5 Steps for Accurate Sales Forecasts

How much are you going to sell next month? What about next quarter?

These are questions on every sales leader’s mind, as CEOs, investors, board members and shareholders demand to know exactly how much your organization will bring in revenue next quarter (or sometimes for smaller companies, next month).

more accurate sales forecastsIn today’s modern world of selling where the buyer is truly in control, decisions can sometimes feel more elusive.

What sales leaders can do to achieve more predictable revenue is to get a better handle around their sales forecasts. Here’s how.

5 Steps For Accurate Sales Forecasts

1. Regularly Review Your Data

Sales leaders often get frustrated when their CRM systems aren’t updated by salespeople. Modern sales teams tend to have all phases of their sales process embedded into CRM so that it’s not a chore – it’s just how business gets done. But even with that, CRM won’t magically solve your forecast problems all by itself. However, it can empower you to be a better manager and keep a pulse on what’s happening.

One sure way to keep your data as accurate as possible is to identify the key sales activities you want tracked in your CRM system (e.g., calls, meetings, proposals sent) and then which key data points you want to keep updated in your CRM (e.g., close date, amount, sales stage). Once these are defined, then you as the sales leader need to enmesh them into how you manage.

Are live conversations a key sales activity you want to see happening? Make sure everyone’s clear on how many conversations they should be having and keep performance front-and-center. Opportunity stages, close dates and deal sizes are key, too. So when you have your weekly forecast meeting, don’t pull out your notebook and calculator. Create an opportunity report in your CRM and pull it up on the screen. This way, your sales team knows you take these data points seriously and then they will, too. These data points should also become a key part of your weekly one-on-one sessions to ensure everything is accurate and up-to-date.

2. Have crystal clear sales stages.

Another function of your CRM that will help you forecast better is the stages in your sales process. When you clearly define the stages of your sales process, you’ll have a much better idea of if and when deals will actually close. Opportunity stages can include things like:

  • Evaluation Scheduled
  • Evaluation Completed
  • Proposal Reviewed
  • In Contracting
  • Closed Won

Once you know your sales stages, gather historical data for conversion rate and sales cycle from each stage.

3. Meticulously collect individual forecasts.

Your team forecast is, by nature, a composite of the forecasts of individual reps. Review opportunities in their sales pipeline with them. Check that all the information is correct and the sales stage is accurate. Then gauge how likely this deal is to close.

To prevent reps from getting happy ears, help them realistically assess each deal. I always am trying to get a sense of whether the salesperson is confident an opportunity will close, or optimistic it will close. Those are two very different things and when it comes to a forecast I always want the “confident” number so we know the reality of what we’re dealing with.

Do this with each rep, and then combine each of the deals they are confident will close to create your preliminary forecast.

The general guideline is to have 3-4X of what your sales target is in your pipeline. This sales pipeline-to-quota ratio will tell you directionally if you’re on track. (Some argue that you only need 2-2.5X instead of 3-4X.)

4. The Activity Based Forecast

Now let’s say you want to forecast farther out than what your salespeople really have visibiilty into. Salespeople generally have a sense of their current month forecast, and maybe even next month too, but much further out and they just don’t know. Meanwhile, as a sales leader, you’re being pushed by the executive team and maybe even your board for a longer term forecast. Enter the Activity Based Forecast.

With an activity based sales forecast, you’ll look at top-of-the-funnel activities as an indicator of what your future sales will be. For this exercise, you’ll need to understand the historical conversion rates for moving from one stage to the next in your sales process — like how many phone calls it usually takes to get one demo scheduled.

In this example, let’s assume you have a 25% conversion rate within each step of the sales process: If your monthly sales target for next quarter is $5 million, and you know you’re average deal size is $50,000, then you know that you need to close 100 deals each month. To get 100 deals, you’ll need to issue 400 proposals. And to generate 400 proposals, you’ll need to do 1,200 demos.

$5 million sales –> 100 wins @ $50k each → 400 proposals → 1,200 demos

So now let’s look at your sales team’s activity metrics. If you have a 90-day sales cycle from demo to close, then if you can secure 1,200 demos this month (March), then your forecast 3 months from now (June) is $5 million. Or to make it really simple, each demo is worth $4,200 ($5 million divided by 1,200, and then I rounded up to keep it simple). If you get 1,000 demos this month (March), then your 3-month forecast (June) is $4.2 million. If you get 1,500 demos this month (March), then your 3-month forecast (June) is $6.3 million.

If you have an SDR team who sets up those qualified demos, then you could take this forecast even further out and break it all the way down to prospecting calls or emails. Assuming another 30-day lag from a call to setting up a qualified demo, and now you can use your current month call metrics to help indicate your 4-month out forecast.

5. Conduct granular weekly health checks.

After you’ve taken your team’s cumulative sales forecast and combined it with your activity based forecast to come up with a composite forecast, you’ll need to continuously update it to ensure accuracy.

During weekly sales meetings (and in your ongoing one-on-one sessions with reps), get health checks for each opportunity in your pipeline. Ask the same questions as when you originally gathered their forecasts:

  • Are they confident the deal will close this quarter (or this month)?
  • Is there a chance they’re being too optimistic about the deal? Why or why not?  
  • Has anything changed since the last health check?

Make sure you’ve created an environment where reps feel comfortable giving honest feedback on the status of deals in the pipeline (so they won’t be afraid to tell you if they think a deal is going south).

Even if some of these steps seem obvious or insignificant, follow the instructions carefully to get much more accurate sales forecasts for your organization. 

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