The Ultimate Guide to Sales Forecasting + Free Template

Sales forecasting involves estimating future sales or revenue. It’s done by examining past sales performance while considering upcoming campaigns, initiatives, or marketplace trends. You can forecast sales by multiplying the value of your sales pipeline by the probability of closing those deals, or by multiplying your historical periodic performance by your current growth.

Using a customer relationship platform (CRM) is key to forecasting and tracking sales. For example, HubSpot CRM includes a set of free essential sales reports out of the box, including deal forecasting, sales performance, and productivity. Visit their website to sign up for a free account today.

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Free Sales Forecast Template

If your CRM does not offer built-in sales forecasting, a spreadsheet can be used to create a sales forecast manually. While this method can be more time-consuming as data has to be manually entered, this method does allow businesses to create a custom forecast specific to their needs. To help you get started creating a sales forecast using the spreadsheet method, we have created a template you can use to speed up the process.

Download the free 1-year sales forecast template: PDF | Excel | Google Sheet

Download the free multiyear sales forecast template: PDF | Excel | Google Sheet

How Sales Forecasting Works

Sales forecasting works by calculating your future revenue based on multiplying the value of the sales opportunities in your pipeline by the probability that each deal will close. 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 an important part of any sales management strategy as it gives 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 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 prospect additional customers to fill in the gap.

Sales Forecasting Techniques & Strategies

There are three common types of sales forecasting. The first is trend-based, which is where your results are based on historical sales performance. There are also sales intelligence-based forecasts, where you meet with your sales team and use their sales predictions based on opportunities in their pipelines or that may exist in their sales territories. Finally, there is deal-based forecasting, where you forecast sales deal-by-deal based on their likelihood to close.

Here are more details of each type of sales forecast:

Trend-based Sales Forecasting

With trend-based sales forecasting, you look at past performance and make predictions about what your revenue could look like in the future. This helps businesses determine sales growth, plan for potential losses, and come up with strategies for boosting sales based on what has happened in the past.

Intelligence-based Sales Forecasting

Sales intelligence forecasting is where you rely on your sales reps’ knowledge of their current opportunities. This type of sales forecast focuses on predictions based on input from sales reps and where their deals are in the sales pipeline. However, its accuracy isn’t always consistent because it’s based on how well your team predicts deals will close.

Deal-based Sales Forecasting

Likelihood to close is a type of deal-based sales forecast where you go through your pipeline deal by deal and base future projected revenue on deals likely to close. It uses historical data to estimate how much revenue you should expect within a certain time period.

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 variety of strategies 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. To jump-start the process, check out our sales forecasting template.

How to Create a Sales Forecast Within Your Sales Pipeline

If your sales management process involves moving deals through a series of pipeline stages, one of the simplest ways to forecast sales is to evaluate the likelihood of winning the deals currently in your pipeline and determining the value overall. The three primary variables in this model are the time period you are forecasting, the total value of deals at each stage, and the probability of winning those deals.

Here are the six steps on how to forecast sales for your pipeline:

1. Evaluate Your Sales Cycle

If you haven’t already broken your sales cycle into specific stages, look at how you currently interact with deals and determine the stages of your sales pipeline. For example, you may have a simple cycle that includes the following stages: Incoming Deal, Qualified, Proposal, Negotiation, and Won/Lost. These stages are defined by specific action steps that you take to keep the deal moving forward.

2. Examine Historical Sales Performance

This can be based on specific pipeline stages or seasonal sales, depending on your sales cycle. For both, look at what your previous sales have been for each stage or time frame. This helps you determine the probability of your current sales pipeline converting into sales revenue, or in the case of consumer products, it helps you evaluate your peak sales opportunities.

As you look at your past sales, look for how your performance changes over time, and how the probability increases as you move a deal through your sales operations. This will help you assign the right weight to each stage and give you a better picture of what a deal is worth throughout your pipeline.

3. Determine Your Time Frame

The difference between your pipeline value and a sales forecast is that a forecast is connected to a specific time frame you want to measure. Businesses commonly use sales forecasting to help them prepare for expected sales in the next month, next quarter, or even the next year. In order to determine your forecast, you’ll have to decide which time frame you want to measure.

For example, to determine the next month’s sales forecast, you would select all of the deals that are expected to close. If you wanted to know what your forecast is for this quarter, you would include all of the deals closed so far, as well as the forecast value of the deals expected to close during the remainder of the quarter. Regardless of when you want to forecast sales, you have to start by defining the range of time you want to include.

