Sales Forecasting 101: Definition, Methods, Examples, KPIs

sales forecasting definition

Below we share some of the best practices that sales teams should observe when doing sales forecasts. Sales forecasting can help estimate expenses and revenue based on short-term and long-term sales performance. Hence, sales leaders can use sales forecasts to discover high-revenue sales opportunities by targeting repeat customers and finding ways to broaden geographic reach. In this guide, we’ll explain everything you need to know about sales forecasting — so you can get a clear picture of your company’s projected sales and keep everyone’s expectations on track. The last step in the sales forecast process involves periodic reassessments to the methodology, and the process is accurately measuring data. Most sales forecasters will capture data in real time and set up a regular forecasting schedule.

  • However, in a quarter when far fewer customers churn, your profits will increase.
  • These techniques use different approaches, such as analyzing past data, gathering market insights, evaluating sales opportunities, applying statistical models, and relying on expert judgment.
  • As the quarter or period progresses, you revise the forecast based on updated information.
  • Make sure your CRM is up-to-date and accurate, and that you know what’s in your current pipeline.
  • If you include your sales forecast in your business plan, it’s smart to predict sales for each month over the course of the next year.
  • If business has been steady, you can use historical forecasting to take exact past revenue data and adjust it for any minor growth or loss you might expect.
  • Salesforce is the #1 CRM, giving sales leaders a real-time view of their entire team’s forecast.

More Forecasting Resources for Sales and RevOps Teams

However, a sales forecast will help you understand your sales pipeline and plan for both best- and worst-case scenarios using realistic and accurate numbers. While sales forecasting is undeniably essential, it can also be fraught with challenges. Some key sales forecasting challenges include data accuracy, market volatility, and the inherent complexities of the sales process. Find out how predictive sales forecasting works and learn how to get started creating more accurate forecasts.

Prepare your business for the future

For example, AI might note that an opportunity has been pushed out three quarters in a row — a finding that would’ve taken an individual reviewing the data longer to discover. Think of AI as your personal data scientist, taking your forecasting and entire sales operations to a new level. Sales forecasting capability is available in CRM software, sales analytics and automation platforms, and AI-driven sales technology. “The most common cultural mistake is when sales leaders press salespeople to forecast a target number without any evidence or confidence that it will actually be achieved,” he notes. Where companies tend to go wrong is relying too heavily on one or the other. You need a consistent process and reliable data,” says Charlene DeCesare, CEO of sales training and advisory firm Charlene Ignites.

Manage Business Cash Flow

This technique of all sales forecasting methods can be the most accurate if you have those resources. You can also consider an opportunity’s age, where it is in the sales process, the characteristics of the prospect that increase their likelihood of making a purchase, and more. In order to estimate the strength of the pipeline, an alternative forecasting method is to use the age of the sales opportunity rather than the probability. It compares the length of time a deal has been in the pipeline with the typical time it takes to close a deal. Sales forecasting predicts future sales to provide valuable insights for more informed decision-making. This foundational sales activity is important in resource allocation, lead assignment, and sales territory management.

Sales forecasting methods break down broadly into qualitative and quantitative techniques. Qualitative forecasts depend on opinions and subjective judgment, while quantitative methods use historical data and statistical modeling. Hiring, payroll, compensation, inventory management, and marketing all depend on it.

Complement Software Usage With Human Knowledge

Benchmarks help companies understand the sales process and identify wins and shortcomings. Companies can then compare these benchmarks to new data and use them to set better goals and make more informed sales forecasts. One drawback to lead source forecasting is that the method does sales forecasting definition not account for potential differences in the length of the sales cycle for the lead types. That makes it difficult to pinpoint the period in which the revenue will occur. Therefore, you should do a separate analysis of time to purchase in order to allocate sales to the right period.

sales forecasting definition

Forecasting Techniques

  • By viewing the forecast in hindsight, you may be able to identify factors that you failed to account for last time that you can now consider in your next prediction.
  • One of the core foundations of predicting business budget allocation is having accurate sales forecast data.
  • Revenue leaders can’t afford to use the inaccurate “guesstimation” methods of the past if they want to deliver predictable growth.
  • They allow organizations to properly allocate their resources and manage cash flow.
  • In this way, sales forecasts are an important benchmark for gauging the performance of your sales reps.

This forecasting method is ideal for a business that needs a quick and easy way to project how much it will sell over a given period. That said, historical data should be used as a benchmark instead of the foundation of a sales forecast. This is a great sales forecasting method for sales managers who want to learn more about the deals that are spread across their pipeline. For instance, they can use this method to differentiate between different types of groups.

  • This is great news if you are creating your small business on your own terms and have limited software access.
  • Meanwhile, if forecasts are on point, the company can make better investments, perhaps hiring 20 new developers instead of 10, or building a much-needed new sales office in a prime new territory.
  • If you don’t have an accurate sales forecast for your business, you’re essentially flying blind.
  • Moreover, monitor to see if new competitors may be entering your market.
  • Otherwise, there may not be enough data to get accurate sales predictions.
  • It involves everything from how demand generation campaigns are performing to how your phone calls to prospects are landing.

When the forecast is exceeded, the company gets to decide how it’ll invest the extra money – and everyone’s even happier. At the same time, though, if you’re consistently over, you should adjust your forecast for peak precision. The method you choose will depend on a few factors, including the age of your business, the size of your sales team and pipelines, and the quality of your sales data and data tracking habits. The length of the sales cycle forecasting method uses the age of individual opportunities to predict when they’re likely to close. For example, each week you might update your quarterly sales forecast to see if your team is on track to hit its target.

sales forecasting definition

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