The purpose of just about any business is to grow. Expanding operations and boosting profits is the goal of every small or medium-sized enterprise. This is obviously more pronounced in the world of sales. What’s the best way to achieve this?
Offering a foolproof recipe is a thankless task but there are tools and methods that can help you make forecasts. No, we’re not talking about looking into a crystal ball and predicting the future. We do, however, have the next best thing to suggest. Sales forecasting is a legitimate technique you can use to predict future trends. It’s usually followed by sales planning, another method that can help you assume a better position in your niche.
The difference between sales forecasting and planning
To the layperson, forecasting and planning can sound similar. Both are important managerial functions and deal with future events in the world of sales. However, that’s where the similarity ends.
A sales forecast is an expression of expected sales revenue. It’s based on past and present performance, as well as current trends. Analyzing them enables the sales team to predict (or rather anticipate) possible future events. Naturally, the predictions can never be 100% accurate. However, the more information you analyze, the better the result will be. Forecasting relies on historical and current data and can include both positive and negative information.
Sales planning comes after forecasts. It’s more goal-oriented, more aspirational, and more positive. Planning is all about devising plans to realize scenarios. Let’s call it thinking before you take action. It helps you build a clear idea of what you want to see unfold in the future.
Let’s predict the future!
There are many different tools and methods you can use to make forecasts. Still, more often than not, the process boils down to a rather straightforward framework. There are five essential questions you ought to ask.
- Who? Who is your customer? Who are you aiming to sell to?
- What? What are the products, services, or solutions that you intend to sell? Has your target audience expressed an interest in them?
- Where? Where are your prospects making their purchase decisions? Can your team be there to analyze the process?
- Why? Why would your prospective customers want to purchase your goods or services?
- How? How do your customers make their decisions?
The better you understand this, the more accurate your forecast will be.
How to get it right
In addition to the above-mentioned questions, you’ll need to perform a few steps to get the most accurate results. They ought to be collaborative, data-driven, produced in real time, and constantly improving.
First and foremost, you should observe historical trends. This can include analyzing a specific period (such as the last year) and looking into the prices, sales numbers, and other relevant variables. Once you build those into a “sales run rate” (projected sales per sales period), you will have a foundation for your forecast.
Next comes the fun part. You get to use the “sales run rate” and test potential changes in the market on it. Will you change the prices? Will the number of customers increase? Decrease? Will you run promotions? Open up new sales channels or start outsourcing? Introduce new products? All of these can be put into the equation.
Market trends are another thing to consider. How are your competitors likely to behave? Are any acquisitions in the works? Change in legislation? Focus on those before proceeding with any serious planning.
The big plan
Once you’ve sorted out the forecast, it’s time to create a plan. Sales planning is all about trying out a few different scenarios, seeing the possibilities, and mitigating risks. The process is best understood if outlined in the form of six steps.
- Situational analysis — You can leverage the historical data gathered through sales forecasting to identify potential obstacles and eventually build on your team’s strengths. This part is a blueprint for new strategies.
- Identifying goals — What do you want to achieve? Is your mission profit-oriented or customer-oriented? Do you want to increase revenue or boost customer value?
- Setting a strategy — This is where you outline individual roles and responsibilities. Consider the strengths and weaknesses of each team member.
- Setting a sales budget — Always know how much you’re willing to invest. Use the resources available to you effectively.
- Developing communication and boosting engagement — Set specific goals and milestones and communicate them. This part provides clear directions for the team. It can also involve shareholders to make sure everyone’s on the same page.
- Setting key measurements — Set clear benchmarks. Figure out if you’ve succeeded or not. If not, find a way to change your strategy.
Avoiding the traps
The main downsides of sales forecasting can be the lack of accuracy, excessive subjectivity, and inability to see the bigger picture. This can lead to limited usability of your findings. The trick is to assume a detached stance. Analyze your business and sales as if they belonged to another company.
When it comes to planning, it’s the changing conditions on the market that can pose the biggest trap. The landscape is prone to disruptions. Just look at the global pandemic. For many businesses, it means planning (and playing) on the safe side.
Reaping the benefits
Despite the risks, sales forecasting and planning usually bring plenty of benefits. They can improve overall efficiency and help you get the most out of your sales team. The information gathered during the research process can drastically improve decision-making about the future. Further down the line, you’ll spend less time on analytics and more on action.
Good planning reduces risk and removes much of the guesswork from decision-making. Other benefits include:
- Reduced lead times
- Increased customer service levels
- Lower inventories
- Fewer instances of obsolescence
Into the future!
All this could potentially secure the future of your business. What about the future of sales forecasting and planning as a whole? What comes next? Predictive analytics seem to be an incoming trend.
This approach can leverage pipeline data and machine learning to extrapolate from historical trends. It uses AI to fill the gaps in the data and calculate the probabilities of each possible scenario. It’s highly actionable — from boosting sales and keeping the customers satisfied to managing your remote sales team. Definitely, an innovation to consider.
