Mafalda Martins Forecasting your company’s sales correctly can be a challenge, however, when done well, this work becomes essential for your strategy and for achieving your goals. With a reliable sales forecast you can make the necessary corrections and prepare for any eventuality.
However, the sales forecasting process is not always easy for business managers and can have serious consequences. Only 31% of companies consider their sales forecasts to be efficient. (Sales Management Association)
If you overestimate your sales you will spend money with low probability of return, if you underestimate you may be unduly prepared for too great a volume of demand. Either situation can put your sustainability at risk, making it crucial to forecast your sales correctly.
Estimating sales is as much an art as a science, yet it depends essentially on two factors:
– Have the correct data;
– Make the right conclusions from your data.
What is Sales Forecasting
Sales forecasting, is the process of forecasting the number of closed deals won in a given period of time. This set of methodologies should allow anticipating provisioning needs and availability of after-sales resources, but should also allow implementing corrective measures at the exact moment when any kind of deviation from the defined commercial objectives is verified.
5 Methods of Sales Forecasting
In order to effectively evaluate all opportunities in your sales pipeline, it is necessary to have some forecasting parameters. These parameters, when correctly used, can feed an entire sales forecasting system, governed by methodologies such as:
1. Probability by funnel stage
First you need a well-defined sales process in logically progressing stages. Once you have the sales process you can set a percentage for each stage. This percentage represents the probability of a deal being closed. As the lead moves through the stages, the probability of the deal being closed increases. This is the simplest sales forecasting method.
2. Probability per salesperson valuation
Another way to forecast your sales is by incorporating a manual fill-in field in your CRM. It is expected that in any business this field will be filled in by your sales person. This field has several options such as very likely, likely, not very likely, which can be crossed with the indication of the business temperature (cold, hot, warm) and the expected decision period.
This method can be very fallacious, since it is too exposed to the cognitive biases of each person.
Scoring of BANT or MEDDIC variables
In order to eliminate the impact of emotion on sales forecasting, it is necessary to use a methodology that generates a score for each transactional variable, such as those used in the following business qualification processes:
BANT
- Budget – What is the client’s budget?
- Authority – What is the level of responsibility of the person we are talking to?
- Need – The client’s need is well defined and matches our value proposition?
- Timeframe – When does the customer want to make a decision?
MEDDIC OVERVIEW
- Metrics – What is the economic impact of this solution?
- Economic Buyer – Who is responsible for the solution’s profit and loss (P&L)”
- Decision Criteria – What are the criteria for technical and financial evaluation of the solution, as well as supplier evaluation?
- Decision Process – What happens after the proposal is submitted? What the validation and approval process looks like?
- Identify Pain – What are the main objectives the client wants to achieve?
- Champion – Who will be the solution’s inside salesperson?
When using this sales method to forecast sales, you can assign a value to each of the criteria. This method ensures standardization of the sales process.
Channel scoring
This method uses a calculation formula based on the historical conversion rate per channel. For example, customer recommendation (word-of-mouth) generally produces a higher number of earned opportunities, than channels such as display ads. Based on this knowledge, the probability of closing deals can be calculated, eliminating emotional or merely qualitative factors from the sales forecasting process.
Linear Regression
The most advanced method of prediction is based on a statistical model that accounts for covariance and correlation of variables. In order to make all this effective, you need a very large amount of data and it has to be of high quality and well organized.
Achieving Success with Sales Forecasting
Sales forecast analysis can completely change the course of your business. The Sales Management Association indicates that there is a correlation between an effective sales forecast and achieving companies’ annual revenue targets.
In Liminal we have been working with several customers to help them optimize systems and business processes, which increase sales productivity, commercial results and business analytics with sales forecasting. Learn how we can also help your company to achieve business goals and improve your processes.