Sales Forecasting Guide: 3 Ways to Create a Sales Forecast

Sales forecasting is the process of making educated guesses about a company's projected sales. From startups to small businesses to large corporations, companies rely on sales revenue to fund the various sectors of their business plan. In order to budget for a company’s future, executive leaders need an accurate sales forecast.

Sales forecasting is important because businesses measure their health in part based on their total sales. Publicly traded companies keep their sales data open for public scrutiny. New businesses seeking startup cash or venture capital investment must demonstrate an acceptable growth rate and sales potential, and the forecasting process lets that company present such metrics to investors.

Sales forecasting is also important because, absent major injections of venture capital, the sales pipeline is a company's one reliable source of revenue. Companies simply cannot budget for the next year, or even the next month, without accurate sales forecasting methods.

Sales forecasting provides many benefits to new businesses and established companies alike.

1. 1. Accurate budgeting: A thorough sales forecast provides cash flow projections. It also helps set the budget for other departments, including marketing.
2. 2. Ambitious goals: A forecast helps sales reps set future sales goals and customer conversion rates within a given time period.
3. 3. Foresight: Sales forecasting models can predict fluctuations in the market, from seasonality to long-range sales cycles.
4. 4. Customer relationship management (CRM): Sales forecasting combines with market research to help a sales team better understand a client base, including the pricing, services, and new products they expect.
5. 5. Sales incentives: Setting sales projections can motivate a team. Companies can reward sales leaders for actual sales and can set benchmarks and rewards for salespeople who eclipse their past performance.

You can choose from three primary sales forecasting templates when projecting your business’s future.

• Naive forecasting: If you are operating a relatively new business, such as a startup with few full-time employees, you may need to forecast month-to-month or quarter-to-quarter with a technique called naive forecasting. In this method, a sales team simply uses historical data from a prior period (such as the last quarter or the last year) to predict unit sales for the upcoming time period of the same length. Naive forecasting does not account for inflation, seasonality, company growth, or company contraction. It simply looks at past sales and projects them toward the next sales period.
• Qualitative forecasting: This sales forecasting method builds upon naive forecasting. It adds qualitative research such as customer surveys, executive team forecasting, scenario planning, predictions from sales managers, and surveys of industry experts. Qualitative forecasting places a premium on expertise, which it factors in alongside the raw data of historical sales.
• Quantitative forecasting: This sales forecasting method also uses naive forecasting as a baseline. However, quantitative forecasting accounts for market change due to seasonality, annual sales cycles, company growth, and population growth. A team can also factor in causal factors in the sales process. For instance, if a company is planning a major marketing campaign, the expected results of that campaign should be factored in alongside past sales data. Other causal factors include shifting consumer taste, changes in competition, and broader macroeconomic trends such as a change in interest rates or a stock market surge.

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