Sales Forecasting Methods and Templates to Get You Started

Sales forecast

Whether you’re a new company looking to scale or a multinational leading your industry, 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 cover the following:

According to our Global Sales Performance Review, salespeople spend an additional 10 days closing deals than their initial sales forecasts had predicted (with those lower sales performers taking over 53 days to close their average deal).

Whether it’s a lack of training or fear of numbers, sales forecasting continues to present a plethora of problems for businesses of all shapes and sizes. 

However, with the right tools, processes and support, even the most numbers-averse of sales managers can get the hang of it.

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, etc.) continues exactly the way it’s going at the moment—or in a way that’s predictable based on current trends. 

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 buying processes, team 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. 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.

How to forecast sales 

To make accurate sales forecasts you need to ensure two things:

  • That you have the right data
  • That you draw the right conclusions from it

To do this, you need a solid understanding of the metrics that matter, a structured sales process that reps can easily follow and the right tools to give you all the support that you need. 

Choosing the right metrics 

Courteney Cannon, Sales Operations Manager for Pipedrive, explains that basing your forecast on too many metrics is messy and will only serve to confuse.

That’s why you should focus on the most important KPIs and use them consistently.

These metrics will vary from business to business, but typically include revenue, number of leads and lead-to-paying-customer conversion rates. 

There are serious risks if your team and senior management use different metrics and measurables. You are likely to end up with different numbers and different targets, which will result in significantly different forecasts between key stakeholders. It’s vital that you align with leadership on what matters most to the company.

“Know what’s important to your CEO,” advises Courteney. 

Getting to know those KPIs, and how your reps tend to perform on those metrics, will help you spot trends and problems in your team.

That’s what makes historical data so important, says Courteney. When she’s got three or four months of data on each rep, she can measure the current month against that. If someone seems to be having a bad month by the halfway stage when she’s putting together the forecast, it’s time to talk to the rep.

Are they generating the number of leads that they’d been expected to produce? Are they making the right number of calls and delivering the expected number of proposals? Do they need more training?

“It’s always better to communicate,” recommends Courteney. “When you see sales activities dropping, take names, get in reps’ faces. At least be able to explain it.”

Being proactive rather than reactive is the first step in turning a rep’s sales slump around.

Using the right tools 

Sales managers who want to forecast accurately need to invest in a solid CRM.

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

When Courteney talks to other sales managers, she often hears that reps aren’t logging their deals in the CRM.

To get your team on board you need a CRM that your salespeople will love to use; a CRM that they will update regularly and accurately; a CRM that, ultimately, makes that data easy for you to access, measure and forecast with. 

Working with a tool that helps you project out revenue quickly and easily will, like Pipedrive’s Forecast View, revolutionize your forecasting process.

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

A solid process

There’s one thing even more important than the right technology: a simple sales process that your reps will actually follow. 

No matter what system you use, make sure you have a simple sales process that allows your team to understand how to enter the right information at the right time. 

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

You need to develop a clear, effective and repeatable sales process to make your team‘s data entry as simple and user-friendly as it can be.

How to Forecast Sales

The benefits of sales forecasting

Growing companies need to make informed decisions quickly, so why an accurate sales forecast is invaluable.

Sales forecasting plays a key role in driving important business decisions, like hiring timelines, pricing structure, production quantities and attracting investors.

Let’s take a look at what is probably a familiar scenario for anyone charged with scaling up sales operations.

Growth rates are increasing nicely and you’ve just hired and trained several new reps. Now your exec team wants to know three things:

  • How is that investment paying off? What’s the progress update on your quarterly targets?
  • If you hire at the same pace, what will revenue growth look like in two years?
  • What do we need to do now to increase revenue growth?

You’ll find it tough to make good decisions without having an accurate idea of what your sales numbers are going to look like at the end of the month, the quarter and the year. For example, you can scale faster if you hire at the right times and, more importantly, have processes in place that are capable of supporting those new hires. 

An accurate sales forecast also helps demonstrate a clear plan for growth to potential investors.

