By Chantal India, on 24 September 2024
A sales forecast is an estimate of the sales a company will achieve in a specific period. It is most common to create them quarterly, monthly, or annually. These forecasts are generated by considering sales from previous periods.
A sales forecast is an important resource for the success of a business, as it allows for more informed decision-making. However, for a sales forecast to be truly useful, it must be very precise and based on reliable data. Nevertheless, it is important to remember that it is an estimate and not a precise prediction, so it is not an error if it is not met exactly.
Sales forecasts are typically used by shareholders, executives, company leaders, and team leaders. Although the sales team is primarily responsible for its preparation, collaboration with other teams (such as marketing, finance, operations...) is crucial to make it as complete and accurate as possible.
In this article, we will tell you everything you need to know to correctly draft a sales forecast. Let’s go!
Sections and Elements of a Sales Forecast
- Executive Summary: This is an overview of the report's conclusions, mentioning the most important points. It usually appears at the beginning of the report and is characterized by being concise and brief, as well as being written in less technical language.
- Introduction: This section includes a general description of the business, what it sells, and the time period covered by the report. It also specifies the methods, tools, and strategies used to make the sales forecast.
- Market Analysis: Here, details about the industry the company belongs to should be specified, such as size, trends, conditions, competition, etc.
- Visual Data Representations: It is important that a sales forecast is complemented by different types of graphs that visually display the mentioned data and projections.
- Historical Sales Analysis: A review of the company's past sales should be conducted, breaking down the results by season, product or service, region, sales channel, etc.
- Sales Forecast: One section should focus on the sales predictions and explain the reasons for arriving at certain estimates. The forecast should also be broken down by different assumptions, such as season, product, region, channel, etc.
- Risk Analysis: Another section should explain the factors that could affect the fulfillment of the forecasts, such as changes in competition, economic changes, or legislative changes in the region, among others. Recommendations or steps to follow to mitigate the effects of certain situations, if they occur, should also be indicated.
- Conclusions: This closes the report and revisits the key points and data in a more structured way, usually in bullet points.
Key Data in a Sales Forecast
These are the data that must be present in your sales forecast, as their value is really useful for the study:
- Historical Sales Data: This allows you to identify trends and patterns and make a more accurate forecast. It should also be broken down.
- Market Conditions: This includes data on the region's economy, consumer trends, and competitors' results.
- Marketing Effects on Sales: The variation of results according to certain assumptions and events.
- Comparison of Forecasts with Company Goals:
Purpose of a Sales Forecast
Helps Define Necessary Resources
Without a sales forecast, companies might allocate more resources than necessary in their strategies and lose money, potentially putting themselves in a risky financial position. The predictions made in these reports help a business be more efficient and maintain the quality of its products or services.
Identifies Consumption Trends and Potential Risks
Sales forecasts are also a valuable resource to anticipate trends and capitalize on them, as well as to avoid being heavily impacted by certain events. Regarding risks, since this is something analyzed when preparing such a report, the company is prepared and can take measures in time to avoid very negative consequences. Similarly, regarding trends, if they are considered in advance, strategies can be prepared to take advantage of them and maximize their benefits.
Improves Efficiency
Resources can be better utilized and distributed among different tasks if based on a sales forecast. This way, unnecessary expenses are avoided.
Enhances Customer Service
Customer service can also be improved, especially because teams can better understand the company's situation and offer customers more realistic expectations about the timelines and characteristics of a product or service. This prevents customer frustration and disappointment.
Guide to Creating a Sales Forecast
1. Choose a Forecasting Tool
The best part of creating a sales forecast is that you can rely on forecasting tools to obtain data and projections. These are software programs that combine your company's data with different statistical methods and market trends to generate sales estimates. Due to their great utility, the first step in creating a sales forecast is to choose the most suitable tool for your organization. We will give you some tips on this later.
2. Implement the Software with Your Company Data
Your forecasting tool will not be able to perform analyses tailored to your organization without a sufficient amount of data and a history to base on. Data software is designed to collect, store, and organize data, as well as integrate with forecasting tools to share information.
3. Start Making Predictions
Before starting to use your forecasting tool, it is essential to define the parameters, methodology, and objectives you want to analyze. All these instructions must be provided to the forecasting tool so that it can make its projections based on them.
4. Organize the Information and Draw Conclusions
Once the tool has provided the necessary data, it will be your responsibility to organize the obtained data into a report to present them appropriately to the relevant team or professional. Additionally, although the tool provides part of this information, it is also up to the report's author to draw conclusions and explain them in the report.
Types of Sales Forecasts
Depending on what the forecasting tool bases its data and study on, we can find different types of sales forecasts.
Sales Cycle Duration Model
This type of forecast considers the average duration of the sales cycle to make future sales predictions. It is commonly used in companies that sell products or services with a long and well-established sales cycle.
Time Series Model
In this case, historical sales data is analyzed to detect patterns and trends with the aim of predicting future sales. It is used for products or services with a broad sales history.
Seasonal Model
This model takes into account the seasonality of sales to adjust the forecast throughout the year. It is typically used when selling products or services whose sales vary significantly annually.
Regression Model
In the regression model, sales are analyzed considering other factors such as advertising, GDP, price, etc. Variables that are assumed to be relevant and influence sales are selected.
3 Tips to Improve Your Sales Forecast
Have a Forecast Tool that Fits Your Needs
In the market, you can find different forecasting tools. In our case, we consider HubSpot’s tool to be quite comprehensive. It has a large number of very useful features for making a sales forecast and is not difficult to use.
Ensure It Is Collaborative
It is important that the forecasting tool you choose allows different team members to collaborate. This way, they can add valuable data and updates from each of their fields. For example, the HubSpot tool we mentioned earlier offers this possibility.
Incorporate External Data When Necessary
Even if your company’s data software or CRM is connected to your forecasting tool, it might be interesting to also include data from other sources when necessary. This way, the forecasts are more likely to increase their accuracy and be enriched.
