Are your company’s results being true to your predictions? See how to get your sales forecasts right
Any good business needs to have a sales forecasting system as part of its sales management and goal tracking strategy.
But most sales predictions are by nature inaccurate, not least because they are predictions, not guesswork.
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The trick, experts say, is knowing which direction the predictions are wrong and turning that into a picture of where your sales team is heading.
People may think that a sales forecast can be good or bad, depending on its accuracy.
After all, logic shows that the more accurate a prediction is, the better it is. But the key to forecasting sales lies in breaking the assumptions and turning them into reality.
For a small business, a poorly made sales forecast can mean bankruptcy, for example.
After all, sales forecasts are not just forecasts. They involve investment, planning and the expectations of many people.
It doesn’t matter what went wrong. For many, when a sales forecast fails, the manager is to blame.
Therefore, it is important to know how to test your prediction, to know if it will have a future, or if it will swim, swim, and die on the beach. Here are some tips to get your sales forecasts right on the fly.
Must-see tips to get your sales forecasts right
#1. Use separate numbers
One of the biggest misconceptions about sales forecasting is that there is a set of numbers that represent the truth about your business.
In fact, it takes multiple forecasts to represent the needs of the various circles involved in a company’s growth goals and forecasts.
Your sales team might have a forecast designed to fit your number, but product management might be interested in forecasting sales for a specific product.
On the other hand, the operation may be interested in finding out what needs to be produced and when it needs it so that it can fund the revenue needed to reach the forecasts.
That’s why you need to put all this data together and make it form a cohesive picture.
Focus on numbers and predictions about different terms.
#two. Develop a flexible process
It’s impossible to use a single test that can guarantee you can keep track of all the terms, timing and context of each sale.
Instead, you should focus on developing a process that can be managed, re-evaluated, and modified as conditions change.
This requires discipline, starting with ensuring that sales forecasts are updated on a regular basis.
This means that managers have to understand the sales system, customer history, product delivery, and even salesperson history to assess with some certainty the accuracy of the sales forecast.
Large companies often make mistakes in forecasting because they are only thinking about sales history.
Instead, they need to look at many additional factors, otherwise there will be a huge inaccuracy between prediction and reality.
#3. Set aside time to review forecasts
Your predictions won’t do well if you’re not constantly keeping tabs on them. It is crucial for companies to set aside specific time to review their forecasts.
If your company does this every third Thursday of the month, do it every Thursday. Meet with managers over lunch, review data, and work on decisions. All of this will influence the company’s decision-making process.
If you have a set date for planning and poring over forecasts, you start to see what’s going wrong and change course.
#4. Use a consistent template
There is no better or more efficient forecasting model. Each company will develop a model, or adapt it, as per their needs.
The more traditional method is: combine the year’s sales with last year’s and make a guess for the future.
For some managers this is the best guess. Study the past and present to try to understand the future.
But the key is the model that uses a weighted average over a few months or that discovers numbers by tracking needs to be met consistently over time.
One of the biggest problems here is that many people believe they are not qualified to forecast sales.
That’s why it’s important that you find a method that works. And create not just 1 forecast, but 3: a pessimistic, a realistic and an optimistic one.
Many companies do this to goals and succeed. Why not do this with your predictions too?
There is no definitive formula for sales forecasts. You can look at your present and past, or predict based on your expectation of growth.
#5. Don’t overcomplicate
Business forecasting doesn’t have to be a hyper-complicated process that involves advanced math and high-level forecasting.
Most companies are not necessarily very sophisticated. They don’t have teams of statisticians. It is usually a manager who knows the day-to-day business of the company well who works on sales forecasts.
In addition, you can use some systems to forecast sales and audit your numbers if you don’t feel secure in making your predictions looking only past and present.
#6. Be democratic
If you’re not including all elements of the business in your forecasting process, you’re likely to end up with skewed numbers.
If people are not involved in the process, they will not believe the numbers and will therefore not use them, or will simply adapt them to their personal expectations.
A purchasing department, for example, might want to modify some numbers to suit the stock.
Hence, it is necessary to transform the forecasting process into a democratic process as much as possible.
There are ways to manage collaboration so that you reap the benefits of forecasts, not just the downsides.
When everyone can be involved in the process, people tend to believe they are actively participating, and so end up believing in the end result.
Bring everyone involved in the predictions together to think and come up with the final predictions together with you.
#7. Focus on exceptions
You can fine-tune the forecast details for your sales planning, but your main focus is on forecast exceptions: where does the forecast line diverge from the actual data?
Improving forecasting doesn’t happen overnight: Analysts expect forecasts to include monthly data for the next 12 months as well as information for the next 2-3 years.
It is impossible to be specific and micro in this information. That’s why you need to focus on forecast exceptions.
Once you’re done, you can take some time debugging the forecasts so they’re consistent with reality.
Are you ready to get started?
Despite being in part a guessing process, it is important to transform forecasts into a faithful process of studying the market and involving all areas and responsible persons who may be affected by it.
In the end, you will find that the forecasting process is a process of continuous adjustment, in which you need to study data and understand the functioning of your market, your company, and especially your potential customers.