Sales Forecasting Methods You Should Know

Accurate sales forecasting is critical for organizational success. Company leaders rely on sales forecasts to help them plan for the future and incorrect predictions can wreak havoc on a business’s bottom line. There are a host of strategies for forecasting, and the “right” method varies from company to company. Let’s examine some basic, but effective forecasting to help you develop a strong strategy for success.

“As a National Sales Manager, I drive my team to under promise and over deliver on meeting and exceeding our annual goal.  We do this every day by aligning our sales and recruiting team.  Together, our forecasts predict where we will be successful and where we have challenges that require process improvement.  Forecasting is taking us to the next level! says, Evan Violette, National Sales Manager, Contemporary Staffing Solutions.

Opportunity Stage Forecasting And Forecasting Categories

CRM systems allow reps to update prospects with tags indicating where things stand at each stage of the sales process. The names of the stages will differ but they are typically things like: Assessment stage, product demo, quote, closed (lost), closed (won), etc. Sales managers can forecast by assigning a value with each opportunity stage based on the closing probability. For example, Company A might be in the demo stage for a $1,000 product. The demo is assigned a 25% probability of reaching closing.  Therefore:

$1,000 value x .25 = $250

Opportunity stage forecasting is simple and objective – the reps “feelings” about a prospect do not come into play. However, it does not take time into account. A deal that takes a year to close would obviously end up netting less than a deal that takes three weeks, so the values can be skewed significantly.

Many sales managers enhance opportunity stage forecasting with an additional method: Forecasting categories. Here, reps are asked to assess the opportunity’s probability of closing based. An opportunity that the rep commits to closing would be assigned a higher value than an opportunity that will only close if every variable falls into place. This introduces a subjective nature into the strategy, so managers need to keep a close eye on where things stand with each deal in order to assign the most accurate value.

Advanced Predictive Forecast

There are, of course, more advanced methods of sales forecasting. One effective forecasting strategy requires managers to assign value based on the length of the sales cycle, a rep’s personal closing ratio, and the probability that a prospect will close within that time period.

The age of an opportunity is compared to the typical sales cycle length and multiplied by the rep’s win rate for each stage.  Advanced analytics and reporting tools are required for predictive forecasting, as manual calculations can be complex and time-consuming. Some older CRM systems are unable to process advanced predictive forecasts, so this method isn’t always available to sales managers.

Sales Forecasting Is Both Objective and Subjective

Sales forecasting, no matter how accurate the calculations turn out, can never be relied upon to be 100% accurate.  Sales is a mixed bag and prospects are fickle. Deals that seem like they are 99% likely to close can fall apart at the last minute, and deals that seem like they haven’t got a prayer can end up closing for even more money than reps proposed. Forecasting is part art, part science. The methods that work best can depend just as much on forecasting methods as the intuition and experience of sales leaders doing the forecasting.

If you are looking for new ways to attract and retain top salespeople and top sales managers for your organization, the expert recruiters at CSS can help. Contact us today to learn more about the ways we can help you build a team of professionals who can meet and exceed goals.