Sales Forecasting: A Guide to Grow Your Business

Written by Coursera • Updated on

Discover sales forecasting methods and how calculating a sales forecast can benefit your business.

[Featured image] Two coworkers review sales forecasting data on a large screen display in an open workspace.

What is sales forecasting? 

Sales forecasting is the process of estimating the revenue a company will make during a specific time period, such as a month, a quarter, or a year, usually based on past sales data. Sales forecasting can include predictions of a sales team’s performance in terms of the number of sales the team will make and how a market will respond to go-to-market efforts. 

Sales forecasting is important at all levels of business operations and can help an organization make informed decisions. Sales managers can use representatives’ forecasts to estimate the number of deals that will close. Department directors can use forecasts to predict team performance. Company leaders can share forecasts with board members, stockholders, and stakeholders to inform them of the company’s health. 

Benefits and challenges of sales forecasting

Whether you’re a business owner, a sales leader or representative, a product leader, or a company leader, bringing sales forecasting into your workflow can benefit your business in several ways, including boosting sales and revenue. In addition, you may be able to: 

  • Gain insight into customer behavior. 

  • Understand your organization’s health in numbers. 

  • Plan business moves more strategically.

  • Get better financing from lenders and investors. 

  • Predict how much inventory or supply is necessary for an upcoming sales cycle. 

Along with knowing the benefits of sales forecasting, it’s a good idea to be aware of the challenges associated with this business process. That way, you can anticipate challenges or take corrective action if problems arise. 

One challenge you might encounter within an organization is convincing stakeholders or decision makers to make decisions based on sales forecasts. According to a 2019 Gartner survey, only 45 percent of respondents reported that leaders at their organizations showed confidence in the accuracy of forecasts [1].  

Other challenges include: 

  • Changes to your sales team, such as when people leave or new hires join, necessitating a period of adjustment 

  • New competitors entering the market, necessitating new sales or marketing tactics

  • Updating your current products or introducing new ones, necessitating new go-to-market strategies

Sales forecasting methods

There are different sales forecasting methods you can use to bring more awareness to your company’s sales potential. Explore each of them to find out which ones might work best for your sales goals. 

Opportunity stage forecasting

  • Accounts for where a deal is in the sales process at any given time 

  • Assumes that the further along a deal is, the likelier it will be to close.  

  • Works best when you are not in the process of changing your messaging, products, or sales tactics 

Length of sales cycle forecasting method

  • Accounts for how long sales cycles typically last for different types of prospects. For example, a sales cycle for a referral prospect may be shorter than a prospect who just subscribed to your newsletter. 

  • Uses the time a prospect has been in a sales cycle and the type of prospect to determine the likelihood the deal will close 

  • Works best when you can categorize the different types of prospects your business interacts with and know the typical cycle length for each type 

Intuitive forecasting method

  • Accounts for the opinions of sales representatives who have the most direct interaction with prospects. 

  • Assumes that because of sales reps’ close relationship with prospects, they can intuit how likely a deal is to close. 

  • Works best during later phases of the sales process, when sales reps have gathered more information about prospects’ questions, challenges, hesitations, and needs. 

Historical forecasting method 

  • Accounts for sales performance from a period of time in the past.

  • Assumes that sales in a future period will resemble those of a past period.

  • Works best when markets and buyer demand are steady. 

Multivariate analysis forecasting method

  • Combines other methods, such as sales rep performance, opportunity stage, and historical forecasting 

  • Requires that you update data regularly, in terms of tracking deal activity. 

  • Works best when you use sales forecasting software

Pipeline forecasting method

  • Considers details of each deal, including the opportunity value, the sales rep’s closing rate, and any fluctuations in the sales pipeline

  • Relies on accurate, timely data 

  • Works best when you use sales forecasting software. 

Use these simple formulas, alongside the methods above, to quantify sales forecasts: 

Average monthly sales = total sales revenue / number of months

Possible sales for the rest of the year = average monthly sales x months left in the year

Annual sales forecast = total sales revenue + possible sales for the rest of the year

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How to forecast sales for your business 

Use the following process to begin or improve a sales forecasting process. 

1. Establish a sales process for your team. 

When everyone on your team uses the same process, it’s easier to predict the likelihood that opportunities will close and pinpoint troublespots in the sales pipeline. The sales process should tell team members what actions to take at each stage of the buyer’s journey, from prospecting to closing. 

2. Set team goals.

Having goals for the whole team and for each member will provide a basis for measuring success and predicting the likelihood of success. What do you want to achieve in sales every month, quarter, and year? 

3. Select sales forecasting software.

Invest in software that will measure different factors and help you track sales activity to create the most accurate and useful sales forecasts. Here are some software programs to investigate: 

4. Select a forecasting method.

Once you have a sales process, goals, and software, your next step is to settle on a forecasting method that corresponds to how established your business or team is.

For example, if your business or sales team is new and you have minimal sales history, you might use the intuitive sales forecasting method while still recording and tracking sales activity in your software. In contrast, established businesses with forecasting software, a full sales team, and historical data would do well to use the multivariate or pipeline forecasting methods. 

5. Review prior sales forecasts. 

To set your team up for accurate sales forecasting, look over any sales forecasts from prior sales periods. Where did actual sales match forecasts? Where did discrepancies occur? What factors contributed to either, including sales team performance, use of forecasting software and methods, or seasonal fluctuations in sales? 

6. Request data from other teams. 

It’s a good idea to gather information from marketing, product, and finance teams to inform your sales forecast. 

  • What insights can marketers offer on prospects’ needs, as well as what inspires them to make a purchase? 

  • What new product developments or offerings might affect sales volume in an upcoming sales period? 

  • How does the financial health of the company align with sales goals? 

7. Create forecasts and discuss them with your team. 

Using all the information you’ve gathered in steps one through six, as well as data from your forecasting software, create your sales forecasts. Then, discuss sales quotas and strategies with sales reps. Communicate important learnings to your employer’s decision makers. For example, it might be necessary to return to step one and adjust sales processes to account for an expected fluctuation in sales. 

To see a glimpse of what sales forecasting looks like inside forecasting software, check out this video from the HubSpot Sales Representative Professional Certificate.

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Taking online courses can be a great way to build sales skills, including forecasting, and explore career possibilities. Check out the HubSpot Sales Representative Professional Certificate.

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Article sources

  1. Gartner. “Use Sales Analytics to Improve Pipeline Management and Forecasting, https://emtemp.gcom.cloud/ngw/globalassets/en/sales-service/documents/trends/sales-analytics-improve-pipeline-management-forecasting.pdf.” Accessed September 28, 2022.

Written by Coursera • Updated on

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