Last editedApr 20222 min read
Sales forecasting definition
Sales forecasting refers to the process of piecing together sales estimates based on current performance and other metrics. Forecasting can be completed monthly, annually, and at any and all intervals between.
Sales forecasts are hugely important as they can reveal how your business is performing and whether or not you can expect to meet your goals. This helps you put together a business plan and gauge whether or not it’s realistic to look into expanding in the future.
Sales forecasting methods
Some common methods used for sales forecasting include:
Intuitive sales forecasting
Intuitive forecasting relies on predictions, experiences and projections of sales team members. It involves putting together a forecast based on how many sales the team estimates they will close. For example, a particular salesperson may inform them that they strongly predict they will close a deal worth X amount within a fortnight.
This method is best used only when there are few historical sales that can be used to predict future ones. This is because it tends to be slightly optimistic, as sales team members are often likely to exaggerate their expected sales, or be rather generous in their estimates.
Opportunity stage forecasting
Opportunity stage forecasting is a method which involves taking into consideration the stages of the sales process, i.e., how far along various sales are. The assumption is that the closer a deal is to being closed, the more likely it is to in fact do so.
Doing this accurately involves selecting a reporting period and multiplying each sale’s potential value by the probability of it closing. You then total up all the resultant values to obtain your average overall sales forecast.
While this method is fairly easy to calculate, it relies on salespersons regularly refreshing their sales pursuits and ditching sales that are unlikely to close. Otherwise, stagnant sales can interfere with accuracy of the forecast.
Length of sales cycle forecasting
This method looks at the stage each sales opportunity is at to predict when it might close. This differs from opportunity stage forecasting in that it uses objective data, rather than feedback from sales reps themselves. In this way it can be more accurate, because, as already mentioned, salespersons have the tendency to be generous in their predictions.
The technique will be adapted according to different sales types. For example, while a standard lead may take four months to close, a referral may require much less time, whereas leads from international clients may take longer.
With historical forecasting, you use previous sales figures to estimate future ones. This means that you make the assumption that current trends will continue and demand will stay fairly constant. It therefore doesn’t take seasonal variation in demand into consideration.
Historical forecasting typically forms a kind of benchmark forecast, with other types of forecasts used as supplementary information to form a more complete picture.
Multivariable analysis forecasting
The multivariable analysis method is considered a more comprehensive forecasting approach as it takes into account various metrics, including historical sales performance, individual sales members performances, length of different sales cycles, as well as the likelihood of sales currently in the pipeline closing.
However, in order for this method to be as accurate as possible, it relies on sales team members diligently tracking their sales.
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