What Is Sales Forecasting? Definition & How to Do It

Sales forecasting is the act of estimating future sales or revenue. It’s done by examining past sales performance while considering upcoming campaigns, initiatives, or marketplace trends, which helps you make future staffing or marketing decisions. Understanding your sales forecast can also help you focus efforts on the sales activities needed to reach performance goals.

While an inexpensive and quick way to create sales forecasts is to use a spreadsheet tool, the best way is to use a customer relationship management tool (CRM). This is because CRM software comes with automation tools that allow you to create sales forecasts at the click of a button. Pipedrive has sales forecasting and automation tools to quickly forecast sales. Give Pipedrive a try with a free trial.

Visit Pipedrive

How Sales Forecasting Works

Sales forecasting works by giving you a way to estimate sales for a future time period based on proven results rather than relying on a gut feeling. This helps cut down on uncertainty and helps you make realistic plans for upcoming work. For instance, if you’re an owner of a construction company and your sales manager forecasts an increase in sales for the upcoming quarter, you’ll need to ensure that you have the available resources to fulfill your closed deals.

It’s also used to give business owners and managers an idea of the revenue that will be generated over a certain time period. This is helpful to determine whether or not additional sources of revenue are needed to achieve financial goals or to cover expenses. If your sales forecast shows that you will be above or below your goals, you can take corrective action to increase sales or make plans to reinvest additional revenue.

Sales forecasting can help you become more familiar with factors influencing your sales process while keeping those areas top of mind as you’re executing your sales plans. For instance, if you’re predicting a seasonal decline in sales, you can factor this into your forecast, do research to figure out the exact key drivers, and plan to counterbalance this. If your sales decline in the summer, you can find additional customers still around to fill in the gap.

Why Sales Forecasting Matters

Sales forecasting is a key indicator when measuring how the business is performing overall. Because the exercise gives you a way to estimate how much revenue to expect within a certain timeframe, it can indicate a need to focus on additional lead generation strategies or develop new sales incentives. A sales forecast is also critical to have when applying for a small business loan or determining if the time is right to expand.

Sales forecasting is also important for staff and sales reps because it helps project how close you are to reaching sales targets. For salespeople, the forecast often is tied to compensation and can indicate if you’re on track to getting any bonuses, incentives, or winning any competitions. When used for this purpose, you can create strategies to prioritize the deals that will help you achieve your personal goals.

Sales Forecasting Techniques & Strategies

The most common type of sales forecast is trend-based where your sales forecast is based on trends or historical sales performance. There is also sales intelligence-based where you meet with your sales team and use their sales predictions based on opportunities in their pipelines or that may exist in their territories. And finally, there’s deal-based forecasting where you forecast sales deal by deal based on likelihood to close.

Below are more details of each type of sales forecast:

Trend-based Sales Forecasting

Trend-based sales forecasting is based on past sales performance. You look at past performance and make predictions about the future based on trends you see. For more accuracy, consider industry and local trends as well. Just about any small business can use this technique.

Sales Intelligence Sales Forecasting

Sales intelligence sales forecasting is where you rely on your sales teams’ ability to read their territories or books of business and their prospects or customers. This type of sales forecast is based on sales they think will close based on what they know. This technique can be used by any small business whose sales teams are in tune with their deals and books of business.

Likelihood to Close

Likelihood to close is a type of deal-based sales forecast where you go through your pipeline deal by deal and base future sales on deals likely to close and the dollar value they are likely to bring in. This technique is great for businesses with salespeople who have good instincts about the likelihood of their deals to close.

The type of sales forecast you create depends on the type of business you have and what you’re looking to achieve. Many sales forecasts use a number of ways to come up with the most accurate sales forecast. The most important thing is to know what your purpose is and to use a step by step approach to predict future sales. For more details and even a sales forecasting template, check out our sales forecasting template.

How to Create a Sales Forecast

Creating a sales forecast requires you to identify key metrics that support what you’re trying to achieve. For instance, a company that sells appliances and installation services should consider factors like the number of appliances to order and the number of installers to hire. Key metrics would be number and type of appliances and installations sold.

After establishing the purpose of your sales forecast, you’ll want to gather key metrics and data, pinpoint key sales and marketing activities that could drive sales and determine the scope of your forecast. After doing this, you’ll be ready to layout and calculate your sales forecast either in a spreadsheet or make adjustments in your CRM. For a deeper dive, see our article on creating a sales forecast that includes a sales forecast template.

Here are six general steps you can use as a guideline for creating your own sales forecast:

1. Determine the Purpose of Your Sales Forecast: Establish why you are doing a sales forecast and get clear on what you want to achieve. This will determine the nature and scope of your sales forecast.
2. Review Historical Sales Data: Review your relevant historical sales data to identify patterns you can use in your current sales forecast.
3. Gather Relevant Industry Data: If your industry is growing or declining year over year, and most industry analysts have solid predictions about growth or decline, you’ll want to incorporate this information into your sales forecast.
4. Pinpoint Internal Activities That Directly Impact Sales: Internal activities such as marketing campaigns, downsizing your sales staff, or closing retail locations will have a direct impact on your sales. Your sales forecast should take these things into consideration.
5. Determine the Scope of Your Sales Forecast: Define the period of time your sales forecast will cover, whether it’s for one year or one quarter. Also, decide what product line or sales team your forecast will cover. Whatever you decide, ensure it supports your forecast objectives.
6. Layout & Calculate Your Sales Forecast: Once you understand the scope of your forecast and the factors that could impact it, decide on the layout for your sales forecast, or how the information will be displayed, whether in a spreadsheet using graphs or on a Kanban board.

