Sales forecasting: master the procedure to avoid pitfalls
To optimize its budget, every company must accurately forecast its sales. This will make it easier for the company to develop its sales plan and avoid various problems related to resource management or cash flow. How to develop a sales forecast? Various methods and solutions can be adopted in order to obtain reliable forecasts. However, there are many pitfalls in sales forecasting, but it is possible to avoid them thanks to a forecasting tool, an essential element in the management of any commercial activity. Let's find out how to make better sales forecasts.
Sales forecasting, a winning marketing strategy
Before listing the different sales forecasting methods, it is important to know what we are talking about.
What do we need to understand about sales forecasting?
Sales forecasting is a business management tool in all industries. It generally consists of forecasting the level of monthly sales or revenue that a company could achieve.
However, some companies choose to forecast for the year instead of the month. These can be useful in obtaining credit or financing. Of course, no matter how accurate a purchase forecast is, there will always be unforeseen events during the month.
The different methods of sales forecasting
One method of forecasting is to base the forecast on each phase of the sales cycle. This involves taking into account the position of opportunities in the sales pipeline. In other words, you will need to determine whether prospects would be likely to be converted into customers after a demo or discovery call.
Another forecasting method will take into consideration the length of the sales cycle. This forecasting work will look at the age of an opportunity to estimate its probability of closing. As an example, the probability of closing for an account with a 6-month sales cycle will be about 55%.
A sales forecast based on historical data or the company's sales history is particularly effective in anticipating the number of sales over the month, quarter or year. In this case, the company expects the same or better results than in the previous period.
Sales forecasting can be done by intuition. During this process, a manager will ask sales people to assess the probability of closing an opportunity. The idea is to use the skills of a sales team that knows the customers and their habits better. This forecasting method is used by new companies that do not yet have historical data.
To forecast sales, a company can also analyze several variables. These include the length of the sales cycle, the probability of closing various opportunities and the performance of each salesperson. The customer is also a parameter to take into account.
What are the essential elements for a good sales forecast?
A company must have certain tools or key information to effectively prepare its sales forecast.
A CRM software
It is a computer program for automated sales forecasting. This online software produces a performance report that helps business owners direct the company's budget and human resources to the best opportunities. It is also effective in calculating the conversion rate of the sales funnel.
The company's sales procedures
In order to achieve more accurate sales forecasts, it is necessary to take into consideration the sales procedures. It will be necessary to document each step of the sale and enter these variables into a CRM software.
It is also necessary to ensure that the information recorded in the program includes data such as the duration of the prospect's awareness. In addition to this, the costs of the products or services, the conversion time, the average customer spend as well as the retention rate should be included.
The company's sales objectives
In addition to the company's sales procedures, it will be necessary to insert, in the CRM software, the quota of sales made and the objectives to be reached.
These sales objectives are actually references to evaluate the usefulness of the sales forecasts, and possibly reduce marketing expenses. However, each objective expressed in figures will be associated with a single salesperson or a single team of salespeople.
Finally, a sales forecast, regardless of the industry, requires sales pipelines. These are projected sales and must be fully understood before any project or financial estimate is made.
What are the pitfalls to avoid when conducting a sales forecast?
Certain errors can completely distort sales forecasts and destroy a company's chances of obtaining financing. It is important to be aware of these mistakes in order to avoid them.
Falling into over-optimism
A mistake many companies and project designers make is to mistake their desires for realities. The trap here is to be overly optimistic about the sales plan. It is best to determine from the previous year's results whether the plans or financial goals are realistic.
Also, new businesses tend to calculate the number of sales needed to reach their financial goals. This is also a mistake not to make when it comes to sales forecasting.
Instead, one should assess, based on available statistics and tools, whether the projected sales levels are achievable. A good exercise is to evaluate the number of customers a salesperson can actually visit in a week.
Not taking into account the assumptions made
Once assumptions are made, it is important to ensure that the projects relate to them. This would avoid making estimates that completely contradict those assumptions. In other words, if the assumption is that the market may shrink in the next few months, it would be inconsistent to project increased sales. In the case of industrial production, the best thing to do is to reduce inventory.
Ignoring the opinions of the sales team
Salespeople are undoubtedly the ones who know prospects best, since they are constantly in contact with them as part of their job. Not consulting with the sales team to launch a new product or for a financial assessment of its performance is a mistake that a company should not make.
In order to obtain reliable results, it is important to ask the sales team for their opinion. They should also be given a reasonable amount of time to inquire about customers. Are they planning to increase their purchases in the near future? Are they satisfied with the prices and products they purchased? The answers to these questions could help the company adjust its sales strategy.
Ultimately, sales forecasting is an exercise that should not be taken lightly. The consequences of poor management can be quite disastrous for the company. It is therefore essential for a company to learn to identify the pitfalls and avoid them.
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