What is Forecasting?
Forecasting occurs when a company predicts future business targets in advance. For sales teams, sales forecasting consists of putting together estimates, based on past data, for overall sales revenue within a specific period. This is typically done when planning upcoming fiscal years and is then broken down for each quarter and subsequent month.
Forecasting allows sales managers to know what their teams should be targeting when it comes to total sale revenue and will help determine their KPIs.
Why is Forecasting Important?
Without forecasting sales teams don’t know what their expectations are. Forecasting allows you to build structure for your team in terms of realistic goals, setting timelines, and planning for company growth throughout the year.
By setting specific targets in advance, you can also identify when issues are occurring. If a team, or specific sales rep, is trending below target, you can easily identify that they’re struggling and address the issue before it escalates.
On the flip side, if you’re trending above target, it could be a good time to grow your team and hire. Having an influx of revenue means you can invest in additional resources, whether that’s more staff, training courses, or purchasing new products to help staff succeed even more.
However, you should be mindful that performance can ebb and flow throughout the year. One month you might be below target, and then shoot up and achieve 110% the following month. It’s important to pay attention to these trends as they will help determine where resources should be allocated to best support the sales team’s needs.
How to Create a Sales Forecast
Forecasting isn’t something you can easily do in a day. In fact, you can’t accurately forecast future sales unless you have some historical data to work with. Therefore, it’s essential to keep records throughout the year; it will become an invaluable tool for strategic planning.
Set a Process
Managers should have a process in place for their sales reps to follow. This includes recording data such as number of leads contacted, sales closed, amount of revenue generated per sale, etc. It should track all actions and outcomes that occur within your sales funnel, to help provide important data.
Determine Targets
Based on previous performance, you can determine what each sales team, and individual sales reps, can work towards achieving within specific periods. Everyone should know what their targets are for prospecting, conducting demos, amount of revenue earned, and overall customer retention. Having team members achieve individual targets is key, as that will ensure overall success for your sales team.
Collaborate
Accurate forecasting doesn’t rely specifically on a sales team’s performance.
Other factors, such as marketing, will also play a role. If target audiences aren’t reached, it becomes harder to achieve revenue targets. Or, if the development team misses a vital deadline when it comes to launching a new product, a domino effect will occur with other targets being pushed back.
It’s essential for sales managers to collaborate with other teams to ensure everything lines up and their sales team is well-positioned to hit their targets.
Communicate
Once a sales forecast is created, it’s essential that everyone involved knows what their targets are. Sales reps should always know what goals and larger KPIs they’re working towards, and whether they’re trending in the right direction. Communication is key so the entire sales team is on the same page.
If there are issues, address them immediately so performance can get back on track. And if you’re trending above target? Let your sales team know their hard work hasn’t gone unnoticed and celebrate their success.