These six steps can be used to create a sales forecast, but the best way to create one is to customize these steps and perhaps add or subtract steps of your own so that the process reflects how your business works. There are as many types of sales forecasts and ways of creating them as there are businesses.

Tools for Sales Forecasting

There are many tools for creating sales forecasts. If you have programming skills, you can use a program like Python to create a sales forecast. If not, the tools most people use to create sales forecasts are Microsoft Excel, Google Sheets, CRM or analytics software with sales forecasting features.

Below are additional details on the primary tools used to create sales forecasts:

• Microsoft Excel or Google Sheets: Microsoft Excel or Google Sheets allow you to affordably create sales forecasts with variables like deal sizes, likelihood to close percentage, and past sales data.
• Analytics Software: You can also use analytics software with forecasting features to create a sales forecast. Software like Zoho Analytics allows you to do this with forecasting algorithms along with your past sales data.
• CRM: A CRM houses all of the data you’ll need for sales forecasting and uses automation to create sales forecasts.

Pipedrive CRM offers a sales forecasting view known as a dashboard which displays deals won, lost, or upcoming. You can also get a snapshot as to whether or not there are tasks that are past due that may be preventing deals from being won without leaving the tool. This view is great for salespeople looking for a quick snapshot of deals won, pending, upcoming, or lost.

Pipedrive CRM Sales Forecast View

An added benefit of Pipedrive’s visual sales forecast is you can quickly see which deals require specific action that can move it closer to being a deal closed. You can also add or edit activities within your deals right from the Sales Forecast dashboard.

Mark deals as won or lost in the Sales Forecast view

In Pipedrive’s Sales Forecast view, you can mark deals as won or lost with a click of a button. The dollar value in your Deals Won and Deals Lost categories will automatically update. To learn more about Pipedrive’s visual pipeline tool or how it can be used to help improve sales forecasting visit its website and sign up for a risk-free trial.

Visit Pipedrive

Factors to Consider in a Sales Forecast

Both internal and external factors should be considered when doing a sales forecast. Internal sales factors include past sales, current deals, deals won, and marketing initiatives. External factors include economic environment, competitive environment, and seasonality. These factors have an impact on sales and should be taken into account when doing sales forecasting.

Here are more details on a few of these factors:

Internal Sales Factors

• Past sales: Look at past sales and use them as a benchmark for future sales.
• Current deals: Deals currently in your pipeline can have an immediate impact on short-term sales. Look at things like likelihood to close and timing to influence your sales forecast.
• Deals won: Evaluating the deals you’ve won can help you recognize any commonalities that could affect how you target and pursue prospects or how you close pending deals.
• Marketing initiatives: Specific marketing initiatives like lead generation, advertising or promotion influence sales. Factoring this in can help you plan whether or not to increase or decrease sales depending on when and if you execute these activities.

External Sales Factors

• Economic environment: Some industries sales either increase or decrease depending on the economic climate. Factoring in reliable sources of economic data can help you plan for, take advantage of or counteract expected economic changes.
• Competitive environment: What your competition does can impact your sales. Factoring in and creating plans to retain your customers while competitors are trying to lure them is key in sales forecasting, as you can plan activities to increase or sustain sales.
• Seasonality: Seasons can either drive increases or decreases in sales depending on your industry. Knowing your seasonal patterns and how they impact business can help you plan activities to counteract declines or take advantage of upswings.

Frequently Asked Questions (FAQs)

What is a sales forecast example?

A sales forecast example is when you’re asked to do a sales forecast for an upcoming quarter and you project that you will get an additional 300 sales based on the number of sales you had the previous year in the same quarter, seasonality, and current marketing initiatives.

What is the best forecasting method for sales?

The best forecasting method to use for sales is driven in part by your industry and the method you’re most comfortable with.

How do you accurately forecast sales?

Sales forecasting is part art and part science. The most accurate depends on data and intuition. Staying in tune with your sales team and using key data you have will help you create a sales forecast that is as accurate as it can be.

Bottom Line

Sales forecasting is helpful in predicting the number of, and revenue tied to, sales for a specified period of time. It can be done using Excel, but a better, more efficient way of doing a sales forecast is by choosing a CRM, like an analytical CRM that comes with sales forecast automation features. See our article where analytical CRMs are covered.

Pipedrive is a CRM that comes with advanced reporting tools like built-in sales forecasting. However, Pipedrive, not only helps forecast sales quickly, it also lets you view the activities you need to complete to close deals on a highly-visual and easy-to-use Kanban board. To try sales forecasting from within Pipedrive, sign-up for a free trial.

Visit Pipedrive