Sales: The foundation of your company is one most important aspects of keeping a business live, sustainable and running. Even with Companies that do not have revenue yet, developing a convincing sales forecast for investors is vital.
What is Sales forecasting? Sales forecasting estimates future revenue by predicting the amount of product or services a sale unit (salesperson, sales team or company) will sell in a given period. The forecasting is computed by using past sales performance data.
As mentioned above, because sales are the backbone of any business structure, a broad insight into what to expect in the future will help make informed, intentional sales decisions. What are some of the things or insights you can get from performing a simple sales forecast? How much can you benefit as an individual or as a team? The following are insights sales reps, sales managers, and salespeople can ascertain from sales forecasting:
1. How fast your deals successfully close (Sales Velocity)
Sales Velocity measures how fast a prospect moves through a sales pipeline to generate revenue. This measure tells you how your current pipeline will likely convert into closed sales and how quickly you can add new deals to your pipeline.
Comprehensive knowledge of sales velocity is essential since it plays a massive role in a business's ability to thrive and grow; the less time a prospect takes to move through a sales pipeline, the faster you can close more deals. A high sales velocity means prospects are converting into deals quickly, and you are bringing in more revenue in less time.
Understanding sales velocity can help you predict and determine how your sales process can be optimised for faster sales and higher conversion rates before a deal becomes cold. Sales velocity is obtained by looking at the number of prospects in your pipeline, the average deal size, conversion rate and the period it takes to close a deal.
2. Financial Positioning
An excellent financial position positions your company in a growth state; forecasting cash generation from your deals is essential in understanding your financial situation and ability to invest and manage it. Knowing your cash generation shows you when more cash is going out of the business than in it.
The trend of the past (e.g. a year, month) cash generation is looked at; then, you can adjust your sales forecast based on whether sales increased, decreased or stayed the same. Cash outflow is an excellent way to start figuring out your financial standing for companies with no revenue; this gives you an idea of how much you need to bring in to cover it.
The cash generation forecast depends on the client's base, how fast they pay
you, economic changes, and competition.
3. The Probability of Deals Closing
Deal probability, also called deal weighting, is assigning a percentage to the likelihood that a deal will successfully close. This percentage fluctuates throughout the sales pipeline based on the stage at which your deal sits.
The deal probability is assigned when creating the sales or revenue likely to be gained from a set of deals clear picture. This can help sales managers and management accurately assess their progress and sales goals.
In most research, an average of 30% of prospects turn into successful deals while 70% go goal. One of the most popular sales forecasting methods uses deal probability to compute expected revenue.
Expected Revenue = Deal Amount * Probability to Close.
The higher the number of deals in your calculations, the more accurate your rates will be. These numbers are only forecasts; they never are 100% accurate, so err and caution when setting goals and judging sales performance. The larger the set of data and longer the timeframe, the more precise the correlations will likely be. Finally, a key factor leading to more accurate forecasts is a rigorously defined set of criteria for what constitutes a stage and the requirements to move a prospect forward in your sales process. There is a six-stage sales pipeline. 1. Lead is identified 2. Qualified via discovery call 3. Product demo 4. The proposal provided 5. In negotiation 6. Deal is won
4. Historical Overview of sales
Sales forecasting involves estimating future revenue by predicting the amount of product or services a sale unit (salesperson, sales team or company) will sell in a given period; this prediction sometimes uses historical data. You need historical data to predict your future sales based on your past sales in the prior years or periods. However, when a business is new, there is hardly any sales history available, which can pose a challenge for sales forecasting.
A detailed insight into historical data and sales reps can easily compare sale quoters to the previous ones to allow for analysis and identify issues in the sales cycle.
Why should Salespeople use sales forecasts? Is it possible to estimate deals that can close, anticipate, and project sales, among others? Well Sales Forecasting:
- allows for identifying potential blockers that may hinder the closure of a deal while there is still time to avoid a prospect from going cold.
- Allows for decision-making, for example, when it comes to hiring, resource management, goal-setting to budgeting. In the prediction of an increase in opportunities, a firm will decide to recruit to ensure that they keep up with demand. The opposite also applies; in the case of reduced or no opportunities, a firm may need to pause hiring and increase marketing and investment.
- Acts as a powerful motivation tool; while updating your periodic sales forecast to see if you are on track to hit your target. Using this forecasting, you have both the past, present, and future sales map at your fingertips - individual sales reps can visualise their performance plan to ensure they do not fall behind.
Since the accuracy of the predictions in the forecasting is not always 100%, it's important to note that the result will not be the same as the forecasted value. A great model always has a performance accuracy of above 90%. The essential importance of forecasting for the management of your company has been presented before. Accordingly, you should always choose a forecasting method that has a very high accuracy.
Very low, but used by most sales teams, is the accuracy of gut feeling. Medium accuracy is offered by Conversion and the Portfolio approach, for example. By combining different approaches, Machine Learning currently offers the highest accuracy for forecasting! Therefore, you should integrate Machine Learning into your sales process to stop losing sales. Dealcode is a sales tool that uses Machine Learning to make you more productive, more accurate and therefore more profitable. Visit us now and discover the Dealcode possibilities!
