Sales Forecasting: How to Put Sales Prediction Angst to Rest (Finally)

If you’re a sales manager, you’ve maybe been in the sales forecasting hot seat — of presenting numbers that look different from your prediction.

It’s time to take control of the process and find your forecasting sweet spot.

What Is Sales Forecasting?

Sales forecasting is how sales managers, directors, and VPs estimate upcoming revenue. 

The forecast predicts how much the company will sell in the way of products or services and by whom (from individual reps to sales teams). The forecast’s timeline is typically broken down by week, month, quarter, or year.

Sales forecasts are critical for guiding business decisions such as go-to-market strategies, hiring, and budget planning. 

And after a challenging year in 2020, 91% percent of recently surveyed executives acknowledge that forecasting in 2021 needs to look different.

Now is the perfect time to get your forecasting in top shape. 

Read on to discover:

  • Why Your Sales Forecasting Matters
  • How to do a sales forecast
  • The 4-Step Sales Forecasting Starter Pack

Why Your Sales Forecasting Matters

While sales forecasting is an estimate of what will happen, it’s also a guide that can keep sales teams on track and hitting their number. Do it right, and you can:

Spot potential ‘issues’ early (and pivot)

Use the forecast to understand issues before they can do damage. If sales quotas dip below the forecast levels, you have the opportunity to find out what happened and make adjustments.

You don’t want to wait until the end of the quarter to discover revenue-depleting issues.

Adjust for demand fluctuations on a dime

The sales projections allow you to manage market change effects. For instance, if demand increases, your forecast will guide your hiring needs and inventory management.

Optimize for maximum wins 

Use your sales forecast to enhance the sales team and individual reps’ outcomes. The sales predictions will help everyone focus on quality opportunities for more wins.

How To Do a Sales Forecast (4 Kick-off Questions)

Before you go anywhere near a forecasting spreadsheet, you need to do some planning. The following questions will get you up and running.

1. Who are the stakeholders? Define whose data will inform your forecast — from individual sales reps to inbound and outbound managers. Additionally, identify who will use the estimates (and how), such as your operations team and CFO.

2. What’s our forecasting timeline? Work out the best forecasting schedule for everyone in your business. Maybe a quarterly sales report works for leadership, but sales ops might want a forecast for the monthly all-hands meeting.

3. When should we update the forecast? The last thing you want to do is shelve your projections (think, living, breathing document). You know the factors that influence your business revenue. Revisit and adjust the forecast as markets change.

4. What do we need to focus on? Are you releasing a new product? Your sales forecasting will help align the go-to-market processes, such as inventory management and product marketing. 

The Sales Forecasting Starter Pack (4 Precise Steps)  

You’ve done the planning questions. But here’s the thing, it’s hard to create a compelling sales forecast alone. Work with your stakeholders to develop educated, target-hitting predictions. Let’s dig in.

Step 1: Align your sales and marketing teams 

You need sales and marketing alignment — from reps to product marketers — to make your forecasting viable. 

Is marketing feeding quality MQLs to sales? When sales get the leads, how quick is their response time? Is their definition of a qualified lead (SQL) the same as marketing’s?

Step 2: Clean up your sales process 

Defining your sales process is a necessary foundation for your forecasting. That includes evaluating your sales cycles and conversion rates. 

Are your reps maximizing the tech stack for greater efficiency and productivity? At the same time, are they tuning into prospects’ buying signals to carry more sales over the finish line?

Your sales processes must be clear, consistent, and repeatable to make your predictions work, with everyone following the same procedures.

Step 3: Supercharge your CRM

Your customer relationship management (CRM) is forecasting-critical. Why? Your sales reps need a database of accurate information to organize and track and opportunities. 

Your CRM will allow reps to sync alerts and reminders to calendars, so they never miss a lead opportunity. 

Step 4: Choose your sales forecasting methodology

Sales forecasting methods vary significantly — from asking reps to predict the deals they’ll close, to using a predictive analytics solution. With your team, decide which forecasting method will work best for your business.

Here are four common sales forecasting methods to consider:

1. Length of sales cycle forecasting

The length-of-sales-cycle forecasting method predicts when a lead might close based on how and when a lead enters the sales funnel. 

This method relies on objective data (e.g., the date a rep secures a demo).

Unlike the rep’s subjective (and maybe optimistic) prediction for closing the deal, the data will reveal the reality that the lead is probably not ready.

With the length-of-sales-cycle method, CRM will play a pivotal role in tracking lead activity. Moreover, if synced with your other tech tools, reps will reduce time inputting data and more time meeting your forecasts.

2. Opportunity stage forecasting

The opportunity-stage forecasting technique focuses on the deal’s stages in the pipeline.  

Calculating this method is pretty straightforward. However, the results might not hold up well, as the forecast doesn’t take opportunity ‘age’ into consideration. 

This stage is also heavy on historical data, creating forecasting issues if other variables change (such as product development or go-to-market processes).

3. Historical forecasting

Your historical forecasting is the bare-bones method for estimating sales for the upcoming month, quarter, or year. Based on a similar period’s numbers, you can gauge where your numbers will fall. 

That said, the historical forecast doesn’t include variables such as buyer demand inconsistencies. For instance, if demand drops, the forecast crumbles.

Ultimately, while this forecasting type is easy to do, market changes will throw off the numbers.

4. Multivariable analysis forecasting

The last forecasting method on the list is the most accurate and advanced. However, the multivariable analysis technique can be cost-prohibitive, as it requires advanced tech tools such as predictive analytics. 

Also, with multivariable analysis forecasting, you must maintain a clean data system. 

Put Your Sales Forecasting to the Test

Your sales forecasting helps you plan and implement your growth strategies. It’s not an exact science but a way to prepare for business revenue changes. 

Whether your forecasting methodology includes predictive analytics or pipeline activity data, your business knowledge and intuition will play a pivotal forecasting role, ensuring the numbers land in the right spot.