Five home truths about sales forecasting
Five home truths about sales forecasting
Sales forecasting is an awkward combination of art and science.
It starts with data-based, number-driven reasoning, throws in some extrapolation and trend analysis, and finally adds some hunches and gut instincts.
In this way, it’s not a million miles away from the art of selling itself. Or, should that be the science of selling?
Before you sit down to crunch the numbers, pivot the data and hold a seasoned finger in the air, here are five home truths that you must bear in mind.
Expect the unexpected
In a world where a butterfly’s wing can cause a tsunami, there are no simple answers when it comes to predicting anything, let alone the volatile discipline of sales.
The unexpected does – and will – happen.
Economies collapse, markets slow down, and once-in-a-lifetime events (hello global pandemic!) can knock aside even the most meticulous of plans.
Your forecast must be seen as a best-guess guide, not a masthead that you have strapped yourself to. So be prepared to course-correct your forecast when the assumptions it was based on no longer hold true.
But remember that you cannot free yourself from the tyranny of a forecast by simply throwing it overboard.
When situations change, it is more important than ever that you can provide answers to the best- and worst-case scenarios and a new set of goals to work toward.
The five pillars of forecasting
These pillars provide the reality that supports your forecast. Without a good understanding of each, your forecast is much less likely to hold true.
They are:
- Who are your prospects – how many are in the market and how many can you realistically reach?
(We can help with this: head over to our Market Mapper to assess the total size of your market) - Where are your target customers?
- Why is there a need you can meet? Are there market conditions likely to increase or decrease that pain point?
- How long is your sales cycle, how many decision-makers will be involved and how will a deal be reached?
- What have the results been like historically? Take note of the trends to inform the future.
While some of the above rest absolutely on cold hard data, others will be an informed estimate based on an analysis of your current position.
Highlighting risk is as important as focusing on opportunity
Sales forecasting is not just about accentuating the positive.
Rather than hedgin your bets and producing something bang in the middle of best-case and worst-case scenarios, a negative forecast can actually be extremely useful.
It reveals the areas at risk in the company’s position in certain markets – whether these be territory-based, sector-based or product/solution-based.
With this info at hand, decisions can be taken to shore up these areas or to re-focus resources on selling to others.
The wide impact of forecasting
There is not one single department that does not have an interest in your sales forecast.
The reason is simple: there is not one department whose own plans and goals will not be affected by it.
Think about it, your forecast will be the basis of logistics plans, marketing budgets, new hires, and investment in R&D, and the list goes on.
What this means is that in preparing your forecast you need to be as clear as possible on the assumptions on which your final figures rest.
These will essentially be a summary of your five pillars (‘Who, What, Where, Why and How’).
And – should things change – you need to outline the new situation and quickly prepare a revised set of figures.
So, keep your eye on the wider company and keep sharing as things inevitably change.
Because the fifth home truth is that a sales forecast leaves nowhere to hide.