As Steve Moats, a wealth management adviser for Northwestern Mutual, 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.” 

Finally, an accurate forecast can also help you to prepare for dips in revenue and allow you to spot and prevent problems before they impact your bottom line. 

Here are just some of the areas where accurate revenue forecasting can help your business.

Budgeting

Knowing what sort of revenue you can expect will help you to plan budgets, hiring and resource management for the next period. This sort of forecast should naturally be as accurate and detailed as possible. 

Goal setting

Knowing whether you’re likely to meet your current goals can help you set realistic goals for the next period. 

Motivation

How are your sales reps performing? Are they doing well this month? The data provided by a revenue forecast can help to motivate your team or give them a necessary reality check.

If that’s not enough to convince you, a report by the Aberdeen Group found that companies deploying sales analytics are better at making choices that positively impact their business. They’re:

  • 93% better at walking away from bad deals
  • 33% better at identifying the opportunity most likely to close
  • 27% better at adding more resources to the deals that needed support 

For a company that’s scaling up, the ability to make those decisions confidently is key. Times of growth are also times of uncertainty and a good sales forecast gives you a road map that will help you plan the next month, quarter or year.

Sales forecasting methods

There are various methods of projecting your revenue. Here are some of the more common sales forecasting methods.

Opportunity stage forecasting

This model involves a close look at what’s in your pipeline and each deal’s probability of closing. The closer to the end of your pipeline, the greater the chance a deal has of closing.

You then assign a probability to each stage of the pipeline. For example, if you see that one in five of the prospects with whom you schedule a demo become customers, you know that this stage of the pipeline has a 40% likelihood to close.

Work out the probability for each stage, count up the deals in each stage and then calculate your forecast. Say, for example, you have 30 deals in your pipeline, 10 of whom have scheduled a demo. The other 20 have responded to a cold email, and the probability at this stage is 10%.

10% of 20 is 2
40% of 10 is 4
So you can estimate that 6 prospects will become customers

It’s a good way to assess your team’s current pipeline, but not all deals at the end of your pipeline are necessarily going to 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 does not take this into account. It also becomes a lot more complicated if your deals are worth different amounts.

Length of sales cycle forecasting

This model uses the length of a sales cycle to make assumptions about when each deal in your pipeline will close based on its age. It works like the opportunity-based model, a deal is assigned a probability of closing based on how old it is.

As with opportunity stage forecasting, this method doesn’t take into account deals stuck in the pipeline or deals with different values, and both methods can be hamstrung if your reps aren’t putting accurate information into the CRM. 

Historical forecasting

If you’re trying to forecast revenue for a specific time period, flip back the calendar and see how your team did in the previous time period. Then you can predict whether they’ll sell as much, more or less this time around. 

This is a quick and easy way to predict revenue and to set benchmarks for your team, but it’s not an ideal forecast method for a company that’s scaling up. If things have changed dramatically in the last year, for example, it’s unlikely your numbers will be the same as they were last year. 

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

The most common sales forecasting mistakes

Now that we’ve discussed best practices when it comes to accurate sales forecasting, let’s look at what not to do. Here are the most common mistakes that could result in sales forecasting slip-ups. 

Not talking to your prospects

You and your salespeople will get a better understanding of a lead’s potential to close by speaking to the contact directly.  

Ken Thoreson, president of the sales management consulting firm Acumen Management Group, explains that, because the buying process is predefined by the buyer, the selling process needs to be aligned with the buyer’s decision process.

 “If those are in alignment and the salesperson understands the buyer’s psychology, then they can forecast more accurately,” says Ken.

To get the most accurate forecast out of your CRM’s pipeline metrics you need to ensure that each stage of the pipeline is dialed into your customers’ buying processes and follows a logical step-by-step sequence from lead to close.

Janice Mars, principal and founder of the sales consulting firm SalesLatitude, is an advocate of the 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,” Janice says.

How do you know where they are? Ask your customers questions to sketch out an accurate version of their journey. Janice recommends shifting the conversation away from features and functions to talking about the customers’ business goals and priorities, such as what they’re trying to achieve with your solution, and why that’s important.

