Sales

The MAJOR Benefits & Challenges of Sales Forecasting

We're predicting blue skies and more sales than ever. Dig into the major benefits of sales forecasting, and learn how to prevent and face sales forecasting challenges.

Introduction

Sales is one of the most crucial elements of any company. It can secure continuity, improve business and keep everyone coming in each day (not to mention keep the lights on).

To keep your business healthy, you need strong sales. And to keep your sales healthy, you’ll want to lean on sales forecasting.

Sales forecasting can give plenty of advantages by providing a clear image of what to expect in the following months or even years.

This article will cover efficient ways to forecast sales and the benefits and challenges of sales forecasting. 

What is a sales forecast?

The sales forecast is how business owners determine their sales revenue expectations. It gives you an idea of how much your company can sell in the next period. With it, you can identify weaknesses and strengths your company might have, allowing you to set your marketing plans for the period more efficiently.

Sales forecasting methods

You can forecast sales in many ways. Here are the three most effective ones. 

Lead-driven

Lead-driven forecasting is a method that studies each lead source and assigns a value based on the behavior of similar leads in the past. Then you use that source value to create a forecast. This method allows you to predict the likelihood of each lead turning into revenue-generating clients based on a source. 

To use this method, you’ll need to use the data from your customer database. Lead distribution software gives you the advantage of helping you analyze the leads. 

This method can change anytime. For instance, if the marketing team changes its lead generation strategy to align with the latest trends, it might affect the number of lead sources and your customer conversion rates.

Historical

This method focuses on past data from previous sales. It assumes that the sales will have the same or greater results than what happened before. 

For example: If your Monthly Recurring Revenue (MRR) in July were $100,000, you’d assume the MRR for the following month is the same. You can include the average annual growth rate of 10 percent. This gives you a $110,000 expectation for August.

However, one thing to note about this method is that it doesn’t consider the market, as it’s constantly changing. In the same example, you could sell less than the expected amount because of marketing campaigns from your direct competitors. 

Multivariable sales analysis

The multivariable sales analysis method provides more accurate sales forecasting results. This technique combines other ways, such as individual rep performance, sales cycle length and opportunity stage probability.

Let’s say two sales representatives are working on the same account. The first rep has an upcoming deal with $800. If the win rate is 50 percent based on the opportunity stage forecasting, the sales forecast will be $400.

On the other hand, the second rep has a bigger deal with $1000. However, the stage forecasting is online 20 percent, making the total of $200 forecast. Therefore, the overall sales forecast is $600.

This method is ideal for bigger companies because of the complexities — like advanced analytics solutions. Use software to get clean data to make the forecast more accurate.

Benefits of sales forecasting

Businesses can gain so many advantages from sales forecasting, like better strategic decision making, resource planning and proper budgeting. 

Let’s talk about each one in more detail.

Make strategic decisions

Using the sales forecast results, you’d be able to create decisions that can help the company grow. If you’re in retail, you’d be able to identify which products need better marketing campaigns and which you need to pull from the shop.

You’d also be able to determine how to market specific products in your shop to promote them more successfully.

For example, if the sales forecast says that your revenue will be lower than the previous month, you can make necessary adjustments to boost the sale and get a similar profit or lessen the loss.

More accurate budgeting

Budget is essential in every business. Without proper budgeting, your business could overspend, resulting in bankruptcy.

Yikes!

Sales forecasting allows you to expect how much revenue you’ll get for the month. This means you can easily set it in place in the future for your following plans.

When you have an accurate budget, it’s easy to make plans for the company, such as training the sales rep or marketing campaigns.

For instance, say you need funds for a new marketing campaign. The resources you’ll need will come from the money in the company. An idea about the estimated sales allows you to depict how you would spend it for the company.

Resource planning

Getting more revenue is just step one. You need to plan where that revenue will go to manage and increase company growth.

A perfect example is when a forecast says you’ll sell more than the previous month, you’ll be able to increase the manufacturing and distributing costs.

This will lead to greater sales and busier times, so you want to allocate the resources appropriately. 

Challenges of sales forecasting

Although sales forecasting benefits many companies, it also has some challenges you'll want to keep an eye on for a better, more accurate forecast. 

Creates biased opinions

One main challenge that sales forecasting has is the creation of biased opinions. For instance, sales reps or managers will rely on its data regarding existing customers. It might make you focus so much on them that you forget to reach new customers. 

It’s best to consider other data sources to find ways to reach new customers instead of just focusing on the existing ones. 

Requires clean data and time

When you forecast sales, you need clean data for accurate results. But cleaning the data requires a lot of time. And while software can help, it’s not safe from typographical errors. You may need to filter the data to ensure its reliability. 

The data you’ll get may also require layers of analysis and organization to create the forecast. You likely need to weigh the costs to profits by combining qualitative and quantitative data. 

Affected by employee turnover

The forecast may be affected if your business is experiencing a high employee turnover rate

Picture it this way: your new employees didn’t make the past data. When they use the old data to create a forecast, it might not match the new workflow. 

If you have a new sales team, educate them about the numerical data as soon as possible to achieve a more accurate sales forecast. 

Process documentation tools Scribe can help you train your team on tools and processes. The SOP generator captures your screen, clicks and keystrokes to turn any process into a step-by-step guide.

Let Scribe do your documenting for you — so you can create living training material in seconds. 

benefits and challenges of sales forecasting

Wrapping up: sales forecast for major wins

All in all, sales forecasting is not something to miss or ignore. It can have a huge impact on your business. If you manage your data correctly, use the right tools and keep your team trained — well that forecast will show nothing but blue skies.