Sales Forecasting 101: Methods To Predict Revenue

Long-term thinking and evaluation are enormously rewarded in sales. Businesses often employ various evaluation methods to enable their brand to make better decisions for both the short and the long term. Everything that affects cash flow, such as hiring, goal-setting, and budgeting, needs to be considered when you make plans for the future. The tracking that is often most lacking in this picture is sales forecasting. 

An inaccurate sales forecast can inhibit the growth of your business and blurs the vision for the future. In this article, we will tell you what sales forecasting is and what methods you can use to predict your revenue. 

What Is Sales Forecasting? 

To put it briefly, sales forecasting refers to predicting your future revenue, and each prediction is called a sales forecast. A sales forecast takes relevant factors such as current status, data, and industry trends into consideration for every estimate. A sales forecast allows you to prepare in advance. 

Now let’s look at some methods by which you can forecast your sales and predict future revenue. 

6 Methods Of Sales Forecasting 

There are several sales forecasting methods for you to choose from. You can even use more than two at a time for better performance. This allows you to look at future revenue from multiple perspectives.  

1. Length of Sales Cycle Forecasting

This forecasting methodology takes into account the amount of time a lead takes before converting into a customer i.e., a sales cycle. For instance, if an average sales cycle of your brand lasts two months and your sales rep has been on that cycle for one month, then there is a 50% chance that your sales rep will convert the prospect. 

This methodology is beneficial as it’s very objective and doesn’t take into account any subjective factors such as the opinions of your sales team. 

2. Lead-driven Forecasting

As the name suggests, this forecasting method is concerned with lead sources. Lead sources are analyzed, and a value is assigned to these leads based on what similar leads your brand has dealt with in the past. This value then determines the probability of the lead converting into your customer. However, to apply this method, you need a lot of information. 

You need to have data on how many leads you get, how many of your leads were successfully converted into a customer from the same source etc.

3. Opportunity Stage Forecasting

This forecasting method is reliant on your sales funnel for making predictions. You can make this forecast by finding out the sales stage your prospect is currently at. The further down the prospect is in your pipeline, the better your chances of closing a deal become. Keep in mind that each brand has its own stages of a sales funnel. 

This method isn’t that accurate on its own because it does not take into account other data such as prospect’s demands and budget. 

4. Intuitive Forecasting

This method is also very popular. This sales forecasting technique relies on the data provided by your own sales rep. You can simply ask your sales rep whether the prospect will convert into a client or not. Since sales reps are the ones doing the client outreach, they’ll know the nuances of the client deals. 

Keep in mind that this sales forecasting technique depends on how trustworthy your sales rep is and how much he knows about a particular prospect. 

5. Test-Market Analysis Forecasting

As the name suggests, this forecasting strategy works by sending out your product or service to a certain niche depending on geography or another kind of segregation. Then you see how well your product your service perform in that niche. The results are then studied by your sales team and allows you to build future strategies regarding your products and services. 

This strategy is quite effective as it allows you to see in advance how well a particular product or service can perform in the market.  

6. Historical Forecasting 

This is probably the most simple form of a sales forecast. You simply evaluate future revenue based on past sales. For instance, if your past sales for a month were $20,000, then you can expect the same amount for the next month. However, this method is susceptible to the ever-changing nature of the market. 

You can still use this method as a starting point. 

The Key Takeaways on Sales Forecasting:

A sales forecast is one of the best strategies for ensuring success in the market. For best results, you can use two or more sales forecasting techniques in conjunction. This will allow you to remain objective in your approach and eliminate weak points in your sales funnel. 

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