Sales Forecasting: A Guide to Grow Your Business

Sales forecasting is in demand worldwide, particularly with the growing use of predictive analytics and Big Data, which is increasing opportunities for those with relevant skills. What is sales forecasting, exactly? 

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

Like weather predictions, sales forecasts aim to prepare an audience for what to expect in the future. They rely on a variety of qualitative and quantitative data streams used by companies of every size.

Sales forecasting is important at all levels of business operations and can help an organisation 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 salesperson, a product leader, or a company leader, mixing sales forecasting into your workflow can deliver benefits. Accurate sales forecasts help create efficiencies and allow for planning. In addition, you may be able to: 

• Gain insight into customer behaviour. 

• Understand your organisation’s health in numbers. 

• Plan business moves more strategically.

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

However, sales forecasting also presents a wide range of challenges. For example, one obstacle to implementing a sales forecasting system is convincing decision-makers to use it. According to a Gartner survey, only 45 percent of respondents have confidence in the accuracy of their organisation’s sales forecasts [1].  

Other challenges include:

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

• New competitors entering the market necessitate new sales or marketing tactics.

• Supply chain shocks.

• Updating your current products or introducing new ones that need new go-to-market strategies.

Sales forecasting methods

Many different sales forecasting methods and models exist. Choosing a suitable method will depend on your resources and your 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 likelier it will be to close. 

• Works best when you are not changing your messaging, products, or sales tactics.

• Consists of multiplying each deal’s potential value by the likelihood it will close and can be used at any point of the sales process. 

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 categorise 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 with the most direct interaction with prospects. 

• Assumes that sales reps’ close relationships with prospects allow them to 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 

• Accounts for sales performance from a timespan 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 to track 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 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 to create the most accurate and valuable sales forecasts. Here are some software programmes 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, if your business or sales team is new and you have minimal sales history, you might use the intuitive sales forecasting method while recording and tracking sales activity in your software. In contrast, established businesses with forecasting software, an entire sales team, and historical data might use multivariate or pipeline forecasting methods. 

5. Review prior sales forecasts. 

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

6. Request data from other teams. 

Gathering information from marketing, product, and finance teams to inform your sales forecast is a sound strategy.  

• 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 financial health of the company 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.

Online courses can be a great way to build sales skills, including forecasting, and explore career possibilities. Check out the Sales Training for High Performing Teams Specialisation on Coursera to cultivate the knowledge and skills you need to get started.