4. Add Up Deals by Stage

Once you’ve chosen your time frame, you can look at the deals in your pipeline that fall within it and add up the value of each stage. The reason it’s important to calculate the value by stage is that each stage represents a different probability of closing. In order to get an accurate forecast, you need to make sure you reflect that probability within your calculations, but first, we have to start with knowing what the value of deals is by stage.

5. Multiply by Probability Factor

For each stage, you now multiply the total dollar amount you added by the probability factor to determine the actual forecast value of deals in that stage. For example, if you have $1,000 worth of deals in the “Proposal” stage, and you generally close deals in that stage 55% of the time, your forecast value for that stage is $550 ($1,000 x 0.55).

6. Calculate Your Total Pipeline Value

Once you’ve determined your stages and the probability of closing a deal at each stage, you can use that information to calculate your pipeline value. This lets you forecast future sales based on the estimated closing date, the probability of winning the deal, and deal value. The simplest way to do this is to look at all of the deals that are expected to close within the time frame you are forecasting, add up each stage’s value, and multiply them by the probability factor.

As an example, let’s say you have five active deals. For simplicity’s sake, we’ll say they are all worth $1,000. Two of them are in your proposal stage and have a probability factor of 55%, and the other three are in your negotiation stage, to which you have assigned a 75% chance of closing. You would add up the first two deals and multiply the total by 0.55, for a total of $1,100.

($1,000 + $1,000) x 0.55 = $1,100

Next, add up the other three deals, and multiply by 0.75 for a total of $2,250.

($1,000 + $1,000 + $1,000) x 0.75 = $2,250

Finally, add up the totals to get your sales forecast of $3,350.

$1,100 + $2,250 = $3,350

Notice that while the total value of your deals is actually $5,000 if they were all to close, your sales forecast is $3,350 based on the likelihood that you won’t win every deal. This formula can be used for any sales pipeline—you’ll just have to calculate for each stage and then add up the totals, or use a CRM to do the math for you.

How to Create a Sales Forecast for Transactional Sales

While these steps can help you create a forecast, it’s important to understand that it isn’t an exact science. There are a variety of ways to calculate sales forecasts for seasonal and business-to-consumer (B2C) businesses, and we’ve tried to provide a simple way to approach predicting your sales forecast. To make sure that your forecast is accurate, start by establishing why you are doing a sales forecast and then gather relevant data that impacts your sales.

After you determine the scope of your forecast, you’ll be able to lay it out in a way that keeps your team focused. You’ll also be able to anticipate and prepare for fluctuating sales that come with seasonal and consumer-driven businesses.

Here are six steps you can follow to forecast B2C sales:

1. Set a Purpose for Your Sales Forecast

Before you start creating your sales forecast, it is important to ask yourself how you intend to use it. Are you trying to identify trends in your sales that might need to be addressed? Are you looking to prepare for peak seasons, or determine whether your sales will support hiring new employees? Determining a purpose for your sales forecast will inform the information you need and how you can best predict future sales activity and revenue.

2. Evaluate Your Sales Data

Take a look at your current and past sales performance to provide a starting point for your forecast. Past sales data can help you see where seasonal peaks and valleys exist and help you know what to expect. For example, if you’re located in an area where tourists flock in the summer, you’ll see how your sales are affected both during the summer and out of season.

Likewise, if you are currently seeing an increase or decrease in sales this year, you’ll want to factor that into your sales. If you are currently seeing an increase of 5% in sales each month, that may directly impact your sales forecast for future months, regardless of the time of year.

3. Look at Relevant Outside Factors

As you consider your current sales trends, look at what market forces might be causing an increase or decrease in sales. For example, if your industry is currently experiencing dramatic growth or contraction, or if new competitors have moved into your market, your sales forecast will be affected by these external factors. It can be difficult to know exactly what impact market forces will have on your business, but you’ll need to consider them as you forecast sales.

4. Look at Your Sales & Marketing Activities

Internal activities, such as marketing campaigns, downsizing your sales staff, or closing retail locations, will have a direct impact on your sales. These activities should be considered in sales forecasts. For example, if you expect to see 20% growth in the spring following an email marketing campaign, make a note to include that in your forecast.

5. Determine Your Forecast Time Period

Consider the time frame for which you want to forecast sales. You’ll need to decide whether you are forecasting sales for the next month, next quarter, next season, or year. Generally, it’s important to choose as narrow a time frame that will still give you the information you need. If you choose too wide a window, you may create too general a forecast, and it may not be helpful.

