Regardless of the industry, sales forecasting is a worthwhile tool to leverage when it comes to making more informed decisions as a business. 

In our beginner-friendly guide, we’ll tell you everything you need to know about predicting future revenue, including the top seven sales forecasting methods, best practices, common difficulties and challenges, and other ways to boost sales performance.

What Is Sales Forecasting?

Sales forecasting is a process that allows people to predict future revenue by estimating how much of a service or product will sell within a certain time frame. Folks might estimate how much product could be sold in the next week, month, quarter, or year, for example. 

Teams can use it to get a better idea of what future sales performance could look like.

Why is it important? 

Sales forecasting is important because it lets teams better plan and strategize. Folks can use this tool for improved resource allocation and budgeting. Teams across the board can feel more confident making more informed decisions because of forecasting. 

However, it’s important to understand that it isn’t perfect, and there isn’t a magic tool that can predict sales performance to a T. 

Sales forecasting vs. demand planning

Because the two terms are similar, some people get sales forecasting confused with demand planning. Whereas the former can help predict future sales performance, it’s only one small aspect of demand planning. Demand planning homes in on predicting client demand to ideate ways to meet said demand. 

Unlike sales forecasting, demand planning often needs cross-company collaboration between other teams and departments, from sales to RevOps, finance, and marketing, among others. 

Top 7 Sales Forecasting Methods to Explore

Forecasting can be a beneficial tool for improving your resource allocation and streamlining sales. However, there isn’t one universal method to make things easy. 

Here are the top seven sales forecasting methods your team should consider when predicting future sales performance. 

1. Historical sales forecasting

One of the most common methods is historical sales forecasting. As the name implies, teams using this method leverage past data to predict future sales performance. People can use past data to pinpoint patterns or trends, and anticipate them.

Of forecasting methods, historical forecasting is a more simplistic approach. Brands that have consistent sales trends can benefit from this type of forecast. However, keep in mind that without a stable market (or for businesses that don’t have consistent sales patterns), this method can be difficult to use. 

2. Multivariable analysis forecasting

With multivariable analysis forecasting, companies use a variety of data points to predict sales performance. For example, multivariable forecasting would assess factors like:

• How big or small your deals are
• Win rates
• How long your sales cycle is
• The stages of your sales cycle

There are other factors multivariable analysis can include, too. The main advantage of this method is that it’s less subjective since it relies on data. It’s not based on opinions or feelings but facts. 

3. Lead driven forecasting

Another worthy method is lead driven forecasting. This kind takes a look at your lead generation channels to estimate what future sales performance could look like. Based on the quantity and quality of leads, this forecasting method holds that a comprehensive pipeline is necessary for sales success. 

Instead of relying on past data, lead driven forecasting leverages lead qualification and predictive analysis to give teams a better idea of what the future holds. The main drawback is that lead scoring can be difficult and isn’t always clear-cut. However, when done right, lead driven forecasting can be an accurate predictor of performance. 

4. Pipeline sales forecasting

Pipeline sales forecasting, as the name suggests, focuses on the sales pipeline to estimate future performance. This sales forecasting method evaluates the overall sales pipeline and patterns within the industry, as well as historical sales data. 

It includes looking at both current deals and potential upcoming opportunities to get an idea of what revenue could look like in the future. Using this information, teams can even predict revenue at different stages of the sales cycle. This can also help teams get a better understanding of customer behavior and market trends. 

5. Opportunity stage forecasting

With opportunity stage forecasting, a business can estimate how likely it is to close a deal based on historical data, the particular sales pipeline stage, and ongoing sales activities. Using this information, companies can understand what future revenue might look like. 

This method can help companies make more informed decisions by providing each opportunity with a probability of closing. Opportunity stage forecasting can also improve resource allocation based on opportunity and potential.

6. Intuitive forecasting

In direct contrast to methods like historical and multivariable, intuitive sales forecasting relies on the opinions of sales reps to estimate how likely a deal is to go through. The reasoning behind intuitive sales forecasting is that the reps are closest to these deals and are therefore the best equipped to predict whether or not a deal will succeed. 

Because it doesn’t necessarily require hard data, intuitive forecasting is a little riskier than some other methods. 

7. AI-driven sales forecasting

Because the field of artificial intelligence is still in its infancy, AI-driven sales forecasting is a newer method. Although there are different kinds of AI sales forecasting, in general, this method uses artificial intelligence to evaluate existing data and estimate future revenue. 

One of the benefits of using AI for forecasting is that it’s often quicker than other methods. An AI tool can analyze data, trends, market conditions, and other factors quickly to predict revenue and sales performance. 

As the AI industry grows, so will its applications for sales forecasting. 

How to Improve Your Sales Performance With Yoodli 

If you’re looking to improve your sales performance with sales forecasting, consider investing in your reps to complement your efforts. Taking advantage of a tool like Yoodli to improve your sales team’s skills can make a world of difference when considering future revenue and opportunities. 

