Wouldn’t it be amazing to see the future and plan for whatever hurdles or wins are coming your way? Companies that forecast their sales within 5% accuracy pretty much can.
However, refining your sales forecasting practice to that level isn’t always easy. And if you’re here, you’re likely frustrated with your forecasts failing to accurately predict sales.
When you have spot-on forecasts (within normal variance, of course), it’s much easier to make the best decisions for your team and business.
According to SiriusDecisions, only 21% of companies forecast within 10% of their actual numbers. As you can imagine, the more accurate you get, the more helpful your forecasts are. Striving to reach that 10% or better range will put you in the top-performer category.
In this blog post, we’ll walk you through fine-tuning your sales forecasts so that you can create realistic goals for your sales team to reach. And that’s just the tip of the forecasting iceberg.
Let’s take a look.
1. Define your sales forecasting process
If you’re already forecasting or just getting started, you’ll want to set the guardrails and define your forecasting process.
Clear definition will help you choose the forecasting method that best suits you. This part typically includes three distinct parts:
Defining your market and goals
Every forecasting process should start by laying out the goals you’re trying to accomplish.
Are you trying to expand into new markets or grow within your existing ones? Do you want your team to get better at setting and reaching sales goals? Are you hoping to establish a regular forecasting cadence that can give your marketing, fulfillment, and development teams more data for their strategies?
There are many different needs that forecasting can help you meet. Having clear objectives and sharing those with your sales team can align everyone to your mission.
You’ll also want to clearly define your market. You might have different product lines or services that target different audiences.
Start by separating these into groups so that you’re accurately measuring and comparing results with markets and across them. This will help later on when you weigh different forecasting methods.
Explore top-down vs. bottom-up forecasting
First, a brief explanation. Top-down forecasting is ideal for new businesses or those launching new products because it considers your competitors and Total Addressable Market (TAM) to forecast sales.
It’s a broader view that you then narrow to predict how much revenue you could bring in.
Bottom-up forecasting is about starting with detailed sales data and gathering those points together to form a comprehensive sales forecast. You might look at deals closed, conversion rates, top sources for leads, deals by sales rep, or your current pipeline and make predictions based on what has happened historically.
Choosing between the two comes down to the data you have available, the sales forecasting tools at your disposal, and what you’re hoping to uncover.
Collect and validate your sales data
It’s not impossible to create forecasts without detailed sales data, but it’s unlikely that you can create accurate sales forecasts without it.
To ensure you have the best information to base forecasts on, use a CRM platform that makes sales data accessible to those creating forecasts. Then, spend time validating and updating your sales data on a regular basis.
Establishing a clear process for how to keep records current and detailed will make forecasting much easier and more accurate.
With these steps, you’ll be able to increase your accuracy by leaps and bounds.
2. Choose the right sales forecasting method
There’s a reason so many sales forecasting methods exist, and that’s because every business has varying levels of sales data to work with and unique goals for their forecasts.
If you’re not happy with your current forecast accuracy, it might be because you’re not using the best method for you.
Here are a few of the most common forecasting methods to consider. You can also check out this full guide to top sales forecasting methods for even more options.
You can use historical forecasting if you have detailed sales data, a structured sales process and an updated CRM, and if you’ve seen steady growth in years past. In this method, you compare month-over-month or year-over-year revenue to predict what future sales might be.
This method can be fairly accurate. Although, if you have new products or initiatives rolling out, it might be tough to factor them in without having a historical comparison. Seasonality is easier to identify and include in your forecasts with this method, as well.
Sales teams with regular pipeline review meetings might opt for pipeline forecasting because they’re already familiar with assessing their current opportunities.
In this method, you’ll look at each rep’s current pipeline and determine how likely each opportunity is to close. Then, multiply that percentage (out of 100% confidence) by the potential value.
This requires a little guesswork from your reps. Over time, if you notice the accuracy isn’t there, it might be time to drill down and see where estimates might be off. Your accuracy might differ from one sales rep to another. Is the value over-estimated, or are the likely-to-close numbers not hitting the mark?
Opportunity stage forecasting
In this approach, you’ll assign a likeliness rating to each stage of your sales cycle (again, out of 100% confidence). The further along in the sales cycle a prospect is, the higher the chance is that they’ll convert.
To do this, you’ll simply multiply the percentage of likelihood by the potential value from each sales rep and then add those up. The difference here is that each stage has its own percentage instead of trying to estimate each unique opportunity.
It can be fairly streamlined if you have the sales data to create the initial stage estimates and the updated CRM records that show the correct stage for each prospect.
Length of sales cycle forecasting
Similar to opportunity stage forecasting, this method looks at how long your average sales cycle is as a benchmark for how likely a prospect is to convert.
If your sales cycle is six months and you’ve been talking to a prospect for three months, you can assume they’re 50% likely to become a customer. On the one hand, this can be easy to calculate if you have the CRM records of each interaction.
However, there’s still plenty of room for error as the way someone becomes a lead, and the steps they’ve taken, can influence their journey significantly.
Ultimately, the method you use is only one point to consider when troubleshooting forecasting inaccuracies.
3. Establish a weekly, monthly, and quarterly operating cadence
Knocking out your first forecast that’s within 10% of your actual sales is a huge thrill. But the impact of forecasting goes much further when you repeat that process over and over and start driving organizational change from it.
Sales managers that establish a weekly, monthly, and quarterly operating cadence can continue to improve their accuracy because they’re always checking in with one another and their predictions.
