How to Calculate a Sales Forecast
Being a sales manager requires a lot of dedication and willpower. You have to deal with the current sales process, keep in mind all the past deals, and continuously make a sales forecast for the future. Of course, it can be overwhelming sometimes, but we’ll try to help you figure it out. There’s a short guidance on how to build and maintain a sales process, and today we’ll tell you how to do a sales forecast.
What is sales forecasting?
Just like a business plan or a development strategy, sales forecast is an integral component of any business. Basically, it is a prediction of the approximate number of deals that you will be able to close within a given timeframe. You may calculate a sales forecast for your team, the whole company, or each individual salesperson depending on their past performance.
Don’t let the word “prediction” mislead you – we are not talking about some fortune telling now. A sales forecast is somehow similar to a weather forecast as it is also all about collecting and analyzing data. And same as weather forecast, it can be rather time-consuming and not always precise but will bring your business a lot of value.
Why is sales forecasting important?
While some sales managers neglect forecasting their sales, the truth is it may greatly benefit your business and give some unexpected insights into the sales process.
One of the main benefits of sales forecasting is its potential for your future business decisions. Data is the king. If you have enough information, you may easily predict the necessity and the consequences of particular actions. For instance, you may plan your budget according to the sales forecast, understand if you will need to hire new employees, or if you need to cut down expenses.
This means that proper sales forecasting will help you set business objectives for the future. You’ll be able to predict not only the number of deals closed along with the revenue they will bring, but also the amount of time needed to achieve your goals. This, in turn, will help you set priorities and organize the work process accordingly.
Sales forecast granularity
When trying out sales forecasting methods, don’t forget to start from estimating how much you should dive into details. What we mean is that you can’t build a sales forecast for each of the items sold by your business. Conversely, you shouldn’t make a prediction for the whole company neglecting the details.
What we recommend is take the golden middle. For example, if you have a bookstore, don’t try to predict a sales forecast for each and every book that you have on the shelf. It wouldn’t be right to do it for each author, too. Yet, if you consider diving books by sections like sci-fi, poetry, non-fiction, etc., it may bring you much better results.
Besides, it is also a good idea to make the profit streams in your sales forecasts match your accounting. This way you will always be able to compare your predictions with the actual numbers and make some amendments or corrections if necessary.
How to forecast sales?
Sure thing, there are a lot of techniques to forecast sales that may be used for different businesses. We’ll present you 6 popular methods that you’ll be able to choose from when doing your own predictions.
1 – Opportunity Stage Forecasting
One of the most popular forecasting methods for sales is based on the specific stage that your prospect takes in a sales pipeline. When looking at your pipeline, you may easily estimate the probability of closing a deal. Then, you calculate a sales forecast using the following formula:
Expected revenue = Deal amount x Probability
Let’s say, you are nurturing a lead toward a $100,000 deal, and the probability of closing it is already 60%. This way, the expected revenue which you may include in your forecasting is 100,000 x 0.6 = $60,000.
Depending on your sales pipeline, you may have different stages of opportunities and different percentage.
Video: How to Manage Sales Pipeline in NetHunt CRM
2 – Historical Forecasting
This method is also quite popular, yet less time-consuming. All you need to do is take a look at the same period of time as the timeframe that you’d like to forecast.
Here’s an easy sales forecast example: you’d like to make a prediction for September, so you take the figures for August or July and assume that they will match approximately. Another possibility is to take stats from September previous year if your business is seasonal.
Unfortunately, this method has a great disadvantage: it doesn’t cover some external variables such as high/low season, trends, and demand. Besides, if you start changing some internal variables like marketing activity or human resources, historical forecasting will also fail.
3 – Length of Sales Cycle Forecasting
This particular method makes use of the average length of the sales cycle to predict the success of all the upcoming deals. Let’s say, your average sales cycle lasts for two months from the first contact with the lead to closing the deal. Then, forecasting sales in the future, when you see a deal that has been under negotiation just for one month, you may say that it has a 50% chance of success.
Again, this method has some flaws as different deals require a different amount of time to be closed. That’s why you won’t be able to reach full precision when using the Length of Sales Cycle technique.
There are also other ways of forecasting sales. To name a few, it’s intuitive forecasting, pipeline forecasting, and regressive forecasting. Some of them are far from accurate, others require a lot of time and deep knowledge of statistics and mathematics. For that reason, the optimal choice would be to combine a couple of the methods mentioned above, use your intuition, and constantly get feedback from your team.
How to use Opportunity Stage Forecasting in NetHunt – Gmail CRM for Chrome
While setting up the fields that you will be using in the Deals folder, be sure to add Deal Amount, Probability, Close date, and Forecasted revenue fields as well. We recommend using the following field types:
- ‘Currency’ field for Deal Amount (chose the currency that you will be using).
- ‘Probability’ field for Probability.
- ‘Formula’ field for Forecasted revenue. In this case the formula will look like this:
=field(“Deal Amount”)*field(“Probability”).
Then, once you enter Deal amount and Probability, the Forecasted Revenue will be automatically calculated as shown below. - ‘Date’ field for Close date.
- Once you have your Deals created and necessary fields filled in, you can proceed with creating a view to show you forecasted sales by month.
- Card view by Close date. Period: Month
Choose the fields to show on the card: - Add Total forecasted sales amount for each month by clicking the three dots -> Summarize
If you need some extra help setting up your Deals, Pipeline and Reports — email us at support@nethunt.com, we’ll be happy to help!
Key takeaways
- Sales forecasting is an essential part of any business.
- Sales forecasting may help you build your business strategy, set realistic goals, and make balanced decisions.
- When choosing techniques to forecast sales, pay attention to your business peculiarities and never expect 100% accuracy.
- Be ready to make necessary corrections to your sales forecast and business course as you compare it to real figures.
- Choose an appropriate tool – like our G Suite CRM for Chrome – that will help you calculate sales forecast quickly and easily.