Blog 5 tips to improve sales forecasting

A number of recent studies show that companies with modern sales analysis and forecasting processes enjoys faster sales growth than average.

However, most B2B companies cannot use well-established quantitative forecasting methodologies for lack of the large data sets they require.

If your company falls into this category, there are still easy ways to modernize and improve your sales forecasting. We describe 5 of them below.

1. Structure your sales process

Structuring your sales process as a “pipeline”, meaning into recurrent stages (i.e. “Suspects”, “Prospects”, “Needs Analysis”, “Negotiation”), allows you to measure 2 key indicators:

• The average conversion rate of opportunities from one stage to another
• The average lifespan of opportunities within a certain stage

With these indicators, you can estimate for each opportunity entering the pipeline:

• The probability that it will eventually be signed
• The duration of its sales cycle

This gives you good visibility over the future sales “contained” in your sales pipeline. By associating a specific payment schedule with each opportunity, you can even extend this visibility to the corresponding cash flows. This is called “quote to cash” sales forecasting.

2. Explain each forecast

Behavioral economics teaches us that justifying a judgmental forecast with a simple sentence significantly increases the reliability of the forecast.

To make this practice a natural component of your sales management routine, you only need to accompany updates of opportunity amounts, closing dates or closing probabilities with a rationale for these updates.

3. Specify high and low estimates

Behavioral economics also shows us that for the same event, the average of a high estimate and low estimate is more reliable than one simple forecast. In a commercial context, this tip is interesting but potentially time consuming. We therefore recommend that you use it for your most important opportunities only, to avoid overflowing your sales reps with information requirements.

4. Build sales scenarios

Simulations are strongly encouraged by forecasting theory, mostly for their pedagogical virtues: implicit assumptions, uncertainties and risks are better revealed during the discussion of detailed scenarios than in the creation of ordinary forecasts.

With Excel or traditional CRM software, the construction of such simulations can be difficult. Sales teams using these tools are unlikely to produce frequent, back-of-the-envelope scenarios, but it still remains very helpful for them to meet once a month and:

• Discuss the market trends underlying their sales pipeline and how changes in these trends would affect the pipeline
• Change the amounts, closing dates and closing probabilities of important opportunities and measure the impact of these modifications on the team’s global forecast

5. Follow-up on forecast errors

A forecast error is the difference between what actually happened and what was initially predicted. Following the evolution of forecast errors in time is an efficient way to improve your forecasting: this may seem obvious, but very few companies dot it.

To implement this tip, you must at a minimum note for each opportunity:

• The first estimated closing date and the actual closing date
• The first estimated amount and the actual closed amount

This task is actually pretty easy. It is true that Excel and traditional CRM software don’t make it any easier, but in the end it is really worth it: there is nothing better than tracking forecast errors to get sales management back on track.

Good luck!