Sales Forecasting: A Guide to Grow Your Business

What is sales forecasting? 

Sales forecasting estimates a company's revenue over a certain time, usually a quarter or a year. Like weather predictions, sales forecasts aim to prepare an audience for what to expect in the future. They rely on various qualitative and quantitative data streams and are used by companies of every size. 

Sales forecasting helps an organisation plan for the future and make more informed decisions. They help hiring, payroll, and inventory managers plan for impending needs and spot deficiencies before they become problems. Company leaders often 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

There are many different sales forecasting methods and models. Choosing the right method will depend on your resources and goals. 

Opportunity stage forecasting

• Consists of multiplying each deal’s potential value by the likelihood it will close. 

• It can be used at any point in the sales process.

• Is simple to implement.

• Assumes that the further along a deal is, the likelier it will be to close.  

• Creates objective calculations. 

Length of sales cycle forecasting method

• Accounts for how long sales cycles typically last for many types of leads. For example, the cycle for a cold email outreach may take longer than a prospect who just subscribed to your newsletter. 

• It uses the time a prospect has been in a sales cycle and the type of prospect to determine the likelihood of the deal closing. 

• Relies on only objective criteria. 

Intuitive forecasting method

• Based on the opinions or gut feelings of sales representatives. 

• It assumes that sales reps’ close relationships with prospects allow them to intuit how likely a deal is to close. 

• It 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 

• Predicts performance based on trends of the past.

• Quick and simple to create.

• It works best when markets are steady. 

Multivariate analysis forecasting method

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

• Delivers the most accurate forecasts.

• Requires you to update data regularly. 

• 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 a large amount of baseline data.

• Delivers reliable forecasts.

• 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. Create a process 

When everyone follows the same guidelines, you create uniform predictions, allowing your company to pinpoint your sales pipeline needs, opportunities, and challenges. 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 goals

Setting individual and team goals gives your company a rubric for measuring success. Decide what you want to achieve every month, quarter, and year. 

3. Use the right software

Invest in software that measures a variety of factors and tracks sales activity. The more reliable data streams you can leverage, the more accurate and useful your sales forecasts will be. 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, the next step is to decide on a forecasting method that fits your business.

For example, if your company is new and you have minimal sales history, you might use the intuitive sales forecasting method. In contrast, established businesses with a full-time sales team may be better served by more reliable and data-driven models, such as multivariate or pipeline forecasting methods. 

5. Check your history

Review your sales and sales forecasts from the previous year and isolate the numbers. Note where sales matched forecasts and where discrepancies occurred. Analyse the contributing factors, including sales team performance, use of forecasting software and methods, or seasonal fluctuations in sales. 

6. Gather all the data you can 

It’s a good idea to gather information from all the other teams in your company that could help in forecasting. Documents from your marketing, product, and finance can help tell the full story of your company’s sales—or lack thereof—far better than sales numbers alone. 

For example, discover what marketers notice in your industry, geographic region, and consumer behaviour trends. Or seek the product department’s perspective on which new developments or offerings could affect sales volume. Finally, get a wider view of your space by knowing how your company is positioned to deal with new laws, supply chain interruptions, and market changes. 

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. 

Check out this video from the HubSpot Sales Representative Professional Certificate on Coursera to see what sales forecasting looks like inside forecasting software.

[Video]

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Sales Reporting with HubSpot

Course 4 of 5 in the HubSpot Sales Representative Professional Certificate

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Online courses can be a great way to build sales skills, including forecasting, and explore career possibilities. Check out the Salesforce Sales Operations Professional Certificate. In this program, you'll learn how to build reports, charts, and dashboards in Salesforce to extract meaningful insights and manage accounts, opportunities, and contracts while earning a career credential.