Last updated on July 9th, 2024 at 03:24 pm

Predicting the future is a dubious proposition. But what if you could see the future of your business’s sales revenues for the next quarter, year or five years? That could be a game-changer for planning and growth. Knowing how to forecast sales accurately enables you to do just that. 

How is revenue projection more legitimate than fortune-telling? After all, you’re predicting sales based on leads you don’t have. Well, you do have data. The most accurate sales forecasts are produced from formulas using a range of data types and other factors to output estimates for decision-makers.

For anyone aspiring to advance their career in finance, marketing, sales management, or general business administration, the information below can help form essential strategies for accurate, data-driven projections of sales revenues. It will give you an edge by helping you understand the state-of-the-art tools and techniques for setting goals to scale your organization.

What Is Sales Forecasting?

Revenue forecasting predicts overall sales totals, individual channel performance, and related outcomes for a future period. Accurate forecasting involves factoring: 

  • Past performance data
  • Your business’s market position
  • Market trends and larger patterns
  • Broader economic conditions
  • Customer acquisition costs
  • Other internal and external factors 

That is a lot—hence the need for education in the field.

Accurate sales forecasts are invaluable for strategic planning, budgeting, and operations management for decisions on resource allocations for growth initiatives, projects, research and development (R&D), product and service line management, and more.

The most useful sets of projections include best- and worst-case scenarios along with the most likely scenario (which is typically in the mid-range between the best and worst possibilities).

Benefits of Accurate Sales Forecasting

Realistic sales revenue projections are modern business management essentials. They empower company leaders to make better business decisions, including setting more practical goals for growth and laying out a roadmap to reach them expeditiously while maintaining quality. Without a sales projection based on a range of meaningful data, management cannot make fully informed sales goals or decisions about resource allocation.

Such a lack of foresight often leaves companies adrift between over and underperformance from period to period. It can leave leadership functioning with a deficient understanding of their bottom-line performance. It further leaves CFOs without critical information needed for appropriate budgeting to maintain or increase cash flow, clear risk assessment, and general business financial management. On the other hand, accurate revenue forecasting empowers management to:

  • Make better strategic plans and operational decisions.
  • Create the most practical budgets and financial plans.
  • Acquire deeper insights into market conditions.
  • Identify and respond to changes in consumer behavior.
  • Set goals that make the most sense.
  • Maintain resources for top-quality customer service.
  • Devise maximally effective sales strategies.
  • Manage growth and quality while scaling the business.
  • Meet staffing requirements for period objectives.
  • Manage steady inventory and production flow.

How to Forecast Sales Accurately

There is forecasting, and there is accurate forecasting. For the latter, you need to understand how to calculate projected sales thoroughly and efficiently. These are the steps you should take to produce an accurate sales forecast:

Set Realistic Sales Goals

Accurately determining your business’s sales goals will involve assessing market conditions, your company’s performance during the same period of previous years, recent performance, and your organization’s capabilities for meeting various non-sales-related performance benchmarks, among other forecasting factors.

Your sales staff can use the resulting forecasts as their guideposts for goal-setting and strategic planning of their annual, quarterly, weekly, and daily sales activities as required to meet objectives tracked in their team’s key performance indicators (KPIs) and other essential metrics. The resulting sales goals should consider the following:

  • Marketing and Sales Capacity: How much revenue can your marketing and sales teams realistically produce? Consider the current size of your teams, their training and experience, and the tools at their disposal.
  • Quality and Pricing: Is your business model based on selling a low volume of high-cost products or a high volume of low-cost products? This factor will determine whether your projections should emphasize total unit sales or total revenues.
  • Marketing and Sales Initiatives: Are your marketing and sales departments planning any special campaigns that should be factored into your forecasting? Are you planning to add new product lines or expand into new markets before the forecast period?

Examine Historical Data for Sales Projections

Examining historical data can make all the difference in the accuracy of your revenue forecasts. Consider the following from prior periods: 

  • Sales trends
  • Market fluctuations
  • Buyer behaviors
  • Lead production
  • Pipeline efficiency
  • Closing rates
  • Attrition rates
  • Channel metrics

Evaluate Your Offering

Consider the value of your products and services. Are customers more likely to purchase your product or service one time, or will they probably need to come back repeatedly? To figure it out, evaluate the following:

  • Products: Scrutinize the types and quality grades of the products you sell or have sold in the past. Do they satisfy the needs of your target market? How can sales of these products and services help you reach your sales goals?
  • Services: Evaluate the comparative worth of your offerings as stand-alone services or as support for your physical products. Factor these services’ contributions to sales.
  • Sale Types: If your business model is built on one-time sales, repeated sales, subscription services, etc., factor in the frequency of sales for each product, service, or subscription revenue channel.

Examine Seasonal Market Indicators

Although historical performance data tells much of the story about what you can expect in future revenue, a market analysis that correctly reflects the current environment is key in sales forecasting. Identify areas of potential growth in your market as well as possible challenges for sellers in your class during the upcoming quarters and years. Also, consider broader external factors, such as economic, political, regulatory, social, international business, and even climatic conditions. Examine typical seasonal sales fluctuations, new technologies, and other disruptive innovations.

