The Importance of Sales Forecasting
Sales forecasting refers to the process of predicting the revenues and costs associated with your sales activities for a given period of time (a quarter, year, two years, etc). It should be noted that sales forecasts are by their very definition variable – and they will need to revisited from time to time, such as when your company releases a new product.
Accurate sales forecasting methods rely on good sales management, a dependable sales funnel, a good sales strategy backed up by solid sales analytics and a defined sales strategy. However, sales forecasting is more of an art than a science. You will never know exactly what sales revenues look like next quarter – but having a good estimate will go a long way to helping your business.
Developing Sales Forecasts
Sales forecasts are determined by a number of different factors. If your company has already been in business for some time then the best thing you can do is to look at your previous sales results. What is your average price per transaction? How many deals did you close? Take a look at your sales funnel – how many deals do you have in the sales pipeline and how likely are these to close? If your company is young and you don’t have much historical data to rely on take a look at industry and wider economic trends. Your competitors’ performance can also serve as a solid guidepost for what reasonable expectations look like.
Remember, you don’t have to do all the work yourself! You can easily find a basic sales forecasting template from a quick search online. More comprehensive sales forecasting software, including from People.ai, is also available.
Leveraging Sales Forecasting
Sales forecasting is primarily important because it allows you allocate resources efficiently. For example, if you have a good idea of how much revenue your company is going to be bringing in next quarter you can determine how many people you can afford to hire, how quickly you can afford to scale and, if you’re a larger company, how much you can comfortably pay back to shareholders in the form of dividends.
In short, good sales forecasts allow you to acquire the necessary resources to effectively run your business before you need them. Imagine if your company sold lamps and you built too many (or too few) of them to meet customer demand. You’ve either left money on the table or wasted it by overstocking inventory. Sales forecasting allows you to avoid this.
The Limitations of Sales Forecasting
However, while important, you can’t rely on sales forecasting to be perfect. As mentioned previously, you can never know exactly what your revenues will be in the future. Some deals will close that you didn’t think would, while some fall through even though you thought you had them “in the bag.” Never treat your sales forecasts as unchangeable. You’ll need to revisit them from time to time in order to adjust for new factors affecting your business – many of which will be out of your control (think of stock market crashes or environmental disasters). In short, take sales forecasting seriously, but remember that life is unpredictable and something can always change.