Sales experts in the past relied on seasonal trends, recent sale activity, and shallow metrics to foresee how much they could sell. However, today, things have changed. With the aid of technology, sales forecasting now involves analysing your customers' buying habits and keeping track of your company's past performance and current market conditions to establish your future sales objectives.
Unfortunately, many companies are yet to crunch the numbers efficiently and develop accurate sales forecasting strategies:
- 67% of companies do not have a formally structured sales forecasting approach
- Less than 20% of sales experts have confidence in their company's sales forecast accuracy
- Budget constraints cripple sales deals, says more than half (55%) of marketers
Failure to develop accurate sales forecasts automatically puts your company at risk of reacting too late to changing market conditions, over-producing inventory, or under-producing and running out of stock. The good news is that there are several ways to circumvent the issue with accurate sales forecasting.
What is Sales Forecasting?
Sales forecasting is the process of predicting how much your company can sell based on a variety of indicators and historical data. The resulting sales forecast report is then used to inform other business operations, including your marketing campaigns, supply chain, and inventory management.
Sales forecasts provide additional information about your customers:
- The number of customers you expect to buy your product
- When they are expected to place their order
- How much they plan to spend
- How big of a market share your company can grab
For example, if you can predict a sudden drop in demand for a product, you can reduce the number of products produced and avoid having too many unsold units sitting in your warehouse.
Why Good Forecasting is So Important
Sales forecasting is an essential part of the sales process that can greatly impact how effective your sales team and company are. Because your sales forecast feeds into so many other business functions, from inventory to staffing, a poor forecast can have a negative impact on the entire organisation and result in wasted resources.
For example, you want to avoid keeping too much inventory in storage. On the other hand, if you produce too little inventory, you risk losing sales opportunities and upsetting customers who can't buy due to shortage.
Benefits of Having an Accurate Sales Forecast
Adopting an effective sales forecasting process is your best defence against unanticipated circumstances. Here are the key benefits:
Benefit 1: Meet Customer Demand
One of the biggest benefits of having an accurate sales forecasting strategy is that you'll be able to anticipate demand. By forecasting demand, you'll ensure that you meet customer needs and have the correct inventory levels to meet future needs.
Benefit 2: Effective Inventory Planning
Sales forecasting enables you to plan your inventory based on future sales expectations. This helps you manage inventory levels more effectively and avoid over-ordering or under-ordering stock.
A common challenge businesses (especially those in e-commerce) face is maintaining correct inventory levels. Having too much or too little inventory can result in unnecessary storage costs and lost revenue. With accurate sales forecasting, you can estimate the amount of inventory you need in case of sudden changes that could weigh down your sales activities.
Benefit 3: Understanding Company Performance
An accurate sales forecasting strategy helps you make strategic decisions that are better aligned with the performance of your company. If your sale volume is lower than anticipated, you'll be able to identify the problem in your sales or marketing strategy - perhaps your message isn't reaching your target audience, or there are issues with your product or service.
Benefit 4: Establish Benchmarks for Future Forecasting
An accurate sales forecast helps establish benchmarks for future forecasting and allows you to better prepare for changes in the business, like the end of the holiday season and the beginning of the new year. This way, you can avoid over-ordering or under-ordering and be more strategic in the changes you make within your business.
Benefit 5: Reduce Waste
Sales forecasting helps you eliminate unnecessary waste. An accurate forecast allows you to purchase the right amount of inventory at the right time, avoiding excess products in your warehouse and unnecessary transport and storage expenses.
Sales Forecasting Methods
There are several sales forecasting methods that businesses can use to help predict future sales volume. None is 100% perfect, but each can provide useful insights with the right inputs.
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Bottom-up sales forecast - Calculates expected sales units multiplied by the average cost per unit. Helpful for product or service-specific industries such as technology, where the same customers often purchase the same products year after year.
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Top-down sales forecasting - Calculates expected sales based on macro-level data, such as economic indicators and demographic trends. Helpful for industries with a high level of variation (such as B2C), though can be too general and provide only a rough forecast.
