The Complete Guide to Building a Sales Forecast

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Sales forecasting is both an art and a science. Take a deep dive in how to forecast like a pro.

Building a sales forecast is both an art and a science. Accurate sales forecasts keep your leaders happy and your business healthy. In this guide, we’ll explain everything you need to know about sales forecasting – so you can get a clear picture of your company’s projected sales and keep everyone’s expectations on track.

We’ve organized this reference guide by the top questions sales teams have about the sales forecasting process, based on our internal conversations and more than 20 years of experience developing sales solutions.

If you’re a sales leader who’s already well-versed in the who and what of sales forecasts, skip to the sections on designing a sales forecasting plan and tools to improve sales forecasts for more relevant knowledge. Sales forecasting has become especially tough in recent weeks and months, so head to the section on what happens to sales forecasts in unpredictable times for more on that.

What is a sales forecast?

A sales forecast is an expression of expected sales revenue. A sales forecast estimates how much your company plans to sell within a certain time period (like quarter or year). The best sales forecasts do this with a high degree of accuracy.

Sales forecasts differ in where they’re getting their inputs – for example, they may rely on sales reps’ intuition or even artificial intelligence (AI). More on that in the section on tools used to forecast sales revenue. But all sales forecasts answer two key questions:

  • How much: Each sales opportunity has its own projected amount it’ll bring into the business. Whether that’s $500 or $5 million, sales teams have to come up with one number representing that new business. To create the number, they take everything they know about the prospect into account.
  • When: Sales forecasts pinpoint a month, quarter, or year when the sales team expects the revenue to hit.
Two Questions Every Sales Forecase Answers:  How Much? and When?

Coming up with those two projections is no easy feat. So sales teams factor in the important ingredients of who, what, where, why, and how to make their forecasts:

  • Who: Sales teams make their forecasts based on who their prospects are. Depending on if their prospects are the actual decision makers or just influencers, the forecast will be more or less exact.
  • What: Forecasts should be based on exactly what solutions you plan to sell. In turn, that should be based on problems your prospects have voiced, which your company can uniquely solve.
  • Where: Where is the buying decision made, and where will the actual products be used? Sales teams see better accuracy when they get closer (at least for a visit) to the center of the action.
  • Why: Why is the prospect or existing customer considering new services from your company in the first place? Is there a compelling event making them consider it now? Without a forcing function and a clear why, the deal may stall inevitably.
  • How: How does this prospect tend to make purchasing decisions? If you’re not accounting for how they do it now and how they’ve done it in the past in your forecast, it may be fuzzy math.
A Sales Forecast Provides Answers For:  Who? Why? What? How? Where?

Some of these elements are rooted in real facts, while others are conjecture. The longer you sell, the better you get at forecasts. That’s why they’re both an art and a science – sales forecasting is a balance of both.

Why is sales forecasting important?

To understand why sales forecasting is so important to business health, think about two example scenarios: one with a car manufacturer and another with an ecommerce shop.

In the case of a car manufacturer, cars take a long time to build. The manufacturer has a complex supply chain to ensure every car part is available exactly when they need to build cars, so the number of cars available to purchase will meet demand.

When you buy something online, whether that’s from a large marketplace or a small boutique, you get a delivery estimate. If your delivery comes a day or a week after it’s promised, that’ll affect your satisfaction with the company – and decrease your willingness to want to do business with them again.

Sales forecasting is similar in both cases. Sales forecasts help the entire business plan resources to ship products, pay for marketing, hire employees, and beyond. Accurate sales forecasting yields a well-oiled machine that meets customer demand, both today and in the future. And internally on sales teams, sales revenue that delivers in its estimated time period keeps leaders and collaborators happy, just like a shipment that arrives on time.

If forecasts are off, the company faces challenges that affect everything from pricing to product delivery to the end user. Meanwhile, if forecasts are on point, the company can make better investments, perhaps hiring 20 new developers instead of 10, or building a much-needed new sales office in a prime new territory.

Who is responsible for sales forecasts?

