BUILDING A SALES FORECAST

Exec- Sir, I’ve procured an order for one cr!!!!

Manager – What…..one cr….but the product is unavailable and will take at least a month and a half to be produced!!!!!

 

…….and the sales went phut.

Dear, Senior Sales Leaders and Management…. This Sounds familiar, doesn’t it?

This happened because either the Sales Forecast was poorly done or not done at all.   You can’t ignore the importance of forecasting and analysis in the sales process. To some extent, it can be considered the backbone of sales. Sales teams must conduct a thorough analysis of the metrics they gather to justify the choice of their strategies and assess their current performance.

It’s cliche but it is true, Building a sales forecast is both an art and a science. Accurate sales forecasts keep your leaders happy and your business healthy. It gives a clear picture of your company’s projected sales and keeps everyone’s expectations on track.

What is a Sales Forecast?

A sales forecast is an expression of expected sales revenue. A sales forecast estimates how much your company plans to sell within a certain time period (like quarter or year). The best sales forecasts do this with a high degree of accuracy.

TWO QUESTIONS EVERY SALES FORECAST ANSWERS:

1. HOW MUCH? 

2. WHEN?

Sales forecasts differ in where they’re getting their inputs – for example, they may rely on sales reps’ intuition or even artificial intelligence (AI). But all sales forecasts answer two key questions:

• How much: Each sales opportunity has its own projected amount it’ll bring into the business. Whether that’s Rs.2 crores or Rs.20 crores, sales teams have to come up with one number representing that new business. To create the number, they take everything they know about the prospect into account.
• When: Sales forecasts pinpoint a month, quarter, or year when the sales team expects the revenue to hit.

Coming up with those two projections is no easy feat. So sales teams factor in the important ingredients of who, what, where, why, and how to make their forecasts:

• Who: Sales teams make their forecasts based on who their prospects are. Depending on if their prospects are the actual decision-makers or just influencers, the forecast will be more or less exact.
  

 

• What: Forecasts should be based on exactly what solutions you plan to sell. In turn, that should be based on problems your prospects have voiced, which your company can uniquely solve.

• Where: Where is the buying decision made, and where will the actual products be used? Sales teams see better accuracy when they get closer (at least for a visit) to the center of the action.

• Why: Why is the prospect or existing customer considering new services from your company in the first place? Is there a compelling event making them consider it now? Without a forcing function and a clear why; the deal may stall inevitably.

• How: How does this prospect tend to make purchasing decisions? If you’re not accounting for how they do it now and how they’ve done it in the past in your forecast, it may be fuzzy math.

 Thus, a sales forecast provides answers for…..

Who? Why? What? How? Where?

Some of these elements are rooted in real facts, while others are conjecture. The longer you sell, the better you get at forecasts. That’s why they’re both an art and a science – sales forecasting is a balance of both.

 

Why is sales forecasting important?

One– Sales forecasting is so important to business health because products can be made available so that purchase meets demand.

Two– If the delivery comes a day or a week after it’s promised, that’ll affect customer’s satisfaction with the company – and decrease his willingness to want to do business with them again.

Sales forecasts help the entire business plan resources to ship products, pay for marketing, hire employees, and beyond. Accurate sales forecasting yields a well-oiled machine that meets customer demand, both today and in the future. And internally on sales teams, sales revenue that delivers in its estimated time period keeps leaders and collaborators happy, just like a shipment that arrives on time.

If forecasts are off, the company faces challenges that affect everything from pricing to product delivery to the end-user. Meanwhile, if forecasts are on point, the company can make better investments, perhaps hiring 20 new developers instead of 10, or building a much-needed new sales office in a prime new territory.

Who is responsible for sales forecasts?

Each organization has its own sales forecast owners. These are some of the teams who are usually responsible:

• Product leaders: They put a stake in the ground for what products will be available to sell when.

• Sales leaders: They promise the numbers that their teams will deliver. Depending on the seniority of the leader, how they forecast varies. For example, first-line managers forecast collections of opportunities, where third-line managers consider a wide set of numbers and traditional close rates to come up with an overall forecast.

• Sales reps: They report their own numbers to their managers.

 

No matter how a company calculates its sales forecasts, the process should be transparent. And at the end of the day, sales leadership has to be responsible to call a number. Whether met, exceeded, or missed, the forecast responsibility falls on them.

Who uses sales forecasts?

Sales forecasts touch virtually all departments in a business. For example, the finance department uses sales forecasts to decide how to make annual and quarterly investments. Product leaders use them to plan demand for new products. And the HR department uses forecasts to align recruiting needs to where the business is going. 

At some level, sales forecasting affects everyone in the company.

What are the objectives of sales forecasting?

The main objective of sales forecasting is to paint an accurate picture of expected sales. Sales teams aim to either hit their expected target or exceed it.

When the sales forecast is accurate, operations go smoothly and leaders are pleased with the follow-through on the plan. When the forecast is exceeded, the company gets to decide how it’ll invest the extra money – and everyone’s even happier. 

How do I design a sales forecasting plan?

Design a sales forecasting plan with your team by focusing on three primary activities:

• Calculating number and time period: Your plan should explain how you’ll calculate the estimated monetary amount and what the timeframes will be. 

• Reviewing and revising: You should also plan to review the forecast at key milestones and revise it if necessary. They can be monitored daily, weekly, monthly or even quarterly.

• Breaking the patterns: Even the best sales organisations need to shake up their processes once in a while. Breaking your patterns can help you find new ways of designing even more accurate forecasting. 

It’s rare for forecasts to be within 5%, but it does happen. If you’re within 5% of your forecast, and you’re dealing with a big number of opportunities, you’re a sales forecasting rockstar. 

If not, reach out to me at [email protected] and we can figure out a way to ensure you and your sales team, never struggle with Sales Forecasting again.