Sales forecasting is a powerful way to improve decision-making and make smarter choices as a business. But the reality is, many organisations don’t get it right.
Accurate sales forecasts rely on astute insights driven from robust, holistic data. If your business has struggled to accurately predict future sales revenue in the past, our guide could help you get it right in the future.
Ready to get started? Use the links below to navigate or read on for our full guide to accurate sales forecasting.
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- What is a Sales Forecast?
- Why is Sales Forecasting Important?
- What Factors Can Affect Sales Forecasting?
- How to Create a Sales Forecast
- Tools to Help with Sales Forecasting
What is a Sales Forecast?
A sales forecast is an estimate of what a company will sell in a week, month, quarter or year. It’s used to predict future revenue, accounting for the number of units an individual, team or company is likely to sell over a set period.
Sales forecasting offers many benefits when leveraged as part of a broader business strategy. At all levels and across all functions within a business, forecasting can facilitate shrewd decision-making, whether that’s setting goals and budgets, prospecting for new leads, deciding on the best time to hire new staff, or effective stock management to help maximise cashflow.
Why is Sales Forecasting Important?
Accurate sales forecasting is a projection of where a company will stand in the future. And that’s important, not only for business continuity and growth, but for cultivating credibility, trust and advocacy with key stakeholders – be it partners, investors, clients or customers.
Let’s take a look at some of the reasons why sales forecasting matters:
- Bolsters decision-making – accurate predictions about future revenue can facilitate improved decision-making across all business functions, from hiring managers tasked with recruiting new talent, to procurement teams discerning when and how much stock to source.
- Adds value to all business functions – sales forecasting defines the value brought by different departments across the business. It highlights how different functions and channels contribute to revenue generation, helping businesses manage their resources.
- Accurate sales and buying for reduced costs – a sales forecast simplifies inventory management, with accurate stock predictions reducing costs and freeing up valuable resources, like warehouse space.
- Allocation of sales and marketing budget – Forecasting helps account for peaks and troughs in sales, so you can assign marketing budgets and determine which products and services need attention.
- Guarantees timely recruitment and outsourcing to drive business growth – understanding the areas of your business that drive the most revenue can make for seamless recruitment. Reinvesting revenue in personnel is a seismic driver of business growth, and sales forecasting can help you decide where to make hires and when. Not only that, but it can help companies decide whether they should look at outsourcing or whether to bring outsourced activities back in-house, e.g., the use of courier companies versus investing in your own delivery fleet.
- Provides valuable revenue expectations to outside stakeholders, like investors – sales forecasting quantifies your revenue predictions, making it easier and less risky to attain outside support from investors and stakeholders.
- Allows for simple company benchmarking against competitors – where your business ranks against competitors is important, and sales forecasting highlights how your trajectory compares to your closest rivals.
- Offers a powerful means of motivating sales personnel – a sales forecast is the best way of benchmarking the performance of salespeople within your business. It’s also a great motivator, particularly for staff incentivised by the promise of commission.
What Factors Can Affect Sales Forecasting?
Many internal and external factors can impact the accuracy of your sales forecasts. You’ll need to account for all sorts of influences when predicting sales activity, including:
- Economic uncertainty and conditions
- Competitor changes
- Market trends and seasonality
- Product changes and future innovations
- Internal pricing or policy changes
- Available marketing spend and budgets
- Staff levels (more or fewer sales personnel will affect figures, for example)
- Future business plans e.g., expansion or diversification plans
This isn’t an exhaustive list of factors that can affect sales forecasting, but it does provide a steer for the types of influences that you’ll need to factor into your predictions.
How to Create a Sales Forecast
Sales forecasting isn’t rocket science, but it does require a methodical approach to guarantee accuracy. Here, we’ll demonstrate how to make accurate sales predictions in five easy-to-follow steps.
Step 1: Consider Sales History
The first step to accurate sales forecasting is to look not to the future, but the past. By examining sales data over the past 12 months, you’ll glean insights that you can use as the basis of your future sales predictions, noting things like volumes, trends, and seasonality changes that caused peaks and troughs in demand.
