There are few universal truths in the business world, but one of them is this: Planning is required for success.
There was a time when accurate planning of sales for the year would enable you to budget, hire staff, determine how much marketing you could afford, and better understand where your revenue was coming from. These days, this information now barely scratches the surface of what you can get out of an accurate sales forecast. Building a sales forecast model—particularly one informed by AI—can give you and your business deep and undiscovered insights. The information you get from a forecast allows your business to find new revenue opportunities, close deals faster, and increase your bottom line.
Accurate sales forecasting is an invaluable tool for any business. AI sales forecasting can take that idea one step further, highlighting the importance of sales forecasting to your overall business model.
The Benefits of Sales Forecasting
Accuracy in sales forecasting requires you to answer this critical question: Why is sales forecasting important?
The benefits of sales forecasting can make a significant difference when planning your revenue, identifying white spaces, and finding key decision-makers within a prospective customer. If you are wondering about the benefits of sales forecasting, you need to look no further than your bottom line.
Push Your Team
Imagine this scenario: You are in charge of a large sales division and trying to motivate your team. What sounds better:
- “Come on, everyone, let’s…do better this year!” OR
- “Hey, guys and gals, if each of you sells 10 percent more this year, we can meet our quarterly goals and get a bonus!”
Specific goals can motivate a team more than amorphous ideals of improvement. When trying to get your team to move the business forward, you need clear goals informed by actionable data. These goals ensure everyone knows what they need to do and what part of the goal they are responsible for meeting. The benefits of sales forecasting can spill over into motivating your team. Accurate sales forecasting helps ensure your team knows what they need to do to improve business.
At its core, this is one of the reasons why sales forecasting is so important: It can bring a team together and force them to identify ways to improve your business and make it more functional than ever.
Get the Pulse of Your Business
You see a doctor regularly to make sure you are healthy. Before setting health goals, like losing weight or reducing your blood pressure, your doctor will conduct a series of examinations and tests to determine reasonable goals over a certain period.
That’s what a sales forecast does: it allows you to get an accurate pulse of your business by forcing you and the rest of your team to examine data, sales pipelines, and expenses. A sales forecast lets you see your business is healthy while developing realistic goals.
Create an Early Warning System
Forecasts can last over time but usually don’t extend more than a year. You can benchmark your KPIs and revenue against the forecast during that period. Failing to meet that forecast may indicate something is wrong with your business. As such, a sales forecast helps you find out if something is wrong. It acts as an early warning system, giving you and your business the chance to change staffing, marketing, operations, or more.
Informs Financial Decisions
Accurate sales forecasting isn’t just a broad overview. One of the chief benefits of sales forecasting is that it enables your business to get granular detail about how revenue will come in, when that revenue will come in, and what the source of that revenue will be. You can use this data to predict payments and how those payments will impact your finances. As such, you’ll be able to make more accurate decisions about credit, financing, cash flow, and staffing.
Steps to Preparing a Sales Forecast
Once you understand why sales forecasting is essential, you must learn to build an accurate sales forecast model. Doing so takes a commitment to devoting the time and resources necessary to find the most advanced tools. You must ensure the engagement of everyone on your team in this process.
Align Your Team, Technology, and Responsibilities
All too often, forecasting is the sole domain of the Chief Revenue Officer and their team, with the occasional assist from sales and marketing. While the CRO may lead this process, the sole responsibility of accurate sales forecasting shouldn’t fall to them.
You have to make sure to break traditional silos and pull in your entire team. Everyone has a role in sales forecasting, and each team member must understand their role. Revenue should be able to pour over the data to determine what money will be coming in and when it will hit the books. Sales can help inform which product lines are likely to grow and what customers may be at risk. RevOps can help determine if your pipeline is growing or shrinking and how this changing sales pipeline may alter forecasts.
It is also critical that you have the right technological tools to allow you to build an accurate sales forecast. AI sales forecasting—like the forecasting solution offered by Next Quarter—can assist in this process. The right tools will allow you to determine how quickly deals will close, how robust your pipeline is, and if your team is all using the same data in building an accurate forecast.
Determine Your Forecasting Method
All forecasting methods are not created equal, and the vast array of available sales methods magnifies the importance of sales forecasting. These methods include the following:
- Opportunity stage forecasting: Examines and quantifies the odds of success of a deal at various stages of the sales cycle. Once you quantify that data, you can place it into your sales forecast.
