It’s important to know the sales forecast in the company. An organization’s ability to invest and grow is determined by this factor. However, it is extremely difficult to do. Chances are, even once you get it right, you’ll outgrow that solution and have to readjust your strategy as you grow.
Whatever stage your company is at or how fast it grows, one thing remains consistent: you must hit your sales target.
Essentially, a sales forecast is the roadmap guiding the company to its goals. To reach the organization’s goals, revenue teams use it to prioritize activities that will need to be executed. In order for any company, small business or multinational organization to succeed, forecasting sales with the right model and sales forecasting method is imperative.
In this guide, we provide an in-depth explanation of how to create a realistic sales forecast. Here, you’ll learn everything you need to know to get started with sales forecasting
What is Sales Forecasting?
The process of forecasting sales is one way to make better-informed decisions. In general, forecasts are created using past historical sales data, industry benchmarks, or economic trends. You can use this method to better plan your revenue and sales by taking into account workforce, ash flow, and other resources.
Usually, established businesses are better able to make more accurate sales forecasts based on previous sales data. On the other hand, less established businesses will need to rely on market research, competitor benchmarks, and other methods of determining sales numbers throughout their initial years of operation.
What are the benefits of sales forecasting?
- Your sales team’s performance
- Provides resources for future growth
- Manage your cash flow
- Estimate revenue with accuracy
- Manage the sales process
- Planning your finances better
- Direct development and research
- Improved inventory control
Sales forecasting – why is it important?
Your business’s financial performance is determined by its sales forecast. As soon as you complete the sales forecast, you can produce your income statement, cash flow statement, and balance sheet.
1. Identify your goals
However, a sales forecast is really about setting goals for your company, rather than just setting the stage for a complete financial forecast. There are questions you wish to answer, such as:
- Next month, what are you hoping to accomplish? The year? A 6-year commitment?
- What does the future hold for you in terms of customers?
- Will your customers spend a certain amount with you?
Answering these questions and any others related to your business’ future can be accomplished through your sales forecast.
2. Communicate with investors
Potential investors can see your baseline performance and your performance milestones by using a forecast. Their goal is to make sure your business is on track with a clear trajectory and that you have clear and measurable goals. You can explain your business’s position to third parties and employees better if your forecast is detailed, organized, and up-to-date.
What is the best way to forecast sales?
An accurate sales forecast requires two factors to be considered. For the numbers to be developed, you need a bottom-up method. Then you need to check the numbers from top to bottom for accuracy.
It is crucial to transform the figure into a set of measurable assumptions before building a financial forecast. As a result, it will be easier to analyze differences between the forecast and actual numbers, make adjustments to your hypothesis, and arrive at the correct new forecast.
Organize your sales process
You won’t be able to predict the likelihood of a sale closing if your sales team doesn’t follow the same stages and steps consistently. To learn how to create a structured, documented sales process, please contact our eCommerce consulting team to building a sales process.
As part of your sales process, you should establish standard definitions for opportunities, leads, prospects, and closes. Counting leads entering and exiting the funnel must be agreed upon by all parties.
Analyze Your Sales Cycle
Is your organization good at closing deals quickly? If so, what is the average time? It’s crucial to understand what your average sales cycle is for sales forecasting, since your forecast is based on how quickly your business grows.
Take a look at several different periods of time:
Forecasts are done weekly in highly transactional companies. Forecasts should be made monthly for sales cycles lasting 30-60 days. A forecast is typically done every quarter by companies with longer sales cycles
The forecasting process really depends on which average sales cycle best fits your business. When building forecasts, you may even encounter differences in time periods if you operate in several verticals.
Forecasting sales leads based on lead information
Whenever possible, it is best to forecast sales of businesses with sales forces by estimating their lead generation capacity.
Here is an example of how this works. In this case, let’s pretend that you are selling services to small businesses, and that your sales process consists of the following: you reach out to potential customers in order to arrange meetings before trying to close the sale.
You can estimate the number of phone calls that your average sales representative can handle on a daily basis to forecast your sales. On the basis of a projected success rate, you can estimate how many meetings your sales representative will receive. By subtracting the number of sales from the number of meetings, another estimate of the success rate can be determined.
Rather than using a global conversion rate, try to understand the entire sales funnel. In this way, you will be able to track the intermediate steps and adjust your sales forecast upon getting a better understanding of conversion rates for those intermediate steps. Additionally, you will be able to set more specific goals for your salespeople
Revenue forecasting for an online business
A Google Adwords keyword tool can be helpful if you are in the online business. Using this tool, you can find out how much traffic each keyword generates as well as estimate how many clicks an ad campaign should generate. After figuring out how much you can spend on Adwords, you can build your volume forecast, which will yield an estimated number of clicks. Once the number of clicks is estimated, you can apply the conversion ratio in order to decide how many sales there were. These insights can also be obtained from SEO experts in order for you to take better decisions.
Keeping sales forecasts is not as difficult as you think. Entrepreneurs, however, are best qualified to do this for their businesses as they hold the most experience in the field. Knowing your customers and your market is a great way to forecast sales. To help you forecast sales for your business, we have compiled best practices.
Need help in forecasting sales for your business? M-connect Media can assist you. Through sales forecasting, our team of marketers and eCommerce experts will help you expand your business. Contact us today for more information.