For example, if you’re planning staffing for the next month at your coffee shop, forecasting sales for the next quarter isn’t helpful. On the other hand, if you are looking at how many employees you’ll need to hire, that forecast becomes more relevant. If you’re looking to expand to a new location, you might forecast the next year’s sales to determine if it’s something you can afford.

6. Calculate Your Sales Forecast

There are a variety of complicated formulas to forecast sales, but as a principle, you should try to keep it as simple as possible in order to be useful to you and your business. Taking into account the outside factors that affect your business, you can calculate your sales forecast using a relatively simple formula. Multiply your current sales by your current growth trend, and then account for seasonal variations.

Here’s what that looks like to calculate a sales forecast for a specific month:

Let’s say you’re a coffee shop and your current average monthly revenue is $10,000. This year you’ve seen that your sales are growing by 8%, and based on both internal and market forces, you expect that to continue. You want to calculate your sales forecast for your busiest month, December, to make sure you have enough staffing when people are out holiday shopping. Generally your sales are 20% to 30% higher that month. In this case, the scenario looks like this.

(Current Average Monthly Revenue x Current Growth Rate) x Seasonal Variation = Monthly Sales Forecast

or

($10,000 x 1.08) x 1.2 or 1.3 = $12,960 or $14,040

This forecast will give you an idea of what types of sales you can expect based on how your business is currently performing, your current growth rate, and the factors that affect your business, like seasonality. One good practice is to regularly update your sales forecast as new information becomes available or as new market forces impact your business.

Factors to Consider in a Sales Forecast

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

Internal Sales Factors

There are several internal factors all small businesses should consider when creating a sales forecast. A few examples include:

• 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 the 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

In addition to your internal organizational sales factors, you have to adjust your expectations for your sales forecast according to external sales factors. These are outside of your control, so you should be aware of them and adjust your forecast appropriately. External factors include things such as:

• The 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.
• The competitive environment: What your competition does can impact your sales. Factoring in and creating sales 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 strategies to counteract declines or take advantage of upswings.

Why Sales Forecasting Matters

Sales forecasting is a key indicator when measuring how the business is performing overall since it gives you insight into your upcoming revenue. For example, it can help indicate a need to focus on additional lead generation strategies or develop new sales incentives. Here are a few instances where sales forecasting can play a key role in your small business:

• When you’re applying for a small business loan
• If you are determining if it is time to expand and hire more staff
• When you are deciding how to compensate and reward sales reps
• When you are developing incentives and competitions for your sales team

Sales Forecasting Tools

The tools most businesses use to create sales forecasts are Microsoft Excel, Google Sheets, your CRM, and other sales analytics software with forecasting features. Below are additional details on the primary tools used to create sales forecasts:

• Microsoft Excel and Google Sheets: Microsoft Excel and 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.
• Customer relationship management software: A CRM houses all of the data you’ll need for sales forecasting and uses automation to create sales forecasts, communications, track deals, and more.

For example, HubSpot CRM offers a sales dashboard that shows the amount of forecasted sales revenue for the deals currently in your pipeline based on their stage. However, as with any CRM that offers sales forecasting, it’s imperative that your sales reps place each opportunity into the right stage to ensure your forecast is as accurate as possible.

HubSpot sales dashboard example

Frequently Asked Questions (FAQs)

How far into the future should I forecast sales?

Your time frame for your sales forecast is dependent on what you are using it for. If you are trying to schedule employees, you are probably looking into the next month. On the other hand, if you are making plans about whether to hire or expand, you might look into the next quarter, or even year. Keep in mind, however, that the further into the future you forecast, the less precise it will be since it is harder to account for external circumstances that may change.

If I’m just starting out, how should I forecast sales?

If you don’t have large amounts of historical sales data to compare to, you can still forecast sales. Generally, the more past data you have, the further you can forecast into the future. If you’re just starting out, your forecast will vary as you look far into the future, but you can still give yourself a rough baseline to predict sales based on the formulas we provided.

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 the key data you have will help you create a sales forecast that is as accurate as possible.

Bottom Line

Sales forecasting is helpful in predicting the amount of revenue tied to your 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, such as an analytical CRM that comes with sales forecasting automation features.

For example, HubSpot is a CRM that encourages transparent communication, tracks deals, and comes with a sales dashboard to help you forecast revenue over a specific period of time. Visit their website to sign up for a free account today to create a visual sales pipeline and robust sales forecasts.

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