- Opportunity creation forecasting: Makes revenue predictions based on examining deals in the pipeline and determining which ones are likely to close.
- Length of sales cycle forecasting: First, you determine how long a deal takes to close. For example, if it takes an average of three months, and a deal is two months into the pipeline, you assume a 66 percent chance of successful closure. That data is then added up, multiplied by the average close rate, and turned into a revenue number based on the anticipated revenue you believe each prospect will generate.
- Intuitive forecasting: This is a broad review of each account, added together and turned into a revenue number. It is less data-driven but enables sales and revenue teams to consider other factors and adjust estimates accordingly.
- Historical forecasting: You combine all pipeline data and multiply it against a trend line.
It is worth noting that intuitive and historical forecasting will likely use some form of specific sales forecast that analyzes each sale. They will thus likely follow some form of the following process:
- You will examine how much of your goods and services you expect to sell and the revenue generated from each sale.
- You’ll determine the cost of each sale. This list of expenses should be comprehensive and include ordering, shipping, and staff time.
- You’ll determine the net profit of each sale.
There are vast differences between these forecasting methods, and all have various pros and cons. However, they also have a consistent: You need accurate data.
Manage Your Assumptions
The need to make data-driven assumptions enhances the importance of sales forecasting. Consider the various data points that you’ll have to manage:
- Supply chain consistency and the availability of certain goods
- Your ability to increase profitability within each account
- Staff time, absences, and wages
- Marketing expenses
- Economic conditions at a global, national, and local level
- Legal changes may increase or decrease the availability and popularity of the goods and services you sell
Any changes to any assumptions above can impact your ability to close a sale. More to the point, accurately managing this slew of changing legal and economic conditions is next to impossible without the right technology. AI sales forecasting can help you generate an accurate sales forecast. With the right technology, you can better understand and integrate all these factors into your sales forecast, enabling you to build a better and more effective estimate.
Use Technology to Visualize, Analyze, and Improve
Building a forecast model is not only about having data in a spreadsheet that others don’t understand. In many cases, you need to display data visually for it to be effective. You should have the technology available to display critical information about anticipated revenue, sales, and expenditures within your sales forecast.
Finally, ensure you have the right technological tools to perform appropriate analysis and identify opportunities to improve your sales forecasting. Technological solutions, including AI sales forecasting, can help your business by:
- Better identifying marketing conditions
- Finding white space within an account and noting ways you can increase revenue
- Identifying specific opportunities to increase your ROI
- Enhancing the accuracy of each data point within your forecast
How Can You Improve Sales Forecast Accuracy?
The only kind of effective sales forecasting is accurate sales forecasting. As such, you should strive to improve the accuracy of your forecast. You can do this by adhering to a few fundamental principles:
Have a World-Class, Integrated CRM
Accurate sales forecasting is only possible if your CRM and related platforms are up-to-date. You must de-silo data and ensure that the data you use operates as a single source of truth for all departments. It also means that every data source—including account planning, AI sales forecasting, and pipeline data—is integrated.
Don’t Keep Data—or People—Siloed
Building a sales forecast model means your entire team understands the importance of sales forecasting. Your team should work together to get the most accurate sales forecast possible. From a human relations perspective, you must ensure that different departments within your organization collaborate. This teamwork is only helpful if you have the technological tools to pull information together, analyze it appropriately, and make connections between company sectors.
Removing data barriers allows all departments to have access to real-time data. As such, you can engage in cross-departmental collaboration and ensures that forecasts can be as accurate as possible.
Get the Right Solution for Forecasting and Revenue Prediction
You understand why sales forecasting is important and why accurate sales forecasting is critical to your business. Now you need to select the right solution to support your team.
That solution is Next Quarter.
Next Quarter is trusted by many on the Fortune 500. It can improve forecasting models by over 97 percent, meaning that this tool can give you deep insights previously unavailable to any human mind. The Next Quarter Platform is native to Salesforce, meaning you don’t have to have to leave your CRM environment. All of your data stays within Salesforce. Finally, Next Quarter adapts to the sales methodology of your choice.
At Next Quarter, we believe in creating a solution that works for our customers, where they are at. As a revenue intelligence solution built by a former CFO and CRO, we understand your challenges and are here to help.
Want more information? Contact Next Quarter today to book a demo and learn how we can help your business grow.