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Sales forecasting 101 (with free sales projection template)

Sales Forecast
Sales forecast definition: What is a sales forecast?
Download your free sales projection template
How to forecast sales in 4 simple steps
Sales forecasting methods
3 major benefits of sales forecasting
4 sales forecasting best practices
Sales projection FAQs
Final thoughts

Whether you’re a new company looking to scale or a multinational leading your industry, sales forecasting has the power to make or break your business.

Your revenue forecast reflects and affects every other part of your business, from how many people you hire to your relationships with investors.

Yet, for such an important exercise, business owners, sales managers and sales reps often end up struggling to create a clear enough view of their numbers to forecast accurately.

In this article, we’ll explore what sales forecasting is, how to create an accurate sales projection, why forecasting is so important to your business and common sales projection mistakes. We’ll also provide you with a sales forecast template that you can use to improve your sales growth and increase your total sales. Go to the bottom of the page to download your sales forecast Excel template now.

Sales forecast definition: What is a sales forecast?

Let’s start by taking a quick look at the definition of a sales forecast.

Sales forecasting is the process of creating a picture of the future if everything (market conditions, customer behavior, rep performance, past sales data, etc.) continues exactly the way it’s going at the moment, or at least in a way that’s predictable based on current trends (e.g. increased cash flow due to seasonality spikes in sales).

It’s predicting what your company’s future sales revenue will be during a certain time period if everything stays the same.

To do this, you need a thorough understanding of your company’s business plan, buying processes, your team’s performance and current market trends. The clearer the picture you have of where your business is now, the more accurate a picture you can paint of where your business is going.

Think of it as a weather report that helps plan your future. If you know on Wednesday that there’s going to be a thunderstorm on Friday, you’re likely to cancel that trip to the beach and dust off your rain jacket. A reliable weather report gives you the information and time you need to prepare for the storm, or take advantage of the blue skies.

Similarly, an accurate sales forecast equips sales managers with the knowledge and insight they need to make informed choices and sound judgment calls when it comes to critical business decisions. It also helps sales managers set realistic, attainable sales goals within specific timeframes for their salespeople.

Download your free sales projection template

A sales forecasting spreadsheet is a cost-effective starting point if you’re new to business or working with fewer than 10 deals at a time. The right sales projection template will help you organize prospects and deals, structure your data and standardize reporting processes.

You can start right away by downloading our free sales forecast Excel template.

Get organized with your free sales forecast spreadsheet

Want to simplify the way you forecast sales? Download this free sales forecast template and sales dashboard spreadsheet.
Sales Forecast Spreadsheet Excel

Our sales experts tailor-made this sales spreadsheet template for use in Microsoft Excel but you can adjust and customize it in any way you see fit. The file will also open in Google Sheets if that’s your chosen app.

If you’d prefer to create your own sales spreadsheet, be sure to add these data points:

  • Prospect’s name

  • Sales stage (e.g., idea, contacted, proposal sent, terms negotiated, verbal yes)

  • Deal size

  • Probability of close

  • Weighted forecast based on probability

  • Expected close date

  • Next steps

Including this basic deal info will significantly improve your projections.

How to forecast sales in 4 simple steps

To make accurate sales forecasts, ensure two things:

  • That you have the right sales data

  • That you draw the right projected sales conclusions from it

To do this, you’ll want a structured sales process that reps can easily follow and the right sales forecast tool to give you all the support you need to predict new business.

Here’s the forecasting process in more detail.

Step 1: Build a solid, measurable sales process

You need to rely on your team to learn and use your process. If your reps aren’t consistently using the same stages and steps, it’ll be impossible to analyze their data and assess the likelihood of opportunities closing.

With that in mind, build a simple sales process so reps know which information to record and when to do it.

Map your current process in a CRM with pipeline management features to see how you work now and find opportunities for improvement. Involve your team to get their input and keep everyone aligned around the type of data you need at each stage (e.g., basic contact details at the first step or budget information during qualification).

Making data entry fast, intuitive and predictable like this ensures you’ll always have correct information fueling your forecasts.

