No enterprise these days can remain competitive and profitable without optimizing its short-term and long-term performance. Businesses from various industries and regions improve their long-term and short-term performance by estimating future sales accurately. The term sales forecasting refers to the process of estimating future sales of business with the intention to improve its performance by taking the right decisions at the right time.
A business can forecast its future sales based on a variety of factors – past sales data, emerging industry trends, and industry-wide comparison. Sales forecasting helps businesses to maintain positive cash flow, take better budgetary decisions, maximize resource utilization, plan business expansion and growth, and accentuate product planning. The businesses can further estimate future sales using a number of sales forecasting methods and techniques.
Understanding 7 Widely Used Sales Forecasting Methods and Techniques
1. Opportunity Stages Forecasting
The sales forecasting technique requires businesses to estimate future sales by analyzing past performance of their sales teams. The businesses need to divide the customer journey into multiple stages. The success rate from each stage will determine the future sales during a specific period. Many analysts consider this approach inadequate as it forecasts sales based on the success rate of individual stages in the sales pipeline. The managers further need precise information like deal value and close date to estimate future sales accurately based on past performance of their sales teams.
2. Forecast Stages
Many businesses determine the possibility of closing sale deals based on the information provided by sales representatives. The personal projection and insights provided by individual sales representatives help decision makers to predict the outcome of sales opportunities. The managers can further estimate long-term sales based on the information provided by these representatives before the deal’s lifespan begins. But most sales representatives lack the knowledge and skill required to understand the potential customers and assess their own skills precisely.
3. Length of Sales Cycles
The approach estimates future sales of a business based on length of sale cycle or age of the deals. The open and flexible nature of the sales forecasting technique enables managers to forecast long-term and short-term sales by categorizing deals. The managers can categorize deals based on important criteria like new customers or repeat customer. Likewise, they can categorize sales according to lead generation sources. But it is always important for the decision makes to categorize the deals correctly to keep the sales forecasting process error-free.
4. Regression Analysis
This technique forecasts future sales of a business mathematically based on a number of variables. It treats each factor affecting sale performance as a variable. The future sales are calculated or estimated based on the interrelationship between the variables impacting sales. Hence, future sales are estimated based on important factors or variables like a number of sales calls, a number of inquiries received, and the number of demo meeting held. The decision makers must identify and consider all factors impacting sales performance to forecast sales accurately.
5. Test Marketing Results
The technique requires businesses to introduce the products in selected or limited geographic areas. The pre-launch market test helps businesses to understand the market response and estimate future demand. The manager further forecast sales based on the test results. The approach makes it easier for businesses to estimate the demand for new products and identify the factors affecting sales performance. But the businesses have to invest additional time and resources to conduct market tests effectively as different markets are not homogeneous.
6. Customer Buying Plan
Many businesses nowadays determine the demand for products and make sales forecasting based on information collected directly from customers. They leverage the latest digital communication technologies to gather customer data by conducting surveys and opinion polls. But the approach does not help decision makers to estimate future sales when the customer base is large and diverse. Unlike business-to-business (B2B) companies, the business-to-customer (B2C) companies cannot use the approach to forecast sales. Also, the decision makers must remember that the buying habits and buying behavior of customers keep changing frequently.
7. Expert Opinion
Some enterprises prefer outsourcing sales forecasting process to competent and reliable consultants. They avail professional consultancy services to forecast sales accurately based on the market research conducted and real-time statistics provided by experts. The approach helps small businesses and start-ups to accelerate sales forecasting without investing additional time and resources. However, the skill and competency of market researchers and industry expert differ. The businesses must avail the assistance of most competent professionals to estimate future sales accurately.
Overall, a business can estimate its future sales through a number of sales forecasting methods. But the same sales forecasting technique may not be suitable for every business. The businesses need sophisticated sale forecasting tools that enable them to leverage industry-specific sales forecasting models and large volumes of real-time customer data.