Each organization has its own sales forecast owners. These are some of the teams who are usually responsible:

  • Product leaders: They put a stake in the ground for what products will be available to sell when.
  • Sales leaders: They promise the numbers that their teams will deliver. Depending on the seniority of the leader, how they forecast varies. For example, first-line managers forecast collections of opportunities, where third-line managers consider a wide set of numbers and traditional close rates to come up with an overall forecast.
  • Sales reps: The report their own numbers to their managers.
Sales Forecast Owners Image

No matter how a company calculates its sales forecasts, the process should be transparent. And at the end of the day, sales leadership has to be responsible to call a number. Whether met, exceeded, or missed, the forecast responsibility falls on them.

Who uses sales forecasts?

Sales forecasts touch virtually all departments in a business. For example, the finance department uses sales forecasts to decide how to make annual and quarterly investments. Product leaders use them to plan demand for new products. And the HR department uses forecasts to align recruiting needs to where the business is going. 

At some level, sales forecasting affects everyone in the company.

What are the objectives of sales forecasting?

The main objective of sales forecasting is to paint an accurate picture of expected sales. Sales teams aim to either hit their expected target or exceed it.

When the sales forecast is accurate, operations go smoothly and leaders are pleased with the follow-through on the plan. When the forecast is exceeded, the company gets to decide how it’ll invest the extra money – and everyone’s even happier. At the same time, though, if you’re consistently over, you should adjust your forecast for peak precision.

Outside of just aiming for accuracy, though, sales teams hope their forecasts will achieve two simple objectives: smooth internal and external operations.

  • Smooth internal operations: When the forecast is met, the friction inside the organization – about all the things revenue funds – melts away. Trade-offs and compromises don’t need to be made about things like cutting the workforce, reducing support, or halting product development. Instead, business hums along nicely.
  • Smooth external operations: Every company wants to delight its customers and partners. When forecasts are met and internal operations are flowing as they should be, your company can continue funding external marketing events, staffing ample customer service touchpoints, investing in its community, and more. From the outside, it’s clear that everything inside is working as it should be.

You’ll notice a different (not so great) feeling in the hallways at work when your sales forecast is on the downside – compared to accurate or even on the upside. Your goal is to keep morale and collaboration high with a solid forecast.

How do I design a sales forecasting plan?

Sales forecasting is a muscle, not an item to check off your to-do list. While you should absolutely design a framework for your sales forecasting plan each year, you should also change up your strategies from time to time so new muscles develop.

Craft a sales forecasting plan with your team by focusing on three primary activities:

  • Calculating number and time period: Your plan should explain how you’ll calculate the estimated monetary amount and what the timeframes will be. See the section “How can CRM help forecasting?” later in this guide for more on the tools you can use to do this.
  • Reviewing and revising: You should also plan to review the forecast at key milestones and revise it if necessary. Most sales leaders track progress against their forecast daily! But you’ll also want to schedule designated check-ins throughout the quarter.
  • Breaking the patterns: Even the best sales organizations need to shake up their processes once in a while. Breaking your patterns can help you find new ways of crafting even more accurate forecasting. Try skip-level forecasting, ask different questions, have executive sponsorship reviews, and take different angles of the data.

What happens to sales forecasts in unpredictable times?

Unpredictable events have an enormous impact on your sales forecast. Extreme weather, economic crises, global pandemics like COVID-19 – all dramatically change your forecast. What you thought you knew about expected revenue growth can be suddenly flipped on its head.

As soon as an extraordinary event hits, sales and finance leaders at your company will quickly want to know: 

  • How’s our pipeline looking today?
  • What are the best- and worst-case scenarios?
  • How has the forecast changed from a week or a month ago?

Your forecast implicates resourcing, headcount, and more (see the section on sales forecasting objectives). So although things may be changing quickly, you don’t want to give up on your forecast.

Rather than attempt to recalculate your forecast based on dubious estimates or conjecture, your best bet is to rely on a CRM solution to get an accurate view of deal status and pipeline in real time. 

