualified leads, you may aim to generate twice as many well-qualified leads next quarter. Ideally, your reps will close 30-50% more deals.

No matter what your numbers need to look like on the closing side, put the same level of focus in forecasting and generating leads. Understand your conversion rates at each stage of your sales funnel, then plan accordingly.

For example, ask your sales team:

"What does it take to move a prospect through your sales process from the first inquiry to the final deal closing?"

"How many steps are there in your sales process, and what percentage of your leads (approximately) converts at each step of the process?"

"What is the definition of a ‘well-qualified’ lead? Is it someone who has gone through an online demo, someone who has filled out an intake questionnaire…?"

"Based on the conversion rates at each stage of your sales process, how many leads do you need to generate in order to achieve an expected number of sales?"

(Do the math by working backwards through your sales process. For example, if you want to close 100 deals this year, and your sales people close 10% of deals with leads who have already watched an online demo of your solution, and 10% of new inbound sales leads agree to sign up for an online demo, you need to generate 10,000 new inbound sales leads to make 100 sales: 10,000 x 10% x 10% = 100 sales.)

The conversion rates and correct numbers for your pipeline will differ depending on your business and average deal velocity. This information lets you build an accurate sales forecast based on stage-by-stage conversion rates.

4. Use forecasting tools.

As tempting as it may be to roll your sleeves up and craft your own custom spreadsheet, you can save a lot of time (and improve the accuracy of your forecast) by using a tool developed for this function.

For instance, HubSpot's sales reporting tools include a forecasting report that relies on your sales pipeline plan combined with current deal data to provide a forecast based on closing probability.

HubSpot Deal Forecast Report

5. Incorporate "what ifs" and qualitative data.

Many companies fail to plan for new sets of data to track and overlook qualitative data. Instead of constantly looking at the same numbers and making bold predictions, companies should ask "what if" questions that can be answered once more data is collected.

Looking at your business from different angles gives you new insights. For instance, if you are trying to boost sales for multiple products on your eCommerce site, why not track how many customers purchase a top-selling product from two different categories? Understanding where customers gravitate to for certain items and which items pair well together could give you inspiration for new product promotions and special offers.

Qualitative questions paired with quantitative tracking can help you better understand your business and make smarter decisions. This is how you can integrate forecasting into other business objectives, such as remodeling a store or testing advertising campaigns.

6. Consider seasonality as a factor.

One type of qualitative piece of information is the answer to this question: "We sell more when..."

If your forecast is linear, treating every month and quarter similarly, you may lose accuracy on account of seasonality or related factors.

Here are a few examples to demonstrate this idea:

"We're a toy company, and our sales go nuts around Christmas."

This company would consider increasing the forecast in Q4, especially after Thanksgiving leading up to Christmas.

"We sell office equipment to office managers. That means we sell more during the business week when they are on the clock."

If this company has a month with a lot of holidays (e.g. December), they should factor this in as a lower sales month in the forecast since office managers will not be in the office making purchases. In addition, they should also consider how the months fall and make accommodations for months that have fewer business days than others (e.g. February).

"We're a roofing company, and we sell best when our customer is experiencing a roof leak."

Even though roof leaks don't have a seasonality, this company's customer may not realize they have a roof issue until they see physical evidence of it (a leak). That means that rainy seasons could result in more business, and they should consider factoring that into their forecast.

7. Encourage collaboration between all departments.

A well-constructed forecast often isn't the byproduct of any single department's contribution — it tends to incorporate input from across the company. Collaboration offers new perspective to a company's forecasting process.

Forecasting works best as a team effort — at least in some capacity. Incorporate input from multiple — if not all — the departments at your company. Different departments have their own expertise to offer, allowing you to have a more fully-realized forecasting process.

Those contributions will also add a new degree of accountability to your forecasting efforts. If your process is rooted in teamwork and subject to more scrutiny, no individual department will have the space to adjust data to suit its interests and biases.

Additionally, inter-departmental collaboration adds an element of trust to your forecasting process by including diverse perspectives and making departments feel heard.

8. Consider market trends and competition.

Wouldn't it be awesome if the variables that affected sales were all internal, such as sales team head count and effectiveness? However, there's a whole host of external variables related to market positioning that affect sales.

Let's say you have one product that is a steady stable and another that's new, trendy, and receiving a lot of buzz but hasn't caught on mainstream yet. These two products would not have the same growth trajectory, so it's important to factor them in as separate segments.

Another thing to consider is competition. Let's say you have a competitor with the same authority and awareness in the market as your organization. Their offerings are competitive, and they're a great company. Then, they lower their price.

Something as simple as this changes the conversations reps have with prospects... and the conversations prospects have with themselves.

Continuing to keep a pulse on what the market is doing will help you create more accurate predictions.

9. Hope for the best, and prepare for the worst.

Few people enjoy thinking about worst-case scenarios, whether you’re talking sales forecasts or sports predictions. As much as you want to hit massive sales numbers every quarter, you also know the chances of your favorite team winning the Super Bowl. (Sorry, Cleveland.)

That’s why our sales forecasts should always consider the worst that could happen: What if you lose your top three reps to a competitor, the product you’re selling faces an embarrassing recall, or something goes wrong that forces you to re-evaluate your sales process? You don’t have to spend too much time dreaming up the most horrific events your company could face, but you need to leave some cushion in your forecast that accounts for potential setbacks.

Scrutinize last year’s numbers — what went exceptionally "right" last year that might not happen again? What strokes of good luck did you have that might have made your numbers look better than reality?

Don’t assume every bit of good fortune is going to happen for you every year. The reality of sales numbers often lands somewhere between "the sky’s the limit" and "the sky is falling."

10. Refer to Your Forecasts Consistently.

It might go without saying, but your forecasts are essentially useless if you don't use them as reference points, so be sure to refer to them on a consistent basis. They're crucial resources for guiding a wide variety of business decisions, including budgeting and directing marketing efforts.

Your forecast is never going pan out exactly as you'll plan. There's bound to be some give and take between your projections and your actual figures. Still, you need it to have some concept of what the future might look like, perspective on whether your performance is in line with your goals and expectations, and if you're allocating your resources effectively. Constantly keeping tabs on your forecasts is one way to ensure you're covering all those bases.

Keep in mind that sales forecasting is not a one-time "start of the new year" activity — it’s an ongoing process that affects every aspect of your sales pipeline. And sales forecasts are not set in stone. They are "living documents" that help the sales team stay on target throughout each quarter.

With a data-guided process and plenty of open communication and collaboration, you can create more accurate sales forecasts and maximize your sales team’s potential.

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Originally published Jun 18, 2020 3:30:00 PM, updated June 18 2020


Sales Forecasting