Weekly check-ins might include pipeline reviews or sales team meetings. Quarterly processes could include larger forecasting initiatives that involve other teams. What your team needs will depend on the size of your business and what your goals are.
Go back to your objectives from step 1, and consider what regular tasks your team needs to start completing.
4. Make sure you’re working with complete and accurate data
One of the most common culprits of inaccurate forecasts is the sales data that feeds them. Missing, inaccurate, or confusing CRM data can lead your forecasting process down the wrong path.
This often happens because sales reps don’t have the time to keep these records updated with all the relevant details, or there isn’t a defined process around it.
Automating how sales records are updated can be a huge benefit to your sales forecast accuracy, not to mention a major time-saver. If you use Salesforce, a tool like Weflow can take that burden off your reps’ plates by automatically updating records with any sales activity — emails, notes, activity logs, you name it.
If you’ve been spinning your wheels trying to figure out where the discrepancies are, your sales data might be a good place to investigate.
5. Take into account all the factors that can impact your sales forecast
If you’ve tried everything above and you’re still not seeing the results you want, maybe it’s time for some qualitative analysis. Perhaps there are other internal or external factors that aren’t represented in your current sales forecasting process.
Here are a few common factors that can influence the accuracy of your forecasts, and some questions to consider.
New hires and layoffs
Have there been staffing changes recently? New hires often require training and onboarding, which can take away from the time spent with prospects.
Layoffs, on the other hand, mean your sales team might be short-staffed temporarily.
Restructuring across an organization can also impact marketing, development, and other departments, which can influence leads coming in. If staff changes, so will your sales.
Have any laws changed how your business operates? Did any local, state, or federal regulations impact your industry?
These legislative changes can either increase sales if you’re providing a product or service that suits new regulations, or limit sales if any part of your business has to change to meet new requirements.
Staying ahead of any regulations that might pass will help you adjust your forecasts and plan for the future.
Have you added new markets? Did your sales team shift regions? If your sales operations have changed in terms of the industries and customers you serve, you can expect a change in sales revenue.
New markets require much more effort than existing ones, so you could face longer sales cycles or need additional touchpoints to build trust. That will impact how many deals close within the timeframe you’re forecasting.
Your reps will also need time to understand new customer bases and shift their strategies if needed. As time goes on, your sales should increase to match your growth.
Do you have new internal policies about the way you do business? Have commission structures changed? Did you roll out new pricing?
Any change to your company policies can play a role in revenue, even if it seems small or unimportant. If you have a month or quarter where nothing else changed, but your forecasts were way off, check internally next.
Are you adding new features or plans? Are you introducing a new product? These are a bit harder to miss because you’ll likely be informed of product changes so that you can relay them to prospects.
But just in case, try to investigate any product changes and see if that lines up with inaccurate forecasts. Even testing out a new pricing model with a smaller audience can have an impact.
Inflation, down markets, or changes in consumer behavior can all impact revenue. People don’t have to just be spending less on your product; they might just be spending less overall.
On the opposite side of these conditions are high-spending seasons due to increases in disposable income. You might notice brands marketing to their customers following tax season, reminding them to spend their tax returns.
Factoring in the current economic climate can help direct forecasts toward greater accuracy.
What are your busiest times of the year? In retail and other related industries, seasonality can drive noticeable changes in sales. You might see a boom around the holidays followed by a decrease in sales at the start of the New Year.
If you’re using historical sales data, you should be able to identify and factor in seasonality. If you’re using pipeline forecasting or other methods that look solely at current opportunities, you should also reference the time of year and add those considerations to your predictions.
Market and industry changes
Have you noticed more competitors in your space recently? Is your industry expanding or changing?
These external factors can change the way you engage prospects, as they might be weighing other options more than they used to.
You’ll likely notice if competitors increase their marketing spend, so be sure to factor in any changes when you forecast.
Hear how others do it
When we asked sales leaders for their advice to generate more accurate forecasts, what we heard overall was that the more inputs you have, the better.
Sticking with only historical data or only looking at the length of your sales cycle might be too limiting.
Here’s what Thomas Philip, Head of Sales at Mailmodo, had to say.
As Head of Sales, I understand the unpredictability of customer behavior and the impact it can have on sales revenue. To tackle this, we leverage historical data analytics such as conversion rates by industry, average sales cycle, etc.
By harnessing the power of data, we gain insights into customer preferences and make informed decisions about our sales strategy. Forecasting sales for new products or services is also a challenge, but we rely on existing industry reports, market research, and customer feedback to gauge interest and demand.
Lastly, in a highly competitive market, we continuously monitor our competitors and adjust our sales strategy accordingly to achieve accurate sales forecasting.
In summary, a broad, comprehensive view of your market and your business can be a powerful tool in sales forecasting.
Improve your sales forecasting accuracy this year
Hopefully, you’ve found a few steps to take that will help with increasing and maintaining your sales forecasting accuracy.
It might not be one factor, but many, that are causing your forecasts to miss the mark. Don’t be afraid to look at multiple possible causes when trying to improve, because this can also help you drive sales performance.
To recap, you can start by looking at your:
- Goals and market
- Sales forecasting method
- Sales data and CRM process
- Internal and external factors
From there, continue to develop a regular cadence and operating procedures so your sales reps can more accurately set goals and meet them.
Accurate sales forecasts can help drive better decision-making beyond your sales team, so it’s well worth it to spend time on maintaining sales forecasting accuracy.