During a crisis, reps need to feed their CRM with data as events unfold so leaders have clear visibility into the rapidly evolving pipe. That data enables those leaders to support their reps with corporate-level decisions about where they should be focusing their time – and craft the new forecasts. Your forecast is only as good as the data coming into it from your sales teams.

In uncertain times, quick access to sales data and the ability to pivot territories and resource deployment accordingly can make the difference between business continuity and dissolution. There’s no silver bullet to forecast perfectly in a crisis or unforeseen scenario. But vigilantly updating what’s in the pipeline and analyzing sales data more frequently than usual will help you see trends and retool your forecast accordingly.

Empathy and care are always fundamental, but this is especially true in these situations. Empathizing with your customers’ challenges and caring for your own sales reps should come before anything else. Build trust with internal and external partners. That trust will help you grow again in the future. Learn more about maintaining customer relationships as a sales leader both remotely and in times of crisis.

How accurate are sales forecasts?

In our experience, across more than 20 years of selling sales tools, we’ve found that sales leaders tend to be accurate within 10% of their forecast the majority (more than 50%) of the time.

It’s rare for forecasts to be within 5%, but it does happen. If you’re within 5% of your forecast, and you’re dealing with a big number of opportunities, you’re a sales forecasting rockstar.

What tools do you use to forecast sales revenue? And how do CRM systems forecast revenue?

We’re glad you asked. Customer relationship management (CRM) is the best way to forecast sales revenue. A CRM solution helps you find new customers, win their business, and keep them happy. Salesforce is the #1 CRM, giving sales leaders a real-time view into their entire team’s forecast.

Sales Cloud is the part of Salesforce that’s most commonly used by sales leaders. In particular, Sales Cloud forecasts revenue by giving you:

  • An accurate view of your entire business. Comprehensive forecasts in Salesforce come with a complete view of your pipeline.
  • Tracking of your top performers. See which reps are on track to beat their targets with up-to-the-minute leaderboards.
  • Forecasting for complex sales teams. Even if your company has a complex sales organization, Salesforce can help. Overlay Splits allows you to credit the right amounts to sales overlays, by revenue, contract value, and more.

In Salesforce, a forecast is based on the gross rollup of a set of opportunities. You can think of a forecast as a rollup of currency or quantity against a set of dimensions: owner, time, forecast categories, product family, and territory. You can also collaborate on forecasts with all the necessary people. Check out this screenshot of how you’d predict sales with collaborative forecasts.

Screenshot of Predicting Sales with Collaborative Forecasts

In our own internal deployment of Sales Cloud, we use the forecast tab heavily to see how opportunities are stacking up. We drill down into these opportunities by sales leader, operating unit, manager, and individuals.

We also love the reports and dashboards. These highlight where the business challenges are, in plain and simple terms. It could be that four of five selling teams are at the right growth rate, and we just need to focus on another one. It could be that a certain product is challenged. The data opens up new doors to grow our sales and see what could be working more effectively.

Here’s a real look at how a sales executive’s dashboard might look.

Reports and Dashboards Image

Another thing that’s great about a CRM like Salesforce is the guidance from AI. Sales Cloud Einstein provides an objective, unemotional point of view on what’s actually happening in sales. For example, Einstein might note that an opportunity has been pushed out three quarters in a row – a finding that would’ve taken an individual reviewing the data much longer to discover. Einstein is your personal data scientist, taking your forecasting and entire sales operations to a new level.

For example, in the next screenshot, check out how Einstein is giving a sales rep an alert that this opportunity is unlikely to close in time, supported by email interaction data.

Screenshot of Einstein giving a sales rep an alert

How is forecasting better with CRM vs. other methods?

Sales forecasting is significantly more accurate when using a CRM instead of a spreadsheet. When a company is just starting out, sales teams usually rely on spreadsheets or back-of-the-napkin ways to calculate their sales forecasts. This may work for a while, but eventually, you’ll find this doesn’t scale.

The reality is, selling is more complex than ever. It involves everything from how demand generation campaigns are performing to how your phone calls to prospects are landing. The more you want to sell, the more you’ll want to rely on a CRM.

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