Step 2: Secure the right sales forecasting solution

It’s easy for sales teams to get bogged down, especially when dealing with clunky sales forecast tools. The more complex the system, the more resistance you’ll inevitably come up against.

You have two main options here. A business forecast template, like our free one above, is a simple and cost-effective way to start. However, for more functionality, versatility, accessibility and efficiency, customer relationship management (CRM) software is the way to go.

When adopting a Sales CRM, it’s crucial to pick one that your salespeople will enjoy using so they update it regularly and accurately. With accurate, timely data, a great CRM can automate reporting, generate helpful insights and make forecasting easy.

For example, a sales forecasting tool like Pipedrive helps you project future revenue in no time.

Here’s a monthly sales forecast example from the Pipedrive interface.

Pipedrive CRM sales forecast

Not only are the right tools essential to track data, but they can also be the foundation for a simple, structured and strategic sales plan.

Step 3: Select your sales forecasting method

The sales forecasting method you choose may impact the data you need to collect (i.e., the sales metrics you use as key performance indicators, or KPIs). Assessing your options early is sensible – especially if you use a simple spreadsheet rather than a CRM.

We’ll explain them in more detail shortly but the main forecasting methods to think about are:

  • Opportunity stage forecasting. Predicts sales based on the stage of progress in the sales pipeline, estimating the likelihood of closing deals at various stages.

  • Length of sales cycle forecasting. Estimates sales volumes based on the average time it takes for a lead to progress through the sales process, factoring in the duration from initial contact to deal closure.

  • Historical forecasting. Uses past sales data (e.g., number of units sold) to forecast future performance, analyzing trends, patterns and seasonality to predict future outcomes.

Each method has strengths and weaknesses.

Opportunity stage forecasting provides a granular view of pipeline health, allowing for targeted actions that move deals forward. However, it relies on subjective assessments and ignores external factors that could stop deals closing, like competitor actions.

Historical forecasting is more objective as it uses tangible data from past performance. The downside is that its accuracy depends on the volume of sales data you have from previous years or months.

To decide, consider what data you have available and which metrics your team already collects. The best sales forecasting tools combine multiple methods to deliver the most accurate predictions for any time frame in graphs, charts or real-time dashboards.

Step 4: Choose and track relevant sales metrics

Basing your forecast on too many sales metrics is messy and will only confuse your team.

Instead, focus on the most relevant KPIs and use them consistently across your organization.

These metrics will vary from business to business but typically include:

  • Revenue

  • Number of leads

  • Sign-ups (including trials)

  • Conversion rates

  • Recurring revenue (e.g., annual or monthly sales from subscription agreements)

There are significant risks if your sales team and senior management choose different KPIs. You will likely end up with different numbers and sales targets, resulting in misaligned forecasts and goals.

Knowing those KPIs and how your reps tend to perform against them will help you spot insightful trends in your sales organization.

Say you have four months of KPI data for each rep to use as a baseline. You can measure the current month against that period of time. If someone is slipping in one of these metrics, you’ll know it’s time to help the rep get back on track by the halfway stage when you’re building the sales projection.

Sales forecasting methods

As we touched on, there are various ways to project revenue.

Here are three of the more common sales forecasting methodologies.

Opportunity stage forecasting

Opportunity stage forecasting involves a close look at what’s in your pipeline and each deal’s chances of success. It assumes that the closer a deal is to the end of your pipeline, the greater its chance of closing.

Look at the stages of the pipeline and use your sales data to calculate the probability of closing at each stage of the sales funnel.

For example, if one in five prospects who schedule sales demos become new customers, this stage of the pipeline has a 20% likelihood of closing.

Work out the probability for each stage, count the deals and then calculate your forecast.

Say you have 30 prospects in your pipeline and 10 have scheduled a demo (giving them a 20% probability of closing). The other 20 have responded to a cold email and you’ve calculated that the probability at this stage is 10%.

  • 10% of 20 is 2

  • 20% of 10 is 2

Using this calculation, you can estimate that four prospects will become customers.

Opportunity stage forecasting is a simple way to assess your team’s current pipeline but this method isn’t always a reliable predictor of revenue timelines.

