When meteorologists measure atmospheric conditions to predict the weather, they’re aiming to gather as much information as possible. Weather forecasting is never done whimsically but instead thrives on data compilation.
All of this information brings clarity to the picture. Meteorologists pick up on patterns and trends. They weigh it all against historic information and, for the most part, turn out a forecast that helps people to plan on how to dress, whether or not to bring an umbrella, or what to pack in their suitcase.
But unless you’re somewhere in Southern California, forecasts are, by nature, imperfect. From time to time, storms get exaggerated or are altogether unforeseen. Temperatures rise or fall without notice. Systems and fronts come out of nowhere.
When it comes to sales forecasting, it’s crucial to follow a similar approach to that of meteorologists.
Wouldn’t more accurate projections make life easier for your small business? Wouldn’t a clearer, more expansive look into the future help your company to prepare? Great forecasting can really open up doors for your business to run more efficiently and strategically. Let's take a look at sales forecasting for a small business.
You can see clearly now: Gaining visibility for sales forecasting
Meteorologists have decades of data to pore over as they determine their weather forecast projections. What kind of data do you have?
Well, you have to start somewhere.
Strong forecasting is dependent on a good sales pipeline or funnel. Have you dialed in a pipeline which seems to be pretty consistent with the progression your customers take? Can you clearly see the step-by-step sequence from lead to qualification to meetings, proposals and closings? And can your sales managers see the activity of their salespeople during each of those steps?
Sales forecasting requires an understanding of what’s supposed to happen and when.
In short, it requires visibility.
Additionally, to properly categorize incoming data, an understanding of its proximity to closing and its overall effect in your process is necessary.
To do all of this, you need to be able to watch account development in real time. How are leads responding to your nurturing efforts? On average, how long does it take to close an account of this or that size? And what about your salesperson—how do they typically perform? An accurate forecast utilizes all of this information.
Does your sales software provide you with this data? In this view, sales software is likened to a weather instrument like a barometer or anemometer, giving you readings that will help you to predict what lies ahead.
Signs of a storm: What to watch for
Disruptors to your sales projections can come in all different shapes, sizes and colors. As you look to practice more accurate sales forecasting, you’ll need to learn how to recognize signs of a storm. In order to keep your projections in line, it’s vital to foresee and properly identify these disruptors and their potential effect on your numbers.
Here are a handful of the many market factors which could tilt your sales forecasting:
Whether on a national scale or industry-specific, economic downturns are out of your business’s control and could adversely affect the spending habits of your prospects or customers. Luxury, nonessential products or services are likely to be avoided in a time of economic trouble. If your business’s offering is extraneous, plan accordingly and lower your sales forecasting projections during tough economic times.
Every business pays attention to its competitors—how they’re finding successes or how they might be pointing out pitfalls to the rest of the industry. And more than success or failure, it’s particularly noticeable when a competitor begins to emerge, rising as a leader in the industry. The ability of sales managers to identify such a competitor—one which might pose a threat to sales forecasting projections—is extremely important to the quest for accuracy. (And after identifying the competitor and their various advantages, figure out how to beat them.)
More and more, new technology is a main disruptor of an industry. Just ask professional tax preparers; intelligent software like Turbo Tax continues to create havoc in the market. The convenience, efficiency and cost of filing taxes from your kitchen table on a Sunday night, as opposed to scheduling an appointment ten miles away and paying more to see a human being, appeals to taxpayers. H&R Block, Jackson Hewitt and Liberty saw a disruption. And their sales forecasts were subject to change. Keep your eye out for technology which might tilt your projections and the market itself.
Train yourself to watch carefully for all of these signs along with other factors which will likely have a bearing on your business and its expected sales for the upcoming quarter or year.
Know your buyer’s present reality to properly forecast
Not only is conventional sales forecasting often comprised of guesswork and arbitrary methodologies, it’s also all too commonly glutted by statements that begin with, “History suggests that,” and the like.
While historical data certainly provides some insight into future sales performance, your projections have to be balanced; the past has little bearing on the present.
To produce accurate sales forecasting, learn what your prospects are doing in the present instead of simply focusing on what they’ve done. What are the current conditions in the market and how do they affect your potential customers? Are there factors in their industry or facing their income bracket that will alter their buying habits?
Take historical sales data, and the components surrounding it, and weigh them against the upcoming quarter or year you’re looking to forecast. List out the similarities and also the changes. Note how you’re marketing has changed, and look for storm signs or disruptors (above).
Also, don’t forget about personnel changes. Did an exceptionally high-performing salesperson in the last quarter or year move on? Are members of your sales team adjusting to a new region or division? Expect such things to have an effect on your sales and, therefore, your sales forecasting.
A sales management software which affords your sales manager visibility into each part of the sales process is the key to looking at the present. How is each salesperson performing at each stage of the pipeline? How are customers responding to nurturing efforts? Are close times trending up or down?
Remember, accurate sales forecasting will not only motivate your sales team but will also help your business to ensure that its allocation of resources is strategic. Don’t simply chalk your projections up to history.
Don’t serve the forecast – let the forecast serve you
Sales forecasting is meant to aid you in stewardship of your resources and management of your salespeople. Too often though, sales managers feel indebted to their forecasts, even when factors that are out of their control enter the picture. Don’t pursue a set of expectations in vain.
Your customers may be sending signals that you’re missing because of tunnel vision. For example, fixation on hitting a forecast projection could cause your team to ignore a new set of objections from customers that would provide valuable insight. If your team blows over them by focusing too much on closing, they could not only lose that customer, but an opportunity to refine their practice.
Don’t serve the forecast or it might get in the way of service to your customers. You’re not a failure if you don’t hit the numbers all the time. If you’ve taken these tips, you carefully forged those projections. Let them work for you.
If you do miss a projection, learn from it. What didn’t you see? What went wrong? Should you expect more trouble or are you clear of it? How can your sales forecasting be more accurate next time around?
Keep compiling information. Keep digging into data and watching for trends. Accuracy is attainable and increasingly likely as you learn to forecast for your sales department and continue with positive intel-gathering practices.
Never panic. After all, efficiency is on the horizon.