Get Input From Your Sales Team

Obtain information about your sales team’s processes and their outlook on their future performance. Ask your team members for answers to these questions to gain helpful insights for forecasting:

  • Sales Goals: What are your sales team’s goals, individual quotas, and expectations of outcomes for the future?
  • Pipeline Process: How long does it take to close a sale from the initial lead contact to the purchase transaction? 
  • Product Prices: How much revenue is generated from selling a single product or service unit?
  • Closing Rate: What is the team’s collective and each member’s closing rate for the current and last quarters? Last year? Three-year average?

Identify Potential Sales Opportunities

Continuously monitor market data, customer feedback, and sales performance from prior years, leads generated in particular periods, and conversion ratios. Further, analyze your team’s most and least effective sales techniques. For example, knowing the percentage of closed and unclosed sales can help you understand how many leads must be generated to reach your sales goals for a given period.

Make Assumptions and Adjust as Necessary

After you have collected all the quantitative and qualitative data you need to generate your projections, don’t get stuck on sorting out the minutia. Apply your customer relationship management (CRM) data analytics tools to see what the calculations yield. Review the results and adjust your method as necessary to best fit your forecasting needs. Employ any graphs, charts, and matrices that could help highlight patterns and illustrate the information reflected in the data. Use the outcomes to help decision-makers make well-informed decisions and projections.

Use Modern Sales Projection Tools

State-of-the-art revenue projection tools help forecasters predict lead volume, assess consumer input on product and service value, and evaluate pipeline processes, marketing approaches, and sales team effectiveness. Revenue projection software sufficiently loaded with accurate, relevant data reveals:

  • Sales team and individual time to close and closing rates.
  • The leads that most significantly affect revenue projections.
  • The amount of sales revenue you can expect to produce in a period.
  • Contrasts between previous periods’ sales performance and future predictions.

This information can inform decisions to pursue particular market segments and lead types, emphasize specific marketing and sales methods, and modify sales goals.

A modern sales forecasting tool is a component of a comprehensive CRM platform. This critical sales management software integrates formerly siloed departmental databases and automatically tracks your prospective and current customer contact history, communication details, and outcomes of each encounter with employees, from sales and customer service to shipping. With an advanced CRM system, you can extract data from these networked internal digital systems, empowering you to generate the most accurate revenue forecasts possible.

Some of the most popular CRM and related data management tools for accurate sales forecasting include NetSuite, Salesforce, HubSpot and Pipedrive.

Common Challenges in Sales Forecasting

Myriad stumbling blocks present themselves to forecasters even in the best-case scenarios, in the most robust and efficient revenue prediction systems, and with the most knowledgeable experts. Overcoming these obstacles is what separates enterprise revenue forecasting experts from fortune-tellers. Some of the typical complications to accurate sales forecasting include:

  • Unpredicted changing market conditions
  • Market seasonality
  • Broader changes in consumer behavior
  • Inaccurate historical sales data
  • Insufficient information sharing with sales leaders
  • Changes to company leadership
  • External economic conditions
  • Adverse regulatory changes
  • Shifting political circumstances

Tips for Improving Accuracy of Your Sales Forecast

For the greatest accuracy in your forecasting, adhere to the process outlined in the above section, “How to Forecast Sales Accurately.” Furthermore, the better the collaboration between your organization’s marketing, sales, financial management, and C-suite leaders, the more effective the forecasting and planning teams can be. Collaboration and communication enable your organization to acquire a greater breadth and depth of applicable data and insights to develop the most accurate predictive model.

Creating an Effective Sales Forecast Template

A well-developed sales forecasting template can help you streamline your process. The most effective sales revenue forecasting templates provide the tools and parameters you need for your forecasting workflow, leaving you free to focus on the tasks required to produce the most accurate revenue predictions.

Track Your Sales and Business Performance Data

Gather data through sales and financial department records, customer and employee surveys, target and competitive market analyses, staff evaluations, budgets, growth and capital strategies, and external economic indicators. Consider a cross-departmentally integrated CRM system to manage marketing, sales, and customer service data, along with sales communications and other pipeline activities. 

Select the Correct Metrics for the Most Accurate Forecasting

Aligning the metrics you choose to track with your sales forecasting objectives is fundamental to achieving relevant projections. Before calculating, evaluate your existing metrics and, if necessary, add or eliminate some from your forecasting process.

Select the Most Appropriate Forecasting Method

Consider your business type, current market conditions, predicted upcoming changes, other relevant external factors, and the timeframe for your projection to identify the best forecasting method.

How Can an MBA in Sales Management Improve Sales Forecasting?

Accuracy in forecasting future sales means obtaining information and collaborating to ensure robustness based on data. If your interests and talents align with such endeavors, perhaps a career in sales, general business management, or forecasting and planning is for you. In that case, you are encouraged to pursue an MBA in Sales Management to develop your skills and make the most of your opportunities in the field.

If you are interested in earning an MBA in Sales Management, call Salem University at (844) 462-9128, or contact the Admissions Department for more information.

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