Top 5 Sales Forecasting Tips from Sales Ops Experts
Sales forecasting is a fundamental part of sales ops and an organization as a whole. It is the process of estimating future sales correctly. A sales forecast predicts what a sales rep, sales team, and company will sell in a specified duration –in a week, month, or year. Among the parameters used in sales forecasting, including past sales data, economic trends, and industry-wide comparisons. While established companies use past business data to predict future sales, startups use less verified information like market research and competitive intelligence to predict sales.
• Sales forecasting informs many decisions from hiring to budgeting and goal setting. For example, if your sales forecast shows a 30% increase in opportunities, it indicates that you should start hiring more reps to keep up with demand. If the sales forecast shows a decrease in opportunities, it would be shrewd to halt your hiring efforts and increase your marketing spend.
• Helps to predict performance, both short-term and long-term.
• Assists companies to allocate internal resources effectively.
• Allows organizations to plan for future growth.
• Helps to predict achievable sales revenue.
• Allows you to spot potential issues before they escalate. For instance, if your sales team forecasts are trending below 35%, there must be an issue somewhere that needs to be addressed.
• Serves as a powerful motivation tool for reps because they can gauge their performance. Sales forecasting plays an essential role in an organization’s success.
Research by the Aberdeen Group affirms that organizations with accurate sales forecasts have 10% more likely to grow their revenue year after year. The bus does not stop with more revenue growth; there are other benefits of accurate sales forecasts.
Although sales forecasting has many benefits, many sales ops leaders and salespersons struggle to create accurate sales forecasts. CSO Insights report that 60% of forecasted deals do not close. Also, Sirius Decisions Research discovered that 79% of sales teams miss their sales forecasts by more than 10%. In line with these statistics, this chapter offers useful insights on sales forecasting gathered from sales ops experts and current research on the topic.
Sales Forecasting in Sales Ops
In sales ops, sales forecasting is essential. In our podcast, Cris Santos of Pluralsight affirms that a great sales ops person should be good at forecasting. They should not just react to what is going on but also predict what will happen in the future. A sales ops professional should examine the trends coupled with qualitative inputs to predict the sales cycle.
In sales ops, sales forecasting accuracy is used widely as a KPI. Kirsty Charlton, the head of sales operations in Signal AI, says that sales forecasting accuracy is an important metric in sales ops. Forecasting accuracy proves that your salespersons have control in the sales process and know how to focus on quality leads. When asked the single metric she would use to judge her sales reps, Cris Santos contends that it is their forecast accuracy.
Sales Forecasting Tips
1. Historical Forecasting
Historical forecasting is among the quick ways to predict your sales. If you want to determine how much you will sell in a particular month, quarter or year, you simply look at the matching period and assume that the sales will be the same or greater than those results.
In our podcast, Justin Kersey of Merrill Corporation contends that historical averages can offer insights on what is going to happen in the sales cycles in the future. For instance, when forecasting sales for August, he uses the average number of deals August had in the last few years. Also, if there was growth in sales in the previous year, he can estimate the growth for the current year.
Using this method, if your sales were $80,000 in August, you will assume that in September, you will attain $80,000 or more. You can increase the accuracy of this method by adding your historical growth rate. For instance, if you have been experiencing a growth rate of 6% per month, a conservative estimate for September would be $84,800.
The historical forecasting method is best used as a benchmark rather than the foundation of your sales forecasting. This is primarily because it assumes that demand is constant and does not account for seasonality. For example, if September is an off-peak month for your business and industry, you may have sales of only $50,000.
2. Opportunity Stage Forecasting
This forecasting method calculates the probability of a deal closing in your pipeline. It is best used when you want to measure the performance of your sales team and attain an objective understanding of your pipeline. In most cases, businesses break their pipeline into five stages; prospecting, qualified, quote, closing, and win.
When a deal is further in the chain of stages, it has a high likelihood of closing. For example, a prospect in the discovery call stage is 10% likely to become a customer compared to one in the demo stage who is 30% likely to convert.
This forecasting technique requires you to analyze and understand your sales team’s past performance. You must understand the success rate of each stage of the pipeline to get accurate results. To get the sales forecast, you multiply a deal’s potential value by the probability of closing. For example, if a deal’s value is $2,000, and it has a 50% probability of closing, the forecasted amount will be $1,000. You make calculations for each deal in the pipeline and add up the total.
Although it is relatively easy to forecast sales using this technique, the results are largely inaccurate. For instance, a deal that has been camping in your salesperson’s pipeline for four months will be treated the same way like a deal that is a week old as long as they have the same closing dates.
With this technique, you rely on your reps to regularly clean up their pipelines. Also, the opportunity stage forecasting is dependent on historical data. If your variables such as messaging, products, and sales process change, they have implications for your deals because they will close at different percentages in each stage.
3. Length of Sales Cycle Forecasting
It is a quantitative method of sales forecasting that allows you to predict when a deal will close. Rather than assessing the likelihood of a deal closing based on stage, this technique analyzes the success rate based on the age of the deal. You must know your average sales cycle to calculate the probability of closing a deal. For instance, assuming that your average sales cycle is six months, and a sales rep has been working on the deal for three months, this technique suggests that you have a 55% probability of closing the deal.
Since this technique relies on objective data, not sales reps’ feedback, the prediction is quite accurate. For example, if a salesperson books a demo with a prospect that isn’t ready, the method classifies the prospect as unlikely to buy because he is still in the early stages of the buyer’s journey.
Also, you can boost the accuracy of results by tracking when and how prospects get in the pipeline. For example, if a prospect gets into the pipeline through a referral, it may take only a month to convert. However, if a lead comes from a trade show, it may take approximately eight months to convert.
4. Salesforce Forecasting Tools
Organizations use different tools for sales forecasting. According to one of the sales ninjas in our podcast, Dante Hawkins, the director of sales operations at Springbot, tools are great for forecasting sales because of their accuracy and extensiveness. In his organization, Dante uses a combination of Salesforce and Domo to forecast sales.
In the case of Salesforce, his sales team uses the forecasting tool to get comprehensive forecasts to grow business and track top performers. Domo is a business intelligence tool that combines different reports to offer you sales forecasts. By combining Salesforce and Domo, you can view how a sales forecast has changed with time. Also, you can generate a report on a particular salesperson to see what they have forecasted and how well they have forecasted.
5. Intuitive Forecasting
In this technique, the sales ops leader asks his sales team to estimate the likelihood of closing deals. A sales rep may say that he is following x deals that will close with y days and the deals will be worth z. This method factors the opinions of people closest to the prospects –salespeople.
However, sales reps are inherently optimistic and overly generous with estimates which may affect the accuracy of estimates. Also, there is no scalable way to verify that a salesperson is being accurate with his estimates. The intuitive forecasting method is invaluable for the early stages of a business or product when there’s no historical data.
Sales forecasting is an essential component of any business. Accurate forecasts have positive outcomes for informing decision-making and influence many areas of a business from budgeting to marketing and sales process. Unfortunately, many sales ops leaders struggle with accurate sales forecasting. This article comes in handy to offer effective sales forecasting techniques from sales ops experts.