Sales Forecasting Methods: A Beginner’s Guide

Let’s look at the common ways that companies put sales forecasting into action with examples. In the long term, sales forecasts can help you prepare for changes in your business. For example, you might see that within a few years, your company will require more manufacturing capacity to sales forecasting definition meet growing sales. To expand capacity, you may need to build a new factory, so now you can start planning how you will pay for it. Predictive sales forecasting is a critical part of your presentation if you are seeking equity capital from investors or commercial loans for expansion.

This approach will typically produce the most accurate results, but you’ll likely need an analytics tool and/or advanced CRM reports to leverage it. If you’ve run product demos for two different leads, but one of them was three weeks ago and the other was this morning, do they really have the same likelihood of closing? Then, at any point, you can multiply the size of the opportunity by the percentage chance of that deal closing to estimate the revenue you can expect.

Ways to Foster Sales & Marketing Alignment (+ Key Benefits)

The method you choose will depend on a few factors, including the age of your business, the size of your sales team and pipelines, and the quality of your sales data and data tracking habits. Each salesperson examines the deals in their sales pipeline as well as any prospecting opportunities they have planned for the following months. Based on their analysis, they forecast $50,000 in sales for the following six months.

But if anything outside of the ordinary happens, your model won’t hold up. You can easily integrate lead sources to better forecast those opportunities. Suppose a salesperson books a demo with a prospect before they‘re ready. They might tell you the prospect is close to buying — but this method will calculate they’re unlikely to buy because they only started talking to the salesperson a few weeks ago. Sales forecasting can play a major role in your company’s success (and your own career development).

Analyzing the Forecasted Data

When everyone on your team uses the same process, it’s easier to predict the likelihood that opportunities will close and pinpoint troublespots in the sales pipeline. The sales process should tell team members what actions to take at each stage of the buyer’s journey, from prospecting to closing. As you embark on your sales forecasting journey, remember that the key to success lies in continuous improvement, collaboration, and a data-driven approach. By following these principles, you can unlock the full potential of sales forecasting and propel your business to new heights. On the other hand, quantitative forecasting techniques look at historical sales data and statistical models to generate predictions.

• Finally, the forecasting model should be regularly updated with new data.
• Based on this, 3,000 purchases will be made for a total projected revenue of $300,000.
• Department directors can use forecasts to predict team performance.
• They might tell you the prospect is close to buying — but this method will calculate they’re unlikely to buy because they only started talking to the salesperson a few weeks ago.
• This leaves a company with too much inventory, too little inventory, or inaccurate sales targets — all mistakes that hurt the bottom line.

There are several forecasting methods that can be broadly segmented as either qualitative or quantitative. Within each category, there are several techniques at one’s disposal. Qualitative forecasting models are useful in developing forecasts with a limited scope. These models are highly reliant on expert opinions and are most beneficial in the short term. Examples of qualitative forecasting models include interviews, on-site visits, market research, polls, and surveys that may apply the Delphi method (which relies on aggregated expert opinions).