Sales forecasting is the systematic process of predicting future sales and can help YOU estimate what your sales are likely to be in the future, based on historical data, market trends, and salesperson estimations. Businesses of all sizes and types use sales forecasting to make informed decisions about setting budgets, planning for growth, and improving overall business strategies.
In fact, understanding sales forecasting is crucial as it provides insights that can influence many facets of a business from sales to marketing strategies, from staffing decisions to budget allocation. So impress the higher-ups in your next report by including sales forecasting data they hadn’t foreseen. Use these 4 strategies to prove to your team how valuable sales forecasting can be in improving your team’s sales performance.
The foundations of sales forecasting
Historical sales data is one of the most significant determinants in sales forecasting. It involves scrutinizing past sales to estimate future trends, and this data could be categorized as monthly, quarterly, or annual sales data. Historical sales data helps to identify seasonal trends, growth rates, and other recurring patterns in sales that could provide valuable foresight for future sales expectations.
However, while historical data is useful, you really need to keep in mind that past performance doesn’t always indicate future results. The market is ever-changing and evolving so market changes, new product launches, or shifts in consumer behavior can seriously impact your future sales and make them diverge from past patterns. Hence, while historical data is a valuable tool in sales forecasting, it should be used in conjunction with other forecasting methods to account for changes in market conditions and business operations.
1. Get serious about market research
When we say ‘Market research’ in the context of sales forecasting, this includes understanding customer behaviors, market trends, and economic conditions that could impact sales. Getting serious about market research means getting serious about studying factors such as consumer preferences, buying habits, market size, and the competitive landscape. This research can reveal insights into how shifts in these factors could affect future sales.
For instance, if market research reveals that consumer preferences are shifting towards a particular product feature, it could signal potential growth in sales for products with that feature. Similarly, if market size is expanding, it could indicate opportunities for increased sales.
However, market research has its limitations. It requires significant time and resources and you have to expect inaccuracies because of changing market dynamics – so we are being serious when we say you have to get serious. It’s a commitment, but it is one that will reap rewards if implemented into sales forecasting properly.
2.Learn how to use AI for sales forecasting
One of our partners has just proved how powerful AI is about to become in sales forecasting. New for HubSpot is the addition of AI sales forecasting to their Sales Hub so that you can evaluate your manual forecast submission against a new AI-powered projection. Think about it – if you’re using HubSpot, they already have an enormous wealth of data on your sales, customers, pipelines, deals – all of it! But they also have insight from the sales and customers of their thousands of users which means they are totally primed to be able to analyze your data and use AI to predict how your sales may look over a specified future time period.
But if you’re not using HubSpot as your Customer Relationship Management (CRM), there are other tools on the market that can operate wholly independently of your CRM. Gong uses AI in their forecasting tools so that using data and insights from a tool your team trusts, you can generate dependable roll-ups and forecast revenue accurately. Forecasting in the Gong Reality Platform highlights unseen risks and opportunities in your pipelines – and it gives your team complete visibility without the need to switch tabs.
3. Don’t depend on tools
It is essential to use tools for sales forecasting. But it is detrimental to depend on tools and technology for your sales forecasting. Of course, computing power and advanced AI languages can be phenomenal facilitators of more accurate sales projections but some of the best forecasting tools are sitting right under your nose. One of the most valuable insights you can depend on is that of your team. These are the sales reps and leads working day in and day out on the same leads and prospects.
If they’re doing their job correctly, there shouldn’t be anyone with a better understanding of your ICP’s pain points. They’re also talking to these leads and prospects every single day and so they have a better idea of market trends way before that quarterly round-up by your favorite sales content outlet is released.
Salespeople are often the ones who have the most direct interaction with customers, making their predictions perhaps the most valuable for sales forecasting. Their insights based on conversations with customers can end up being a unique perspective that might not have been captured through data alone.
The ones on the ground can provide information on customer sentiment, potential deals in the pipeline, and feedback on products or services. These factors can greatly influence sales forecasts. However, one word of warning that is worth pointing out is that it’s important to consider the subjective nature of these predictions. Different salespeople may have different perceptions and biases, and their predictions can be influenced by their individual performance and experiences.
To overcome this, many companies use sales forecasting software that incorporates both quantitative data and qualitative inputs from salespeople. This combination of data-driven insights and ground-level perceptions can lead to more balanced, accurate sales forecasts, and eventually an increased sales conversion rate.
4. Start sales forecasting
Look, if you’re reading this article, it’s likely because you’re at the beginning of your sales forecasting journey. And the truth is that the quickest way to improve your sales forecasting is to dive into the deep end and start. Sorry to be the ones to break it to you but you aren’t going to get 100% accurate sales forecasting data immediately (you’ll be lucky to ever get close) but instead your forecasting is something that will become more accurate over time.
Along the way you will likely change which tools you are using or add tools to your stack to add more accurate or different kinds of data. You’ll likely start to track different metrics as you recognize a need for them and you’ll slowly start to create a picture of what is working for you and what isn’t as you see quarter by quarter how accurate your forecasts are. You’ll also begin to discover what type of forecasting works best for you.
There are several types of sales forecasts, each catering to different business needs. A time-series forecast is based purely on historical data and assumes that future sales will follow the same pattern. This method is particularly useful when historical data is reliable and trends are expected to continue.
A causal model assumes that sales are strongly influenced by specific market factors. These factors can be economic indicators, marketing spend, or other variables that have a known relationship with sales. This model is more complex but can provide more accurate forecasts when causal relationships are correctly identified.
A pipeline forecast, on the other hand, estimates future sales based on the quantity and quality of opportunities in your sales pipeline. This method is most effective when the sales cycle is well-understood, and conversion rates are predictable.
Each method has its strengths and weaknesses, and the choice depends on the company’s specific needs, the nature of its market, and the availability of data. A best practice, if you have the resources of course, is to use a combination of these methods to cross-verify results and improve the accuracy of sales forecasts. By diving deeper into these components, businesses can better understand sales forecasting and leverage it to drive business success.