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Sales cycle forecasting - The process of measuring and projecting sales performance metrics over time. Measures the length of your sales cycles, identifies variations in performance by stage, and uses that information to strategically plan for the future. Your CRM can gather information about deal times and length of activities to project future sales.
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Opportunity stage forecasting - A prediction of the likelihood that a particular opportunity will materialise in the future based on current conditions and trends.
Keys to Success in Sales Forecasting
Sales forecasting is more than just making a prediction. It's about understanding and analysing your company's past performance, current market conditions and future objectives to create actionable insights.
Know Your Customers and Market Trends
You need to know the market trends and the buying behaviour of your customers. This will guide you on how many units you should produce and inform your marketing strategy. Stay on top of market trends by subscribing to business newsletters and monitoring your customers' preferences, demographics, and what they respond to.
Define Your Forecasting Metrics
Focus on how many units you've sold in the past 12 months, the number of units you need on hand at all times to meet demand, CRM score (the likelihood of the customer to buy), and similar indicators.
Use Technology to Your Advantage
There are many sales forecasting software solutions that can help you collect and organise your data. Data analysis and visualisation tools can help you make sense of the information you've collected and create visual representations that are easy to grasp.
Make a Commitment to Accuracy
Accuracy is key. Rely on reliable data, eliminate guesswork, and know exactly where your information comes from. Get your sales data from multiple, relevant sources, including your forecasting software, CRM, historical account records, marketing data, and sales reports from your company.
Key Sales Forecasting Challenges
Making Accurate Estimations in a Fast-Moving Environment
With the speed of information transfer increasing exponentially and consumers' expectations rising, sales forecasting has become a much more demanding task. Small businesses often have only a few days or weeks to get the forecast right, often with limited or no previous sales history to work from.
Communicating with Different Departments
Forecasting is a highly collaborative process that relies on communication between different departments and effective collaboration with external stakeholders. Unfortunately, effective communication and collaboration are a problem for 86% of employees and executives. A sales CRM tool can help coordinate the flow of information so that everyone stays on the same page.
Poor Quality Data
Accurate sales forecasting requires data that is as accurate as possible. You may be provided with inaccurate, out-of-date, or imprecise data from your suppliers or customers. Gaps in historical data prevent you from compiling accurate forecasts, and data errors often cause your forecasts to veer off from the needed accuracy.
Having the Right Tools and Technology in Place
1 in 5 sales professionals reported a shortage of resources to help with their sales process. However, the right tools and technology - such as data visualisation and data analytics - can help you make the most of your data and reveal hidden insights for better forecasts.
Company Forecasts Across the Enterprise
Various departments play an essential role when it comes to sales forecasting:
- Sales department - Provides reports derived from CRM data, records of previous sales, and pending deals
- Marketing department - Supplements with market conditions, prices, demand, and supply data
- Finance department - Prepares the company's spending based on sales and marketing data
- Supply chain department - Provides production, inventory, and logistics insights
Key Features of Effective Sales Forecasting Software
- Import data from various sources - Connecting directly with ERP, WMS, or CRM systems makes forecasting more accurate and eliminates manual errors
- Real-time view of activities - See how long orders take to fill, how long product preparation takes, and how much time sales employees spend selling
- Automate tasks and processes - Automatically generate reports and complete repetitive activities without manual intervention
- Advanced analytics capabilities - Track and analyse data across multiple locations with powerful analytics tools
- Customisable reports - Generate custom reports tailored to your specific needs so you see exactly the information you need, when you need it
How Can Automaly Experts Help You with Sales Forecasting?
Automaly is an Automation & AI consultancy enabling businesses to automate their sales and marketing processes. We will help you review your existing Pipedrive setup, identify the right integrations, and set up a workflow strategy best suited to your business needs.
Pipedrive offers a sales forecasting feature that displays a detailed view of your deals and calculates the expected revenue based on the expected deal close date and the probability of winning the deal. The software also keeps track of the deals that are nearest to be won.
Conclusion
Effective sales forecasting enables businesses to understand demand to meet customer needs, optimise their supply chain, and minimise time and resource wastage. If you're looking for a sales forecasting tool to boost your sales team's effectiveness, contact the Automaly team. We'll help you handpick and set up the right integrations from Pipedrive's marketplace.
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