Sales forecasting is a common topic of discussion among sales leaders. Forecasting can shape the stock market and drive key business decisions.
But if you listen to what people say about sales forecasting, you might discover that people are sometimes having different conversations. One person might be talking about sales targets, while others are talking about expected results. And if you’re not talking about the same things, you might make the wrong decisions.
Here are 3 purposes of sales forecasting – make sure you know which one you’re talking about.
1. Sales forecasting to set sales targets.
At a basic level, sales forecasting can be used to set sales targets and quotas. In order to set good targets, you need to have a reasonably accurate sense of what is possible.
If you’ve never developed a sales forecast to set targets before, you can start by looking at past performance. What did your top performers sell in their first months and years? What about your middle performers?
Territories are another key component in setting sales targets. A rep whose territory includes a major city will likely have different expectations than someone in a more rural area. Forecast based on past performance in the territory, or similar territories if you’re moving into a new area.
With your current reps, it can be helpful to develop both top-down and bottom-up forecasts, then work together to agree on the final number. They should know their customers, prospects, and territories well enough to develop a sales forecast.
2. Sales forecasting to make strategic decisions.
The sales forecast you use to set your sales targets is not necessarily the same sales forecast that you use to inform strategic decisions. While the two numbers are related, confusing them could cause problems.
First of all, your sales targets will likely add up to a higher number than you are actually forecasting. It’s unreasonable to expect that all of your sales reps will hit their targets, so you should develop a plan based on how short they are likely to fall.
You may also discover that in order to achieve your goals, you will need to sell more than your sales team forecasts. This can be a sign that you will need to grow your sales team or change your sales strategy. You might need to add a new revenue stream, increase prices, or expand into a new territory in order to achieve your strategic goals.
Finally, you may have some revenue that will come from other sources than your sales team. House accounts, renewals, and other types of non-sales income should be included in the forecast you use to make strategic decisions.
3. Sales forecasting to prepare operations.
This might seem like the same kind of sales forecasting as the last one, but there’s a difference. The sales forecast you use to prepare your operations team for delivery needs to be short-term and as accurate as possible.
While your overall sales forecast might be broken down into quarters and months, your operational team may need weekly or daily forecasts. Depending on your industry, you may need to provide a live-updating forecast.
The operations team might need this information to hire and allocate resources, order supplies, or manufacture products. They may need to provide it to their supply chains so they can properly prepare.
When you are developing your sales forecasts, ask your delivery team what information they will need and how often they will need it. Then make sure you develop a plan for providing it.
In order to effectively develop these forecasts, you’ll need to instill good CRM habits in your sales team. If their opportunity information is inaccurate, subjective, or out of date, it’s useless to operations.
I hope these 3 purposes of sales forecasting help as you develop your sales forecast. Share your thoughts and feedback in the comments!
And check out our sales forecasting tool to develop a forecast for your team.