When exploring historic sales data, be mindful of your ‘sales run rate’ – the number of projected sales for a particular period. For example, sales data may reveal a large disparity between quarterly sales figures, affecting the overall run rate; you’ll need to factor this into your forecasts for the future.
Step 2: Anticipate Changes and External Influences
While historic sales data provides a clear view of when and where sales typically happen over a year, it doesn’t guarantee the same sales figures for the future. Depending on a plethora of external and internal influences, next year’s sales could be up or down – so how do you accurately predict future revenue?
Start by taking each influence in turn and assess how such a force would have impacted last year’s sales figures. For example, do you plan to increase prices over the next 12 months? If so, how might this affect sales in relation to previous figures?
Here are some of the factors you should consider when predicting future sales performance:
- Pricing changes – will your prices change? How might this affect custom?
- Customer changes and trends – are consumer trends turning in your favour, or going the other way? Market awareness is crucial for accurate sales forecasting.
- Promotions – do you have any sales or promotions lined up to increase demand? How might these affect sales targets?
- Product alterations – are you improving your products and services?
- Sales channels – do you plan to expand into additional sales channels in the near future or acquire new branches?
Step 3: Lean on the Right Systems for Accurate Data Capture and Analysis
Sales forecasting becomes much simpler and more accurate when the right tools are used to capture and analyse data. Integrated ERP software, for example, collates sales data from every channel of your business – including trade counter or EPOS sales, telesales, sales rep orders, ecommerce etc. – so you can make data-backed predictions with confidence.
A great example of the types of tools you can use for accurate sales forecasting is predictive stock management. Automating the forecasting process, it presents the user with a forecast prediction aligned to their stock preferences, e.g., how much buffer stock you want to carry, as well as stock lead times.
Presented with this data, the procurement team can then use their insight and knowledge to tweak this forecast where necessary. It’s a great example of the marriage of automation to reduce manual work, whilst still allowing people to have input on the end result.
Elsewhere, utilising customised dashboards or control desks, instead of static reports, to differentiate pipeline value by rep, branch, prospect customer etc., can give businesses dynamic information to adjust their forecasts and be agile around expectations and demand.
What’s more, clever use of the CRM in conjunction with opportunity probability management enables you to allocate an estimated percentage chance that you think you will win a sales deal. By giving each sales opportunity/quotation a probability, you can produce a sales weighting forecast that will give you a fairly accurate idea of what your sales will be.
This will give you a better chance of forecasting the revenue and stock position of months and years ahead.
Step 4: Align Sales Predictions with Your Business Strategy
Many businesses have a five-year plan, a strategy that looks to drive business growth and profitability. But remember, such a plan will impact sales in one way or another, so it’s important that you align your sales forecasts with your short and long-term business objectives.
Say, for example, your business plan sets out a period of growth in the form of new hires or the creation of a whole new department. How will this affect sales? And to what extent should it be factored into your revenue forecasts?
Aligning your business strategy and sales forecasts is a crucial step. It helps prioritise business activity, ensuring that the right decisions are made to drive the business forward.
Step 5: Set Out Your Sales Forecasts in the Right Way
Charts, graphs and annotations can all be used to set out your sales forecasts for the year ahead. These should be included in your business plan, providing an accessible means of sharing forecasts with key stakeholders, personnel and investors.
As well as charting forecasts in number terms, you should set out your sales strategy, including how you arrived at the quoted figures. This not only quantifies your reasoning, but serves as a reminder of the market position at the time of writing – something that could prove useful if you need to refer back to where the figures came from at a later date.
Tools to Help with Sales Forecasting
Sales forecasting can be a laborious process, particularly if you want to guarantee accuracy. There are, however, a range of tools and software which can be leveraged to automate some elements of the process, removing some of the legwork associated with sales forecasting.
At Intact, we’re well aware of the importance of sales forecasting – and the arduous nature of it. That’s why we offer specialist expertise and solutions to help automate and simplify the process, from ERP software and predictive stock management to data analytics tools designed to improve data-driven decision-making.
We hope this guide helps you take stock of sales forecasting. If you’d like to optimise this area of your business, the Intact team can help. For more information or to speak to a member of our specialist team, visit the homepage. Alternatively, for more help and advice on ways to manage your inventory, take a look at our free guide to effective stock management.
