The second component of sales cycle management (SCM) is sales forecasting. Often times, salespeople and sales managers don’t have a realistic view of how many sales they can make during a particular time period. This view makes time spent managing opportunities less valuable and makes a traditional sales pipeline obsolete. What are the benefits of sales forecasting?

When you take the time to forecast, you will be able to analyze past sales, annual growth, and sales and growth compared to industry competitors. In addition to this, forecasting allows you to take a closer look at your price and cost structure, which means you have a better idea of ​​where profits start to act. In other words, a realistic sales forecast can allow you to virtually guarantee profits. When looking at the numbers, the sales forecast is a great way to look at the future from an objective point of view. But how do you go about creating a sales forecast?

The first piece is having an accurate record of past sales. For some organizations this is easy, but for others the record keeping may have been less than accurate. Collect the strongest past data you can, going back several years if possible. From the past and current point of view, it is a good idea to understand what factors, both internal and external, have acted on sales and continue to act on sales. Make a list of these factors, just to make sure they are understood. For example, external factors can range from seasonal demand for the product or service, general economic conditions, the activity of competitors and their product, as well as consumer conditions such as income and employment. But what about internal factors, such as working conditions, organization credit policy, and inventory? Are there any changes to the manufacturing process, price, or production figures at some point? Once you’ve determined what factors are acting on your sales, you can ask more detailed questions about the sales forecast itself.

First, what products or services are you forecasting? Are they grouped or separated? In most cases, it is a good idea to create at least separate groups of products or services for forecasting; In this way, your forecast will start as accurately as possible. Next, ask about the forecast time period. How far in the future can you realistically go? Third, consider the frequency. What is the frequency with which the forecast is actually created and what is the revision and / or revision frequency? Finally, it is a good idea to arrive at an acceptable margin of error based on costs, expenses and profits. The margin of error is also a good test of the realism of the forecast. At this point in the sales forecast, you may need to perform an analytical analysis of your account records, financial statements, sales reports, and after-sales activities. For example, you’ll want to see all the activity that occurred up to the point of sale and afterward to get a good idea of ​​costs and expenses. However, these sales records should be part of your Opportunity Management system.

As you go along, you finally need to determine whether you would like to see a qualitative or a quantitative forecast. In simple terms, quantitative analysis takes into account all the factors that we have discussed and makes an estimate of sales based on those factors. Qualitative analysis will use a mathematical formula to create a number-based sales forecast. If your organization is smaller, you may want to try a quantitative approach first, as a realistic starting point. This is especially true if your finance staff is smaller. In larger organizations with a larger finance staff, a qualitative approach is possible. When looking at these approaches, keep in mind that a stable and consistent product can use a standard mathematical formula to make forecasts. On the other hand, an unstable product can find a forecast in various mathematical formulas.

Regardless of how you decide to go ahead with your sales forecast, you will take a less realistic pipeline and root it in more realistic sales possibilities. Once you have created your forecast, you are ready to move on to the next component of SCM, Account Planning.