As businesses of all sizes and industries grapple with historic levels of inflation, the aftermath of a global pandemic, and a looming recession, sales forecasting has become more critical than ever to provide businesses with insights into their future revenue. In fact, a study showed that companies that accurately forecast sales are 10% more likely to grow their revenue compared to the year before.
Creating accurate sales forecasts allows businesses to make more informed decisions about every aspect of their operations while predicting revenue in the short- and long-term.
After reading this post, you should be well versed in the importance of sales forecasting, understand the benefits of sales forecasting, and be able to answer the question, “why is sales forecasting important for my business?”
Table of Contents
- Why Your Business Can Benefit from Better Sales Forecasting
- What is Sales Forecasting?
- The Benefits of Sales Forecasting
- How to Improve Sales Forecast Accuracy
- Support Accurate Sales Forecasting with Outreach Guide
What is Sales Forecasting?
Sales forecasting is the art and science of estimation of future revenue based on the amount of products or services a company will sell.
The benefits of sales forecasting lie in its ability to predict sales for any time period, whether it is the upcoming week, month, quarter, or year. These forecasts are crucial as they allow decision-makers to plan business expansion and growth for the company, which helps them:
- Forecast likely profit or loss for a specific period.
- Organize staffing and hiring plans.
- Plan production to meet demand.
- Give sales leaders accurate insights into prospects and the industry as a whole.
- Empower sellers to take the appropriate steps toward continuous growth.
The Benefits of Sales Forecasting
So, why is sales forecasting important? Take a look at the following benefits:
Helps You Meet Your Targets
According to The Aberdeen Group, 97 percent of companies with industry-leading sales forecasting reach their sales quota. On the other hand, only 55 percent of companies without accurate sales forecasting practices achieved their goals.
With accurate sales forecasting, sales teams have the valuable data and insights needed to detect warning signs of trouble as soon as possible in their sales pipelines. Then, when these warning signs are spotted, they can take the appropriate course-correcting actions before it’s too late.
The Aberdeen Group also found that teams with mastered sales forecasting are two times more likely to outperform their competitors and grow their annual revenue by 10 percent.
Identify Problems with the Company’s Health
When you predict future revenue, you can identify seasonal demand problems before they happen. Sales forecasting allows you to discover these issues and make necessary changes before they can impact your revenue.
Better Understand Your Customers
Having better knowledge and understanding of your customers is a clear benefit of sales forecasting, as it will give them more confidence to continue doing business with you and keep them out of the arms of the competition. It also has impressive cost-saving benefits. According to Bain & Company, increasing customer retention rates by as little as 5 percent expands profits by 25-95 percent. Furthermore, acquiring a new customer costs five to 25 times more than cross-selling and up-selling to your existing customers.
Accurate sales forecasting is key to achieving this kind of revenue efficiency, as it helps predict future sales, improve pricing, and target your advertising to meet consumer needs and demands.
Improved Financing and Cash Flow
One of the benefits of sales forecasting is that it allows you to estimate your revenue based on predicted short and long-term performance, empowering you to accurately deliver and predict payments while earning better credit and financing rates. These advantages help you solidify your business’s financial standing and transparency.
Continuous Strategic Planning
The annual sales planning process is an arduous and frustrating experience. But, the good news is that research from Forrester found that mundane tasks of yearly and quarterly planning are no longer necessary. Instead, forward-thinking sales teams focus on continuous and accurate sales forecasting to respond more accurately to today’s fast-evolving market and make more informed decisions on hiring, resource allocation, and risk management.
How to Improve Sales Forecast Accuracy
It’s one thing to come up with a sales forecast. But if it’s inaccurate, it will do more harm than good. Here are some reasons why accurate sales forecasting matters:
- Accurate sales forecasts mean business leaders can make the most informed decisions possible. This helps with all aspects of business, including
- Business planning
- Risk management
- Accurate sales forecasting helps businesses precisely estimate their costs and revenue rather than playing a guessing game.
- Accurately forecasting sales means companies can precisely allocate resources for growth and manage their cash flow.
Here are some expert tips to achieve accurate sales forecasting:
Analyze and Assess Historical Trends
Look to the past to keep your sales forecasting as accurate as possible. Take a look at your sales data from prior years. Break it down by factors such as:
- Sales representative
- Sales period
Using these numbers, calculate a “sales run rate,” or estimated sales per period.
After your basic sales run rate has been calculated, for each specified period, you can modify the basic sales run rate by plugging in different factors:
- Pricing: Are you going to change your prices anytime soon? Will you have to adapt to what the competition is doing and change prices?
- Promotions: What new, if any, promotions do you plan to run?
- Customers: Do you expect to land many new customers this year? Based on how many you landed last year, determine how many you should target this year. Have any new skilled salespeople joined your team? Can other factors increase your chances of gaining new exposure and clients?
- Sales channels: Are you preparing to open any new stores, locations, or sales channels? How much growth are you expecting from this?
- Product changes: Are you launching new products or changing an existing product suite? Evaluate how long it took for prior new products to gain traction and whether you expect new ones to behave similarly.
Anticipate Market Trends
Once you’ve looked back, don’t forget to look to the future. Take a look at the market events you’ve been tracking. For example, are you planning to go public in the near future? What about your competitors? Are you anticipating an acquisition? Evaluate these market trends and changes to keep your sales forecasting as accurate as possible.
Monitor the Competition
You probably already keep your finger on the pulse of what your competition is doing. But, don’t forget to take into account their products and campaigns. Be sure to also keep an ear out for new competitors planning to enter the market.
Add Your Business Plans
Don’t forget to include all your business’s strategic plans. For example, are you about to embark on a growth spurt or a hiring spree? Are you targeting new markets? How will this affect your sales forecast?
Support Accurate Sales Forecasting With Sales Forecast Navigator
Sales Forecast Navigator is an excellent tool to support accurate sales forecasting. Our forecasting technology helps our clients unlock unparalleled sales performance by:
- Improving the Salesforce experience
- Streamlining forecasts and driving accountability
- Strengthening sales impact and efficiency
- Uncovering and mitigating forecast risk
The top benefits of using Sales Forecast Navigator include:
- Better planning, targeting, and quotas: Develop integrated and aligned BU/Product/Geo Plans and alternative scenarios. Assign optimal quotas to meet company objectives.
- Snapshots and analysis: Daily/weekly snapshots and analysis of period-to-period pipeline progress provide the insights you need to improve performance.
- Forecast with accuracy: The platform’s predictive analytics assess risk and opportunities in forecast and insights to improve predictability.
- Trend analysis: Identify key trends and early diagnostics to help understand the underlying root causes and take proactive action.
- Win/loss analytics: Analyze and provide insights on changes in product/channel/geo mixes that may profoundly impact your profitability.
- Product mix: Analyze product insights on changes in product/channel/geo mixes and help influence it to positively profitability.
If you’d like to start reaping these benefits for your business today, contact us.