Not all deals at the end of your pipeline will close by the end of the month. You may have had a deal stuck at the end of your pipeline for months and this method won’t account for that. It also becomes more complicated if your pricing is flexible, as each deal will be worth a different amount.

Length of sales cycle forecasting

Length of sales cycle forecasting, as the name suggests, uses the length of your sales cycle to make assumptions about when each deal in your pipeline will close. It works like the opportunity-based model in that a deal is assigned a probability of closing based on its age.

As with opportunity stage forecasting, this method doesn’t consider deals stuck in the pipeline or deals with different values. Both methods can be impaired if your reps aren’t putting accurate information into the CRM or sales projection template.

Historical forecasting

If you’re trying to forecast revenue for a specific period, look back at how your team members did in an equivalent month or quarter previously. Then you can predict whether they’ll sell more, less or the same this time.

Historical forecasting is a quick and easy way to predict revenue and to set benchmarks for your team but it’s not always ideal for a fast-growing company. For example, if sales have improved dramatically in the last year, it’s likely that your future numbers will be significantly higher – and that isn’t easy to predict.

Elements from all these sales forecasting methods are valuable but the strongest forecasts will include metrics that make the most sense for your team and organization.

3 major benefits of sales forecasting

Accurate sales projections help the leaders of growing companies make data-backed decisions quickly. They can inform hiring timelines, pricing structures, cross-selling and upselling strategies, production quantities and more.

Here are sales forecasting’s key benefits in more detail.

A clearer route to business growth

You’ll find it tough to make business decisions that increase your sales growth rate without an accurate idea of your numbers at the end of the month, the quarter and the year.

For example, you can scale faster if you know the right times to hire and have processes in place to support those new hires.

An accurate sales forecast also helps demonstrate a clear growth plan to potential investors, as Northwestern Mutual wealth management adviser Steve Moats, explains:

You need to provide guidance, history and show existing activity that will predict how your revenue will be generated if you want additional investor partners to help scale your business.

What’s more, an accurate forecast from a sales forecasting tool can help you prepare for dips in revenue and allow you to spot and prevent problems before they impact your bottom line. For example, you’ll be better equipped to recognize a slow sales period so you can have your team offer promotions to close more deals.

Precise budgeting for healthier finances

Knowing what revenue you can expect will help you set more realistic budgets for hiring, marketing and other critical business activities.

As a result, you’ll be much less likely to overspend and can direct money toward the actions and resources most likely to grow your business.

For example, if your sales projection spreadsheet or CRM predicts an uptick in revenue for the next quarter, you could increase your content marketing budget to ensure you capitalize on the growing interest in multiple products. Without the forecast, you’d miss that opportunity and could lose valuable sales momentum.

Alternatively, if revenue looks set to drop during a slow period, you might postpone your company’s appearance at a sales event, delay a new product launch or temporarily reduce your targets for hiring new salespeople instead of going ahead and overspending.

Increased motivation and productivity for your team

How are your sales reps performing? The data in a revenue forecast can motivate your team or provide a helpful reality check.

A McKinsey report found that companies deploying sales analytics – including sales forecasting – are better at making choices that positively impact their business.

More specifically, organizations that leverage sales-behavior insights to improve their sales strategies improve selling productivity by an average of 20% and can bring new reps up to speed faster.

For a company that’s scaling up, optimizing productivity and onboarding at speed are key. Times of growth are also uncertain and a good sales forecast gives you a road map that will help you plan the next month, quarter or year.

Get organized with your free sales forecast spreadsheet

Want to simplify the way you forecast sales? Download this free sales forecast template and sales dashboard spreadsheet.

4 sales forecasting best practices

There are good and bad sales projection techniques. The best way to forecast sales is to embrace teamwork, communication, practical thinking and ongoing revision.

With that in mind, here are four sales forecasting best practices to help you hit the ground running.

Keep communicating with your prospects

You and your salespeople will better understand a lead’s potential to close by speaking to them directly.

To get the most accurate forecast out of your CRM’s pipeline metrics, you need to ensure each pipeline stage matches your customers’ buying processes.

