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Accurate sales forecasting is the backbone of strategic decision-making, yet it remains one of the toughest challenges for sales leaders. If you are looking for a streamlined approach to elevate the accuracy of your sales forecast, you’re in the right place.
This article cuts through the clutter, providing focused, actionable methods tailored for savvy sales leaders. We’ll explain the dos and don'ts of sales forecasts and which key performance indicators (KPIs) to prioritize as the foundation of your forecast.
Let’s dive into the techniques, insights, and tools that will transform your approach to sales forecasting.
Sales forecasting predicts how well a business will perform at the end of a specific period. It analyzes various factors, like current leads, the economic climate, and historical data.
Sales leaders can use these insights to identify potential areas of growth or decline, helping businesses plan their inventory and marketing efforts and budget accordingly. Furthermore, sales forecasting can provide insight into customer behavior, which can assist businesses in making informed product and service decisions.
Accurately predicting sales is a critical component of any successful business. It empowers better decision-making, guiding strategic choices such as where to invest in a business. It prompts considerations like whether to cut back spending in a specific territory due to a downturn in the forecast or, conversely, to increase investment when performance exceeds expectations.
Typically, four significant organizational departments contribute directly or indirectly to sales forecasts. They are:
The Board and Finance team's responsibility is to make spending and investing decisions that are heavily influenced by sales forecasts. On the other hand, the Sales and Marketing teams focus on the demand side of operations. They directly contribute to sales by engaging in real conversations with customers. So, it would be logical for them to take charge of handling the sales forecast.
A sales plan helps sales leaders set specific targets, establish fun ways to sell products, assess market trends, and determine the resources/skills sales reps need to reach those targets. It's the key to a successful business journey.
When you’re making a sales plan for 2024, here are some major pitfalls you should avoid to get the most out of your plan:
Data challenges can come at a high cost. For instance, when the Opportunity records in your CRM are incomplete, it can greatly skew two crucial KPIs: the Quote-to-Close Ratio and the Monthly Calls or Emails Per Representative. Ensuring data completeness is vital for accurate insights and decision-making.
Rigid strategies: Markets are dynamic and influenced by economic shifts, industry trends, or unexpected events. An inflexible plan may struggle to adapt to these changes, causing the sales strategy to become outdated and less effective.
Here are some tips to avoid these hassles and stay ahead in future sales planning:
Generally, forecasting falls into two categories:
But from experience, the best sales leaders rely on a combination of both. The better the accuracy of the forecast, the better the outcome.
Historical data-based forecasting is a forecasting method that uses data to predict sales. It works by analyzing sales data to identify recurring patterns or trends. This could involve using statistical techniques or data visualization to spot trends.
The sales cycle duration model uses past customer purchasing behavior to determine how long a potential customer would take to convert. It is not just about understanding the duration of the sales cycle but also about identifying key factors that influence this duration.
It involves a thorough analysis of the entire sales journey, from initial contact to the final decision. By examining historical data, this method can highlight how different variables - such as product type, customer segment, or marketing strategies - impact the length of the sales cycle.
Additionally, it's crucial to consider external factors like market trends, economic conditions, and competitive landscape, as these can significantly alter the sales cycle's length.
Sales pipeline forecasting predicts the tendency of a lead closing by overseeing the entire sales pipeline from first contact to closing the deal. It does so by tracking past sales stages, like the number of leads, deals in each stage, and the time spent at each stage. With that, you can predict how likely a lead will close.
A critical factor of sales pipeline forecast is analyzing the pipeline yield. That is, how much of the pipeline has converted into revenue over a specific period. You can integrate additional factors like stage, touches, or the sales cycle to predict pipeline yield based on similar historical circumstances.
Cirrus Insight's Salesforce Sync solution plays a pivotal role by ensuring sales leaders base their forecasts on complete and up-to-date records in Salesforce. It seamlessly synchronizes emails, calendar events, and tasks directly to Salesforce, reducing manual data entry errors and saving time.
The automated process markedly diminishes the chances of errors and the time-consuming tasks linked with manual data entry.
Through Salesforce Sync, the sales leader is assured a real-time perspective of the sales pipeline, thereby improving the accuracy and reliability of the sales forecast.
Opportunity stage forecasting is a sales forecast model that predicts the probability of a future deal closing at different sales stages. This method is especially beneficial for identifying the strengths and weaknesses in the sales funnel. By analyzing the success rate at each stage, sales leaders can pinpoint where prospects are most likely to drop off or convert.
Test-market analysis has a different approach. Here, you test a product/marketing campaign among a few audiences to see how customers will respond. This method is suitable when you're thinking of launching or validating a new product or market.
Multivariate analysis predicts future trends and outcomes using multiple independent variables. Multivariable analysis forecasting uses data points like price, seasonality, and customer demographics to make predictions. Ultimately, it helps you make better judgments.
Forecasting sales accurately requires following a series of critical steps. While steps may vary depending on your organization's needs, leveraging predictive sales analytics is often a key component. Here are the basic ones:
The first step is to consider the type of business you are running, the amount of data you have available, the accuracy of the model, and aligning all the stakeholders to ensure everyone understands the plan. This can come from a single data point or from analyzing and comparing multiple data points.