Yoodli — an AI sales coach — offers realistic sales roleplay so reps can work on their skills and improve interactions in a safe space, totally risk-free. Companies you might recognize, such as Google, Korn Ferry, and Dale Carnegie, have all tapped into Yoodli’s services to increase seller attainment and decrease ramp.

It works like this. Yoodli provides a platform where sales reps can interact with an AI persona in familiar sales environments. This allows teams to get the most realistic practice without risking a lost deal or opportunity. Reps can participate in simulated cold calls or customer discovery calls where they’ll engage in typical conversation. Plus, just like in the real world, there are tons of personas reps can choose from to ensure they get practice with all sorts of people and personalities. 

But Yoodli goes beyond offering roleplay opportunities. As a sales coach, it evaluates reps’ performance during roleplays to provide intelligent, data-backed feedback for improvement.  For example, reps will get actionable tips based on their listening, delivery, and speech patterns. 

For administrators, Yoodli offers top-notch customization capabilities. That way, companies can adjust Yoodli to their own liking, based on their brand’s methodology. Not only that, but companies can reap the benefits of Yoodli’s enterprise-grade privacy, with SOC 2 Type 2, GDPR, and more.

Learn more about how you can get started with Yoodli for free at https://yoodli.ai/.

Sales Forecasting Best Practices and Tips for Success

Although sales forecasting can be a useful tool for predicting future revenue, there are definitely some considerations you’ll want to keep in mind as you go. Here are some best practices to keep in mind when exploring various methods. 

Take advantage of sales forecasting tools.

The good news is, there are so many tools teams can use to their advantage. However, it’s important to make sure you’re using the best tools for your team’s needs. Not all software is created equally, and what works for one sales team might not work for your team, depending on your needs. 

You can use specific tools to optimize the overall process by automating some simple tasks. Many teams also look for data visualization tools so they can better pinpoint specific patterns and trends across the industry. 

Constantly review and tweak. 

Sales forecasting isn’t a one-and-done situation. Teams should be constantly reviewing and tweaking their strategy as they go. Make it a goal to review the actual sales against your forecasts to get a better idea of performance. For example, were there any noticeable discrepancies? Based on your answer, you can tweak your methods based on any new data. Or, if market conditions have changed, you can adjust your strategy to those conditions, too. 

Don’t underestimate data quality. 

When it comes to sales forecasting, for best results, use high-quality data that you know is accurate. Using inaccurate or weak data can derail your forecasting efforts and end up harming your performance in the long term. It’s always a good idea to make sure your data is complete, consistent, and free of errors that could sabotage your efforts.

Even small mistakes can negatively affect forecasting. For example, a common mistake sales reps make with data is with formatting. If the data entered isn’t standardized, the information can ruin your analysis. Think of an app like Microsoft Excel or Google Sheets. For an Excel sheet formula to work, all the data needs to be in the same format or the formula can’t run as it should. It’s the same concept here with forecasting. 

Commit to lifelong learning.

One of the worst things you can do when sales forecasting is to assume you have all the answers. Just because your forecasting methods worked like a charm doesn’t mean they always will. Market conditions change, and so do opportunities. Make sure you and your team are committed to continuous learning when it comes to sales forecasting. 

For example, make it a best practice for your reps to stay on top of trends in the industry. Don’t be afraid to try new methods and encourage your team to learn from their mistakes. Errors can actually be a valuable tool moving forward to steer clear of mistakes that can muddy your predictions. 

Common Sales Forecasting Difficulties to Consider

Sales forecasting isn’t always a walk in the park. There are certainly challenges and difficulties in predicting what your business’ future revenue could look like.

Here are some of the most common difficulties and challenges to anticipate when it comes to sales forecasting.

Market fluctuations and dynamics

One common challenge is the fluctuation in market dynamics. For example, changes in consumer preferences can affect demand. Shifting consumer tastes can also be difficult to predict and can inhibit your ability to predict future revenue and performance.

Other market dynamics, like advances in technology (AI could be an example) or new competitors emerging on the scene can disrupt industries and otherwise complicate the process. 

Economic hardships

Although you can’t always anticipate them, economic hardships can be a huge challenge for accurate sales forecasting. Economic depression, recessions, and inflation can all seriously affect sales performance. When customer purchasing power is impacted by factors like increased cost, future revenue can be even more difficult to predict. 

The Bottom Line 

All things considered, sales forecasting is a valuable tool that sales teams should take advantage of. Even with the particular challenges and difficulties that can complicate methods, the ability to predict future performance is worth it. Plus, you can invest in your sales reps with a tool like Yoodli for optimal results. 

Sources

• Anaplan: “Sales Forecasting Methods: A Beginner’s Guide.”
• LinkedIn: “Sales Forecasting.”
• Akucast: “Historical Sales Forecasting,” “Multivariable Sales Forecasting,” “Everything You’ve Ever Wanted to Know About Intuitive Sales Forecasting.”
• DealHub: “What is Pipeline Forecasting?”