Sales Forecasting: Importance & Methods
18 Feb 2021
Sales forecasting is a process of calculating the future sales. Accurate sales calculations help companies to predict their sales for short-term and long-term performance. Many factors can help estimate forecasting like past sales data, industry-wide comparisons and economic trends. Sales forecasting could be carried out by an individual salesperson, a sales team or a department in a company.
Sales Forecasting: Definition & Use
Sales forecasting is a procedure for calculating the number of sales for your business or company over a future period. The forecasting period varies-it can be monthly, quarterly, half-yearly or yearly.
The application of sales estimation methods in companies is an essential part of business development as the managers and executives usually demand keeping track of the company sales performances and measure corrective actions if necessary. Financial modelling together with the sales forecasting methods helps the companies to manage their future revenue.
Sales predictions are usually based on the businesses’ past sales and industry-wide comparisons and economic trends. The sales forecasting becomes a painless procedure with accurate data in hand. A fair amount of data usually not available for the startups or newly founded companies forces them to research the marketplaces or depend on the marketplaces to have their sales forecasting base. This is the reason why whether you are a huge business tycoon or a startup business owner you’ll always need accurate data predictions for your future revenue calculations. We are discussing the main forecasting methods in this blog post to help you understand which one will be the best for your business.
Factors Affecting Sales Forecasting
There is no need to mention that sales forecasting helps the businesses to consider keeping track of updated information based on market research results and predict the amount of income they will make in the future of times. Sales forecasting depends on the economy as a factor affecting the order purchases. Changes in the economy affect the number of purchases.
Many companies have a similar product to offer consumers which automatically makes the competition sharp. Industry changes, including tech improvements, advanced design solutions, and promotional changes, affect the industries’ market share, factoring the sales estimation.
Products change over time, hugely affecting the sales forecasting predictions. Changes in products force a new feature in the marketplace, like removing a useless part of creating a new design. Salespeople can forecast with the product changes data in hand, thus shortening their sales cycle.
Sales Forecasting Methods
Length of Sales Cycle Forecasting Method
Sales Cycle Forecasting Method assumes predicting the time during which a typical lead may convert into a paying customer.
This method is an actively subjective method factor as it can be executed to several sales cycles, depending on the source.
An average sales cycle extending for four months while your sales representative works for a prospect for two months gives a 50% chance that your sales rep will close the deal.
Lead-driven forecasting helps the companies analyze the lead sources and assign the value-based information, thus collecting data on what the similar leads have done in the past and creating a forecast on the source value.
The lead-driven method includes analyzing lead sources and assigning to acquire value-based data on similar leads, their performance in the past and creating a forecast on that source value.
Here is what you need as metrics to apply this method:
- Lead per each month/the previous periods’ data of the leads
- Lead converting to a customer conversion rate by source
- Average sales price provided by the source
Opportunity Stage Forecasting
This method assumes that the prospect is in the company’s pipeline and calculates the deal closing chances. To implement this method, you need to understand the past performance of sales and estimate the success rates for each pipeline stage.
This method assumes having trust in your sales representative. Sales representatives are the closest to the prospects, which means they are most likely to know better insights on future predictions factoring in your sales forecasting.
If the cycle forecasting is a pure objective forecasting method, we can see that this method is entirely subjective.
This method gives a quick review to predict while looking at the sales data you have had in the matching past periods for a month, quarter or a year. You’ll need to look for the same data you had in the last periods to make comparisons, which is the historical sales forecasting method. Seasonality plays a vital role along with buyer demand for historical forecasting method.
Multivariable Analysis Forecasting
This is another method that applies predictive analytics influencing factors like average sales cycle, length, probability of closing, and individual representative performance. Multivariable sales prediction tends to be the most accurate method. This method is not always practicable if the company’s budget is small. The businesses need clean data requiring the representatives to accurately track their deal progress and activity; otherwise, no great software solution will bring good results.
eSwap-Accounting Software Integrations
eSwap helps the businesses to manage their multi-channel inventory sales control with accuracy with accounting software integrations with Xero and Quickbooks. Due to the automated accounting software integrations, you will simplify your accounting processes, create and send invoices immediately and export them in Xero & Quickbooks. Enjoy all your data in one place with eSwap, which provides real-time visibility to your financial data and control all your accounting providing you with a sales forecast excel performance.