Historical data forms the basis for almost all sales forecast methods as long as they are quantitative. It uses past sales data like customer behavior, market research, and so on to identify trends and patterns to help predict future sales.
Effective sales forecasting hinges on the ability to swiftly adapt to changing business environments. This requires a keen eye for spotting key market trends and factors that could impact your sales. Here’s how to identify these crucial elements:
By actively engaging with these areas, you can better anticipate customer demand, identify potential risks, and adjust your sales strategies accordingly. This proactive approach ensures that your sales forecasting remains relevant and responsive to the ever-changing business landscape.
Adopting a sales forecast framework depends on your data type. Can you lay your hands on previous sales data? If yes, you might look into any quantitative methods that deal with data. If not, you can look into the qualitative ones.
There are several tools available for sales forecasting. Here is a list of tools that can help you increase the accuracy of quantitative-based forecasting:
While these tools help sales leaders forecast more accurately, two stand out for us.
In business, there are unforeseen factors like
The only way to solve this is through flexibility. By being flexible, you can respond to unexpected challenges, exploit emerging opportunities, reduce risks, and protect stakeholder trust.
Effective sales forecasting demands regular monitoring and adjustments. Utilize Salesforce dashboards and reports for a real-time view of your sales performance versus forecasts. Key features include:
This approach ensures your sales forecasts are consistently refined, accurate, and aligned with market realities.
We'll use a hypothetical SaaS company, "BoomSaaS," as our case study.
Step 1: Data Collection and Preparation
Step 2: Choose the correct forecasting method
Step 3: Review and Validation
Step 4: Implementation and Monitoring
Step 5: Continuous improvement
Imagine the percentage increase in revenue if they could spend more time on their primary task — making sales.
Salesforce Sync tool from Cirrus Insight syncs email, tasks, calendar, etc. It automates the data entry process, allowing sales teams to focus more on building customer relationships and making sales.
Cirrus Insight helps sales leaders answer some of the fundamental questions they face during sales forecasting. Such as
AI for sales forecasting is gaining prominence across industries. These AI-driven forecasting models excel at identifying patterns within massive datasets, delivering predictions with exceptional accuracy.
Some of the benefits of incorporating AI in sales forecasting are to:
There are also some challenges like;
AI's increasing influence in sales forecasting signals a significant change in various sectors. By leveraging AI-driven forecasting models, sales leaders can achieve exceptional pattern recognition in large datasets, leading to highly accurate predictions.
Sales KPIs measure the result of a specific selling activity against overarching goals. To track the accuracy and effectiveness, you need to follow these KPIs:
This metric measures the percentage change in a company's sales from month to month. It shows a company's sales and financial performance during a specific time frame.
Average Profit Margin shows sales managers how well your company makes money. It's a gauge of a company's financial status.
This refers to the total number of bookings or orders a company receives in a specific month. Although it may not represent the immediate revenue, it shows commitment to future sales.
Using sales opportunity KPIs, sales managers can predict which leads are the most valuable.
This KPI measures if reps are on track to meet targets. The analysis compares the sales performance to established targets or previous periods.
The essence of measuring this KPI is to analyze the effectiveness of the sales process. It shows the percentage of sales quotes that successfully turn into closed deals.
By using this KPI, sales reps can gain insight into their customers' spending patterns and make better marketing and pricing decisions.
This KPI measures sales reps' productivity level. How many emails could they send? How many calls did they make? And so on.
Knowing the Sales KPIs, especially the historical average quantity of sales activities that a sales rep takes is crucial for having an accurate view of their productivity. Salesforce Sync solves this by taking the burden of updating Salesforce off of the rep. Making them more productive and giving sales leaders accurate data.
While knowing how to forecast sales may be one of the best ways to predict future sales and make better sales decisions, there are some mistakes you must avoid.
Over-reliance on historical sales data is one of the most common mistakes. What if the data is incorrect or contains assumptions or biases? The past may not accurately reflect the future, which poses a danger. Furthermore, sales leaders should consider external factors such as the economy and customer demands.
Markets may change at any point in time. We all remember how the COVID-19 pandemic caused a complete shift in business operations, with many companies switching to digital solutions quickly. The way forward is to anticipate these shifts and respond to them.
It's good to set a challenge for sales reps, but make sure you're not pushing them to a breaking point and that the challenge is achievable. Goals should depend on assessing market conditions, resources, and capability of sales leaders.
Unrealistic goals may lead to burnout, demotivation, resignations, poor customer relationships, etc
Proper sales forecasting holds great significance. Despite market dynamics and consumer behavior changes, accurate sales forecasts are always necessary. Effective forecasting practices allow sales reps to adjust to changing conditions and make informed decisions.
When you meticulously assess your sales forecast model with set objectives, you enhance your understanding of sales performance and enable strategic resource allocation, risk management, and customer satisfaction.
And what's more incredible is how tools from Cirrus Insight can help you in these. It allows you to access CRM data, create and update contacts, and track emails and customer interactions directly from your email client. Ultimately, it streamlines sales and CRM by providing a more efficient way to manage and track customer information and communication.