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Sales forecasting methods and templates to get you started

Topics
Sales forecast definition: What is a sales forecast?
How to forecast sales
The benefits of sales forecasting
Sales forecasting methods
The most common sales forecasting mistakes
Forecasting in a silo
Sales forecast template
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.


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.


How to forecast sales

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

  • That you have the right sales data

  • That you draw the right projected sales 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 sales forecast tool to give you all the support that you need in predicting new business.

Choosing the right sales metrics

Basing your forecast on too many sales metrics is messy and will only serve to confuse people.

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

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

  • Revenue

  • Number of leads

  • Lead to paying customer conversion rates

There are serious risks if your sales team and senior management use different metrics and measurables. You are likely to end up with different numbers and different sales targets, which will result in significantly different forecasts and misaligned goals.

It’s vital that you align with leadership on what matters most to the company – whether you work at a startup, small business or established organization – and know what’s important to your CEO.

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

When you know which metrics matter, you can use historical data to spot meaningful changes in results. Say you have four months of data on key KPI measurements for each rep to use as a baseline. You measure the current month against that period of time. If someone is slipping in one of these metrics, by the halfway stage when you're putting together the sales projection, you’ll know it’s time to talk to the rep.

Choosing the right metrics allows you to know what will affect your sales success and to make corrections quickly when you see changes.

Using the right tools

Sales managers who want to forecast accurately need to invest in a solid customer relationship management (CRM) solution.

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

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 will automate reporting and make the data easy for you to access, measure and forecast with.

Working with a sales forecasting tool like Pipedrive’s forecasting feature helps you project out future revenue quickly and easily and will 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.

If you aren’t ready to invest in a CRM yet, we have a free sales forecasting template that you can download at the bottom of the page.

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 or type of forecasting techniques 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. A simple sales forecast template or a CRM with an easy-to-use interface can help.


The benefits of sales forecasting

According to our Global Sales Performance Review, salespeople spend an average of 10 more 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 sales forecasting software, processes and support, even the most numbers-averse of sales managers can get the hang of it.

Growing companies need to make informed decisions quickly, meaning an accurate sales projection is invaluable. It plays a key role in driving important business decisions, like hiring timelines, pricing structure, the best time to cross-sell or upsell new products, production quantities and attracting investors.

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

Growth rates are increasing nicely and you’ve just hired and trained several new reps. Now your executive 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 next year or in two years?

  • What do we need to do now to increase the chance of closing and drive 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 know the right times to hire 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 from a sales forecasting tool can also help you to 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 sales team offer a promotional deal to prospects to close more deals.

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 type of sales 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 McKinsey found that companies deploying sales analytics are better at making choices that positively impact their business. Specifically, organizations that leverage sales-behavior insights to improve sales strategies:

  • See a 20% boost in sales improvement and productivity

  • Are able to bring new reps up to speed faster

For a company that’s scaling up, the ability to optimize productivity and onboard at speed 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.

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 forecasting methods

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

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.

Look at the stages of the pipeline and use your sales data to calculate the probability of closing at each stage. For example, if you see that one in five of the prospects with whom you schedule a demo become new customers, you know that this stage of the pipeline has a 20% likelihood of closing.

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 prospects in your pipeline, 10 of whom 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

So you can estimate that 4 prospects will become customers.

It’s a good 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 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 forecasting 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 in that 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 methodology 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. What is sales without communication with your client?

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.”

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.


How do you know where they 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, 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. 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. These insights allow 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. A sales forecast template built off assumptions will never be as accurate as one built off hard data.

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, 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. However, if you over-promise based on a feeling, you could derail your business strategy entirely.

Failing to adjust and finetune

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 shifting to reflect new playing fields. A low forecast can result in settling for stagnant deals, with no growth. A too-ambitious sales forecast, on the other hand, can quickly set your sales team up for burn out, disappointment and low morale.

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 if you don’t keep up. You can 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 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,” Heinz 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 you 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, without you having to alter your sales forecast template manually every quarter.


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 Thoreson recommends coaching to get 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.


While Thoreson 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.

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 organize prospects and deals, structure your data and standardize reporting processes.

Here are some important data points to include in your sales 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 below. This sales spreadsheet template is tailor-made by our team of sales experts, but you can adjust and customize it in any way you see fit. Simply download it, enter your contact and deal details, and watch all the work get done for you!


Final Thoughts

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 quicker you’ll get there.

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.

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.

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