Sales Forecasting: A Guide to Grow Your Business

What is sales forecasting? 

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

Sales forecasting is essential at all levels of business operations and can help an organization make informed decisions. Sales managers can use 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. 

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 behaviour

• Understand your organization’s health in numbers 

• Plan business moves more strategically

• 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 know 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 act based on sales forecasts. According to a 2019 Gartner survey, only 45 per cent 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

You can use different sales forecasting methods to bring more awareness to your company’s sales potential. Explore each to find out which 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 the further along a deal is, the likelier it will be to close 

• Works best when you are not 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 for 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.

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 predict 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 

• Accounts for sales performance from a period in the past

• Assumes 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 updating 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 goals for the whole team and each member will provide metrics 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 to measure different factors and help you track sales activity to create the most accurate and useful sales forecasts. Here are some software programs to investigate: 

• Hubspot Forecasting Software

• Salesforce Sales Cloud 

• Anaplan

• Pipedrive

4. Select a forecasting method.

Once you have a sales process, goals, and software, your next step is to settle on a forecasting method corresponding to your business or team's establishment.

For example, suppose your business or sales team is new, and you have minimal sales history. In that case, 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 use 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, or seasonal sales fluctuations? 

6. Request data from other teams. 

Gather information from marketing, product, and finance teams to inform your sales forecast. 

• What insights can marketers offer on prospects’ needs, and 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 company’s financial health align with sales goals? 

7. Create forecasts and discuss them with your team. 

Use all the information you’ve gathered in steps one through six and data from your forecasting software to 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. 

Build sales skills with Coursera.

Taking online courses can be a great way to build sales skills, including forecasting, and explore career possibilities. Check out the HubSpot Sales Representative Professional Certificate.