“It’s really just trying to understand the business from the customer’s point of view,” Mars said. “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.”

This allows you to open up a dialogue and gain insight into objections or delays—an insight that allows you to either start working to solve these problems or to realize it’s time to say goodbye and prioritize your efforts elsewhere.

Basing forecasts entirely on assumptions

While gut feeling certainly plays an important role in the sales process, it needs to be paired with data and learnings from past performance if you’re looking for accuracy.

You need to base your forecast on facts and what your team is capable of achieving in the market, but make sure it’s optimistic enough as your forecast will influence your team’s goals.

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

Failing to adjust and finetune

According to Courteney, one of the biggest mistakes sales managers can make is not reviewing their sales forecast often enough. 

Growing businesses need to move fast. Sales teams can find their goalposts quickly shift to reflect new playing fields. 

Economic and political factors like currency market fluctuations, changes in government and GDPR compliance are the type of uncontrollable variables that can throw your forecasts off track. Keep track of these factors with the policy platform Apolitical and in particular its newsfeed on digital government.

There are also more business-centric factors impacting your sales. Team performance, competition, market position, the cost of raw materials and changes in consumer trends can all affect your approach.

The latest data you have today could be redundant tomorrow, so adjusting your forecasts accordingly is essential.

It’s also important to get team members together regularly to review forecasts and projections. Whether that’s monthly, quarterly or annually depends on your sales cycle, but consistent reassessment can help you develop more sustainable results.

Matt Heinz of Heinz Marketing also highlights the importance of giving yourself enough time to course-correct when adjustments need to be made. 

“I think it’s important to look at what makes the most sense and map that to your end goal,” Matt  says. “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 also have as much time as possible to make adjustments.”

Your CRM platform can chip in and help with the task of correcting the course of your strategy.

sales forecast silos

Forecasting in a silo

You’re not an island, especially if your company is growing. While sales managers are usually given the responsibility of coming up with an accurate forecast, the entire team needs to be involved. 

Ken recommends increased coaching to get salespeople to ask better lead-validating questions and 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,” he said. “If the sales managers are managing forecast accuracy, then salespeople will pay attention to it.”

While Ken emphasizes the role the sales rep has in asking tougher discovery questions and knowing what stage the buyer truly is at, he also stresses the importance of going beyond the sales team. It’s important to check in with other departments as you work up your forecasts. You’ll want to talk with marketing, human resources and product specialists to see where they are. 

Forecasting is like driving on a freeway. Yes, you need to pay attention to the road in front of you, but you also need to know where the other cars in the lanes around you are as well.

With the whole team working in a sales pipeline that accurately reflects your customers’ buying processes, you’ll have a better idea of how likely each deal is to close.

Sales forecast template

If you’re just starting out or working with fewer than 10 deals at a time, then sales forecasting spreadsheets are a cheap and effective way to get started. The right sales forecast template will help to organize prospects and deals, structure your data, and standardize reporting processes.

Here are some important data points to include in your spreadsheet:

  • Prospect’s name
  • Sales stage (i.e. idea, contacted, proposal sent, terms negotiated, verbal ‘yes’)
  • Deal size
  • Probability of close
  • Weighted forecast based on probability
  • Expected close date
  • Next steps 

This basic deal info will significantly improve your projections. 

To get started right away, check out our free sales forecast template. This spreadsheet is tailor-made by our team of sales experts, but you can adjust and customize it in any way you see fit. Just download it, enter your contact and deal details, and watch all the work get done for you!

Sales forecasting can be daunting at first, but with plenty of practice and the right support, you’ll soon get the hang of it. The more support you have from your CRM, your leadership and your colleagues, the better you’ll be. 

Make sure to choose your metrics well, always be proactive and garner the cleanest data that you can. A thoughtful forecasting strategy, based on the metrics and sales methods that work best for your business needs, means you can plan for the future, scale your business and build a foundation for long-term and repeatable success.

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