Sales forecasting is a systematic process involving numerous business functions. The steps are analyze the market, collect data, make assumptions, select technique, adjust for unknowns, and test the forecast. Watch this video to learn how you can apply these steps.
- Sales forecasting is a systematic process, and it involves various business functions. That's why the first step in the process is to create the right team to help you. Working in teams gets all the departments aligned around the forecast. So who needs to be involved? Well of course, most companies will rely on the sales management team. After all, they're the ones who manage the frontline sales reps day-to-day. They have a lot of insight about your customers and competitors that can be used in forecasting.
But believe it or not, your sales team may not be the right group to do forecasting. Why? Well, you may be in an industry where other departments, like marketing, have better insights to develop the forecasts. Typically, your cross-functional forecasting team should include finance. They have lots of data about past sales results, and the spending in various areas to achieve those results. Marketing, they bring important insights about market trends, marketing strategy, buyer behavior, targeting and positioning.
You need this information to assess the likelihood of converting prospects to customers. And operations, I like to involve my operations colleagues, because they have an innate sense of how the business flows. After all, they're the ones delivering the product or service, and I believe they have, like, a sixth sense about what's coming through the pipeline. I suggest you keep them involved. Once you've identified the key players on your team, make sure they're aware of your planning schedule, and that they know their role, and they know the expectations that you have for each of them in developing a great sales forecast.
So here are the steps. First, analyze the market. What category are you in? How big is the market, and what are the trends and dynamics affecting future outcomes? Next, collect data. You need to collect only the data that is relevant to the forecast. You also need to account for data you would like to have but don't. For that, you need to make assumptions. Next, decide on the technique you'll use.
Qualitative, quantitative or a combination of the two. Finally, you need to pressure test the forecast. Run your forecasting model through past sales cycles, and see how it performed. Are there adjustments you need to make to fine tune the forecast? Great forecasts don't happen with a role of the dice. They're the result of a disciplined, cross-functional approach with you and your colleagues.
- Understanding the sales forecasting process
- Defining your market category
- Understanding market dynamics
- Selecting a forecasting technique
- Using quantitative forecasting
- Understand moving averages
- Using qualitative forecasting
- Using estimates from customers, sales reps, and distributors
- Using a panel of experts