Sales Forecasting: A Guide to Grow Your Business

What is sales forecasting? 

Sales forecasting is the process of estimating the revenue a company will make during a specific time period, such as a month, a quarter, or a year, usually based on past sales data. Sales forecasting can include predictions of future sales, a sales team’s performance, and how a market will respond to go-to-market efforts. 

Accurate forecasts are important at all levels of business operations in helping an organization make informed decisions. Here are examples:

• Sales managers can use sales representatives’ forecasts to estimate the number of deals that will close.

• Department directors can use forecasts to predict team performance.

• Company leaders can share forecasts with board members, stockholders, and stakeholders to inform them of the company’s health. 

Read more: What Is Sales Management: Definition, Scope, Objectives, Careers

Benefits and challenges of sales forecasting

Whether you’re a business owner, a sales leader or representative, a product leader, or a company leader, bringing sales forecasting into your workflow can benefit your business in several ways, including boosting sales and revenue. In addition, you may be able to: 

• Gain insight into customer behavior. 

• Tailor marketing campaigns to different customer segments based on their predicted purchasing behavior.

• Understand your organization’s health in numbers. 

• Plan business moves more strategically, based on a reliable revenue projection.

• Get better financing from lenders and investors. 

• Predict how much inventory or supply is necessary for an upcoming sales cycle. 

Along with knowing the benefits of sales forecasting, it’s a good idea to be aware of the challenges associated with this business process. That way, you can anticipate challenges or take corrective action if problems arise. 

One challenge you might encounter within an organization is convincing stakeholders or decision-makers to make decisions based on sales forecasts. According to a 2019 Gartner survey, only 45 percent of respondents reported that leaders at their organizations showed confidence in the accuracy of forecasts [1].  

Other challenges include: 

• Changes to your sales team, such as when people leave or new hires join, necessitating a period of adjustment 

• New competitors entering the market, necessitating new sales or marketing tactics

• Updating your current products or introducing new ones, necessitating new go-to-market strategies

Sales forecasting methods

There are different sales forecasting methods you can use to bring more awareness to your company’s sales potential. Explore each of them to find out which ones might work best for your sales goals. 

Opportunity stage forecasting

• Accounts for where a deal is in the sales process at any given time 

• Assumes that the further along a deal is, the more likely it will be to close

• Works best when you are not in the process of changing your messaging, products, or sales tactics

Length of sales cycle forecasting method

• Accounts for how long sales cycles typically last for different types of prospects. For example, a sales cycle for a referral prospect may be shorter than a prospect who just subscribed to your newsletter. 

• Uses the time a prospect has been in a sales cycle and the type of prospect to determine the likelihood the deal will close 

• Works best when you can categorize the different types of prospects your business interacts with and know the typical cycle length for each type 

Read more: What Is a Sales Pipeline and How Do You Build a Successful One?

Intuitive forecasting method

• Accounts for the opinions of sales representatives who have the most direct interaction with prospects. 

• Assumes that because of sales reps’ close relationship with prospects, they can intuit how likely a deal is to close. 

• Works best during later phases of the sales process, when sales reps have gathered more information about prospects’ questions, challenges, hesitations, and needs. 

Historical forecasting method 

• Looks at historical sales data and the patterns that may be meaningful.

• Accounts for sales performance from a period of time in the past.

• Assumes that sales in a future period will resemble those of a past period.

• Works best when markets and buyer demand are steady. 

Multivariate analysis forecasting method

• Combines other methods, such as sales rep performance, opportunity stage, and historical forecasting 

• Requires that you update data regularly in terms of tracking deal activity. 

• Works best when you use sales forecasting software

Pipeline forecasting method

• Considers details of each deal, including the opportunity value, the sales rep’s closing rate, and any fluctuations in the sales pipeline

• Relies on accurate, timely data 

• Works best when you use sales forecasting software. 

Use these simple formulas, alongside the methods above, to quantify sales forecasts: 

Average monthly sales  = total sales revenue / number of months

Possible sales for the rest of the year = average monthly sales x months left in the year

Annual sales forecast = total sales revenue + possible sales for the rest of the year

How to forecast sales for your business 

Use the following process to begin or improve a sales forecasting process. 

1. Establish a sales process for your team. 

When everyone on your team uses the same process, it’s easier to predict the likelihood that opportunities will close and pinpoint troublespots in the sales pipeline. The sales process should tell team members what actions to take at each stage of the buyer’s journey, from prospecting to closing. 

2. Set team goals.

Having sales targets for the whole team and for each member will provide a basis for measuring success and predicting the likelihood of success. What do you want to achieve in sales every month, quarter, and year? 

3. Select sales forecasting software.

Invest in software that will measure different factors and help you track sales activity. With the right software, you can create the most accurate and useful sales forecasts. Here are some sales forecasting tools to investigate: 

• Hubspot Forecasting Software: Offers monthly and quarterly forecasting, a user-friendly interface, detailed reporting, and more.

• Salesforce Sales Cloud: Allows you to track metrics that align with your business goals, track week-over-week forecast changes, get deal alerts, and more.

• Anaplan: Allows you to consider seasonal fluctuations, conduct enterprise-scale forecasting, produce reports for team leaders, and more.

• Pipedrive: Offers a simple system for generating forecasts, prioritizing deals, and allocating resources effectively.

AI sales forecasting

Artificial intelligence can offer more accurate forecasting through iterative learning. In other words, an AI-powered sales forecasting tool gets smarter with every cycle. In addition, AI can compile high volumes of data from multiple sources in order to improve the quality of forecasts.

4. Select a forecasting method.

Once you have a sales process, goals, and software, your next step is to settle on a forecasting method that corresponds to how established your business or team is.

For example, if your business or sales team is new and you have minimal sales history, you might use the intuitive sales forecasting method while still recording and tracking sales activity in your software. In contrast, established businesses with forecasting software, a full sales team, and historical data would do well to use the multivariate or pipeline forecasting methods. 

5. Review prior sales forecasts. 

To set your team up for accurate sales forecasting, look over any sales forecasts from prior sales periods. Where did actual sales match forecasts? Where did discrepancies occur? What factors contributed to either, including sales team performance, use of forecasting software and methods, market conditions, or seasonal fluctuations in sales? 

6. Request data from other teams. 

It’s a good idea to gather information from marketing, product, and finance teams to inform your sales forecast. 

• What insights can marketers offer on prospects’ needs, as well as what inspires them to make a purchase? 

• What new product developments or offerings might affect sales volume in an upcoming sales period? 

• How does the financial health of the company align with sales goals? 

7. Create forecasts and discuss them with your team. 

Using all the information you’ve gathered in steps one through six, as well as data from your forecasting software, create your sales forecasts. Then, discuss sales quotas and strategies with sales reps. Communicate important learnings to your employer’s decision makers. For example, it might be necessary to return to step one and adjust sales processes to account for an expected fluctuation in sales. 

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