“If you have to forecast, forecast often.”
– Edgar Fiedler
Forecasting can be useful for more than figuring out if you need an umbrella or not. In sales, a forecast is a prediction of expected sales levels for a certain period of time. Unlike fortune tellers though, sales managers use statistical analysis, historic data, strategy evaluation, and more in order to come up with their predictions. This process provides tremendous value to businesses, despite its complexity. That’s why 16% of sales managers consider optimizing sales forecast accuracy a primary aim.
Forecasting helps you gain some more clarity about the sales process. It allows you to identify potential prospects or challenges of the pipeline management. You can take appropriate measures from there. Avoiding unexpected cash flow problems and managing all aspects of the sales process become much easier with accurate sales forecasting.
Inaccurate predictions can damage your decision-making capabilities. Chances of success are much greater if you have an idea about which leads are most likely to close.
What is accuracy in forecasting?
The accuracy of a forecast is the measure of how close the prediction was to the result. It puts the quality of the estimates into a quantitative frame. The accuracy evaluation is an important part of planning and choosing a tactical approach. It is used to reinforce different hypotheses, as well as to predict various situations and their likely outcomes.
Sales forecasting essentials
You can run your business better if you utilize sales forecasts correctly. In order to do so, you need a few questions answered:
- What is your yearly number of new customers?
- What is your yearly number of lost customers?
- What is your renewal rate?
- What is the size of your average sales?
- Are there certain periods when you get or lose more customers?
For existing businesses
Running an existing business makes creating forecasts easier. You can look at the patterns from previous years and extrapolate the numbers from there. Examining your last year’s sales figures should be your first step.
Gather all the information you can. Analyze the purchase levels of customers. Do you have any bigger clients? If you do, it might be a good idea to outreach them. Find out if they have any intentions to change the volume of their purchases for the following year. Use your sales data to make predictions and compare it to the differences in previous years.
For new businesses
The forecast game is a bit more difficult for new businesses. You don’t have sales or analytics data from previous years to rely on. You have to use market research to make your predictions.
Try to be realistic in your assessment. There are certain practices that will help you optimize your sales forecast accuracy.
Best practices to optimize your sales forecast accuracy
Any reasonable sales manager would use a sales forecast in the management process. Although it’s not an exact science, there are certain practices that can help you improve sales forecast accuracy. Not only that, but they can help you make the most out of your predictions.
1) Solid strategy
Your forecast should be connected to your strategy. This way you are basing your forecast on something tangible and realistic. It’s no longer a simple prediction. It’s a data-driven process that takes many factors into account. Integration is a great way to improve accuracy.
There are different models you can use to create sales forecasts. This makes consistency important. If you choose a different model every time, you can’t get a clear picture. It prevents you from standardizing the format you use. This puts more and more challenges in front of you, lowering the accuracy of your predictions. Choose one and stick to it.
3) Keep it simple
The process doesn’t need to become overly complicated. You can use specialized sales forecast software to keep track of your sales data. This allows you to follow the day-to-day changes, access historic data, measure sales velocity, manage your pipeline, and more. The simpler you keep the process, the more accurate your predictions will be. Follow the data.
4) Understand your buyers
Sales is a two-way process. Yet, businesses focus only on their side of the fence. Sales forecasts are often based only on what sales reps do. This doesn’t give you a clear idea, because it misses half of the picture. Considering and understanding buyer behavior is a great practice for improving forecast accuracy.
5) Be flexible
Business is not a static field. Conditions change all the time. You should be prepared to re-evaluate your predictions. These adjustments will significantly increase your sales forecast accuracy.
6) Set aside time for review
Dedicate time for reviewing forecasts and results. This way you can promptly adjust your tactics or strategy if you need to. Look at the results of what you’re doing and think about your next move. Do it consistently. Choose a frequency and stick to it.
7) Involve your sales team
Involve your team in the process. They are a part of it already. Use their input to improve the accuracy of your predictions. They can help with interpreting the data, client behavior, pipeline analysis, and more.
8) Require commitment
Sales forecast accuracy means nothing if your team doesn’t commit to it. Everyone should be aware of the forecast, targets, and timings. Discuss this with your team and hear out what they have to say about it.
Sales forecasts can help you make smarter tactical choices, distribute finances, and better manage the whole process. Use these practices to improve your sales forecast accuracy. If you do it correctly, forecasting can become a powerful tool in your toolbox. Not just a guess, but a data-driven part of your strategy. With great planning and accurate forecasts, you will take your sales game to the next level.