Experienced sales consultant Janice Mars is an advocate of this buyer-centric approach:

I feel very strongly that instead of looking at your pipeline from the salesperson’s point of view—which is a very myopic, in-the-weeds point of view—it’s better to look at it from the customer’s point of view and test where the customer is in their buying cycle.

How do you know where buyers are? Ask your customers questions to sketch out an accurate version of their journey. Mars recommends shifting the conversation away from features and functions to talking about the customers’ business goals and priorities:

It’s really just trying to understand the business from the customer’s point of view. That not only helps you understand what business effects they’re trying to attain and their timeline, it also gives you clear guidance on how you can possibly help them get there.

The insights you gain from conversations allow you to either start solving problems (e.g., objections or delays) or realize it’s time to say goodbye and focus your efforts elsewhere. Either way, it’ll help you predict future sales performance more accurately.

Base your sales projections on facts

While gut feeling certainly plays a vital role in the sales process, it needs to be paired with data and learnings from past performance if you want accuracy.

You must base your forecast on facts that show what your team can achieve in the immediate market (e.g., metrics like conversion rate, time-to-close and sales quota attainment).

That said, it’s still important to be optimistic when making subjective assessments, as your forecast will influence your team’s goals.

A low forecast can result in the team settling for stagnant deals, meaning little or no growth. An overly ambitious sales forecast, meanwhile, can quickly set your sales team up for burnout, disappointment and a drop in morale.

If you overestimate results based on genuine insights from your existing data, you can still explain your decisions and point to the inconsistencies of selling. However, if you over-promise based on a feeling, you could derail your business strategy entirely.

Review and refine your sales forecasts

Sales teams can find their goalposts quickly shifting to reflect new playing fields. As the leader you must be ready to react.

Economic and political factors like currency market fluctuations, changes in government and GDPR compliance are uncontrollable variables that can throw your forecasts off track if you don’t keep up.

Note: You can keep track of government factors that may impact your sales forecasts with the policy platform Apolitical via its newsfeed on digital government.

Business-centric factors may also impact your total sales. Team performance, competition, market position, the cost of raw materials and changes in consumer trends can all affect your strategy, requiring you to adjust your forecasts.

Get team members together regularly to review forecasts. Whether the meetings happen monthly, quarterly or annually depends on your sales cycle but consistent reassessment can help you project more accurately.

Matt Heinz of Heinz Marketing suggests you give yourself enough time to course-correct when adjustments are necessary:

I think it’s important to look at what makes the most sense and map that to your end goal. For example, how often do you need to do that particular thing to ensure that not only do you have an accurate forecast of what’s going to happen, but you also have as much time as possible to make adjustments?

Your CRM platform can correct your strategy without you having to alter your revenue forecast template manually every quarter.

Always forecast as a team

While sales managers are usually responsible for coming up with an accurate forecast, the entire team needs to be involved in building a clear and comprehensive view of the most likely outcomes.

Ken Thoreson, author and president of Acumen Management Group, recommends coaching salespeople to ask better lead-validating questions. He also suggests using group training meetings as a chance for salespeople on the team to challenge each other on their opportunities.

The important part is that salespeople will focus on what gets managed. If the sales managers are managing forecast accuracy, then salespeople will pay attention to it.

Thoreson also stresses the importance of going beyond the sales team to collect forecasting input.

You’ll benefit from talking with marketing, human resources and product specialists to see how their strategies work and whether they’re on or off track. If anyone raises issues, you can adjust your financial projections accordingly.

Sales projection FAQs

Final thoughts

Sales forecasting can be daunting at first but with plenty of practice and the right support, you’ll soon be making better-informed business decisions. The more help you have from your CRM, leadership and colleagues, the faster you’ll get there.

Choose your metrics carefully, always be proactive and collect the cleanest data possible. A thoughtful forecasting strategy will help you plan for the future, scale your business and build a foundation for long-term and repeatable success.

Get Organized With Your Free Sales Forecast Excel Template

Want to simplify the way you forecast sales? Download this free sales forecast template and test it out now.

Driving business growth