Sales forecasting can play an important role in business success. It impacts decision-making and revenue planning and identifies sales marketing gaps. The process of sales forecasting estimates future sales or revenue based on marketing trends, historical sales data, and other external factors that affect business, such as changes in the regulatory or political environment. The information from a forecast allows businesses to plan and make informed operational decisions.
Sales forecasting should not be confused with setting sales goals. A sales forecast estimates what the future might look like based on data or evidence, while a sales goal is what a business wants to happen. Sales forecasts rely on historical data, the current sales pipeline, and industry trends.
The key purpose of sales forecasting is to help predict sales performance. The predictions enable businesses to understand how much revenue is likely to be generated in the next forecast period, whether it be a month, quarter, or year. This opens up opportunities for better resource allocation between different divisions or departments.
Accurate forecasting done through a review of past sales and business operational costs can provide insight into future revenue based on anticipated upcoming sales. When combined with customer feedback and recommendations from sales marketing experts, forecasts can be more reliable. This aids informed strategic planning decisions.
Through sales forecasting, a business can predict short- and long-term performance to enhance planning. In addition, when business revenue estimates are based on predicted performance, both short- and long-term, a business can expect to accurately predict and deliver payments. This increases confidence in a company’s short-term performance, meaning it can receive better terms when seeking credit if the need arises.
Regular and systematic sales forecast reviews are useful for identifying weak points and guiding remedial actions. A comparison between forecast sales and actual performance helps a company to evaluate how well it’s meeting business or strategic goals. This is also an opportunity to review and align marketing efforts, staffing, and operations.
A business can, for example, based on projections, make workflow adjustments when it comes to buying or using raw materials and planning product creation levels. Decision-makers can know when to boost or decrease production to ensure resources are used most efficiently. Sales forecasting is also helps to identify and mitigate potential risks, such as seasonal slumps in sales.
Predicting demand through sales forecasting, for example, can help an enterprise keep adequate inventory levels to prevent over- or under-stocking, which can impact the bottom line. Also, an accurate sales forecast can guide a company’s hiring efforts, thus reducing the risk of over- or under-staffing, optimizing the funds spent on employees.
The Aberdeen Group estimates that 97 percent of companies that leverage industry-leading forecasting processes tend to reach the set sales quota target. With clear business goals backed up by an accurate sales forecast, the sales and marketing managers can give the sales team specific target based on actual market conditions.
For example, rather than asking the sales team to simply increase sales, it could be something more specific, like aiming for a 10 percent revenue increase compared to the previous year. This way, the sales forecast acts as the roadmap that gives the sales team a sense of direction.
