Sales forecasting is a critical task for all business owners to tackle regularly. It essentially predicts the gross revenue that your company may generate over a specified period of time. Through effective and realistic sales forecasting, you can better plan for the future and manage the operations of your business as a whole.
You simply cannot determine if you can or should open a new branch, launch a new product line or explore other marketing avenues without accurately estimating how much money you will have available to work with. However, as you might imagine, false assumptions and other similar types of mistakes can negatively affect any type of financial projection.
Understanding some of the more common sales forecasting mistakes that businesses make can help you to better project revenue numbers for your own business.
1. Relying on Inaccurate Data
In order to accurately forecast revenue for the coming months and years, you must analyze accurate data. However, it can be challenging to sort through the various sources of data that you have. And to determine which sources are most accurate.
Pay attention to data sources that have closely aligned data. You can bring your sales team together to analyze the data that you have collected. They may be able to identify causes of discrepancies, and they can help you to reconcile the differences.
Providing your sales team with an effective forecasting tool may help you to automate the process. This could save time and potentially produce more accurate results. Remember that inaccurate forecasts can be detrimental to your business’s future.
2. Disregarding Past Sales
The only time when you should deviate from incorporating past sales numbers into your future forecasts is when you are just starting out or when you have drastically upgraded your product.
Specifically, you can review historical data to determine how long it takes for your team to close a deal, what your conversion rate is and more. Through your analysis of past performance and sales numbers, you can better estimate the sales and revenue that your company may produce going forward.
Remember that historical metrics, such as your company’s previous conversion rates, may help you to more accurately estimate sales volume and revenue numbers in the future. Pay attention to seasonable fluctuations, adjustments to sales numbers when different marketing vehicles were used and more to identify patterns that you could potentially take advantage of in the future.
3. Not Defining the Purchase Journey
Regardless of the industry you work in, there are different buying stages to every sales process. In order to maintain steady sales, you need to analyze customers’ purchase journey in each stage of the pipeline and manage their progression through the different stages.
In order to accomplish this, understand how your customers interact with your brand and predict when they may be ready to make a purchase. Analyzing how customers react to different marketing methods is necessary for this.
More than that, you must analyze touch points in the past to accurately determine how a typical customer may react if your team takes specific steps. When you can predict behavior and adjust your efforts accordingly, you can better manage customer behavior and improve sales forecasting.
4. Using a Single Tool
Some companies only use a single forecasting tool in order to analyze the purchase journey, project sales and more. While this is one option, you could potentially generate more realistic results if you use various data sources as well as multiple analytical and forecasting tools. The best tools will help you to analyze data from multiple sources at the same time, and help you to save time and energy while also providing you with excellent results.
For instance, if you use Excel spreadsheets to create forecasts from data stored in it, you should know how to use it to its full potential, so it’s not confusing and ineffective. As you look for the right software programs to invest in, however, pay attention to tools that enable you to compile multiple data sources together, process that data, analyze it and even visualize it in a meaningful way. Through the use of the right tools, you may be able to generate more useful and accurate forecasts.
5. Failing to Consistently Adjust and Refine
The data that you need to use to make accurate forecasts is not static. It can change very quickly, and you need to adjust your forecasting efforts accordingly. For example, a monthly forecast may be outdated within 30 days. All forecasts must be continuously reviewed and recalculated.
Regardless of the amount of time and effort that you use to create a forecast, it is not effective if you do not update your forecast based on the most recent data available. A smart idea is to use a CRM to more accurately collect, track and gather information about customers’ behaviors, their status in the sales pipeline and more.
Remember that you do not need to recreate the wheel each time you update your data. Since you already have a substantial amount of relevant data and the right analytical tools, you simply need to update your data fields accordingly.
Sales Forecasting Mistakes: Final Thoughts
Avoiding these mistakes is essential to produce a forecast that is as accurate as possible. Failing to do so can potentially skew your forecasts and make it challenging to estimate revenue with reasonable accuracy. With this in mind, you must review and analyze your forecasting methods and take action to improve them.
About the Author
Ashley Wilson is a freelance writer interested in business, marketing, and tech topics. She has been known to reference Harry Potter quotes in casual conversation. She also enjoys baking homemade treats for her husband and their two felines, Lady and Gaga. Connect with Ashley via Twitter.