Imagine This
Your company’s considering a new product line, but several stakeholders are expressing concern about cost overruns. As the head of sales, you’ve been asked to present revenue projections for the next three years. Where do you start? To estimate future revenue as accurately as possible, you’ll need to use the process of sales forecasting.
In this lesson, you’ll learn what a sales forecast is and how it can impact your business. You’ll also find out how to create a sales forecast, including the resources you’ll need, possible methods to use, and how to interpret your results.
Watch this video to learn what sales forecasting is and how to create a sales forecast.
What Is a Sales Forecast?
Simply put, a sales forecast projects a company’s future sales. Looking at current conditions and past patterns allows the company to make reasonable estimations about the future.
The benefits of sales forecasting include:
- Enhanced company-wide decision-making. A sales forecast predicts how much financial cushion a business has, enabling smart choices. For example, if the forecast indicates a decline in sales, hiring may need to slow or even stop for a time.
- Motivated sales reps. Salespeople like to know their targets and if they’re on track to meet them. A sales forecast provides that desired context.
- Increased accountability. A sales forecast gives you a benchmark for assessing your sales reps’ performance. At a glance, you can see who’s a top performer and who may need help hitting their targets.
Sales forecasts are reasonable estimates based on company data and trends, not guarantees. After all, things don’t always go according to plan. External factors such as industry swings, economic conditions, and customer preferences are hard to predict and can throw off the accuracy of sales projections.
Even so, by basing your forecast on historical data and trends, you can more accurately estimate future performance. This leads to increased confidence, improved decision-making, and better outcomes.
The bottom line: A sales forecast is useful for making better financial decisions—but only if it’s both realistic and backed by data.
Creating a Sales Forecast
Now that you’ve learned the benefits of sales forecasting, you may be wondering how to get started. First, gather the tools and information you’ll use to inform your predictions. Then, choose a forecasting method. Finally, after you put your method to use, you can interpret your results.
1. Gather Your Information
Just as you need to have certain ingredients on hand when cooking, you need to have sales tools and data in place before creating a sales forecast.
Expand the rows below to learn about three “ingredients” you need for forecasting:
Standardised Sales Process
Sales processes often vary from company to company, and sometimes even from salesperson to salesperson. As a result, pinning down exactly when an opportunity graduates from one stage of the sales process to the next can be challenging. For accurate sales forecasting, you need solid data on which opportunities are likely to close.
So, you need to standardise your sales process. How? Here are a couple of ideas:
Examine sales processes that other companies use.
Track and observe your sales reps’ performance. For example, do prospects typically get stuck at any point in the process? What’s the average time it takes for a prospect to become a customer?
Clearly define the actions and steps it takes to close a deal.
Walk through your sales process as a “customer” to check its accuracy.
Sales Goals and Quotas
Do you have sales goals and quotas in place at an individual and team level? They can serve as a baseline when creating your sales forecast. For example:
Revenue quotas. Company X will increase Q4 revenue by 25% year-on-year.
Profit quotas. Chris will generate $60,000 in profit from the Midwest region this quarter.
Activity quotas. Kailani will give 20 demos each month.
Volume quotas. Guillaume will sell 200 units this year.
Combination quotas. Each sales rep will set 10 appointments per month with new prospects and close 20% of those opportunities.
To improve the accuracy of your forecast, your goals and quotas should be realistic and data-driven.
Sales Metrics
Tracking sales metrics—usually accomplished with a customer relationship management (CRM) system—shows how your team (or an individual rep) is performing. Performance can be measured during a particular week, month, quarter, year, or another time frame. This information is valuable not only for forecasting future sales but also for making adjustments to your current business strategy.
Here are some of the metrics you’ll want to have on hand for forecasting. These will help you define the average performance and length of your sales process:
Conversion rates for each stage of the sales process
Time it takes to close a deal
Duration of customer onboarding
Average renewal rates
2. Choose a Forecasting Method
With your data and tools in hand, you can choose a forecasting technique. The right method will depend on the amount of data you have, as well as your team and company goals. Click through the slide interaction below to learn about three common forecasting methods.
- Keep in mind that there are a variety of forecasting methods. You don’t have to rely on one. Test several approaches to find the method that produces the most accurate results for your business.
3. Interpret Your Sales Forecast
After completing your sales forecast, you’ll need to interpret the results. What do the predictions mean for your team and company? Your analysis will play a crucial role in your company’s decision-making. For example, if your forecast indicates a 30% increase in sales this year, your company may decide to hire additional staff. Or, if sales are predicted to decrease in a particular demographic group, your marketing team may need to reorient its efforts.
You’ll want to account for three elements in the analysis you share with your stakeholders:
- Time frame. What’s the time frame of the forecast—weekly, monthly, quarterly, or annually? For example: “During Q1 of 2025, our forecast predicts … ”
- Department or salesperson. Is your forecast for your entire sales team, or an individual salesperson? For example: “According to our sales forecast, Juan will sell 8,000 units by the end of July 2026.”
- Cash or units. Is your forecast predicting a dollar goal, number of units sold, or both? For example: “Based on our analysis, Company A will close at least R5,000,000 in deals for the year 2026.”
“The most important thing is to forecast where customers are moving, and be in front of them.”
– Philip Kotler
Summary
Sales forecasting is a useful tool for predicting a company’s future sales and revenue. The insights you gain from a sales forecast can inform company-wide decision-making, motivate your sales reps, and increase accountability. The first step in creating a sales forecast is gathering your tools and information. You’ll need a standardised sales process, sales goals and quotas, and metrics from your CRM system. Next, you’ll choose a forecasting method, such as historical forecasting, opportunity stage forecasting, or pipeline forecasting. The last step is to interpret your results and share your predictions with your stakeholders.
- How far into the future should you forecast? The further you forecast into the future, the less accurate your predictions will be. A good, general rule is to forecast monthly for 12 months into the future. Then, forecast annually for an additional three to five years. Also, remember that your forecast isn’t set in stone. Adjust it as new information and data become available.
After establishing realistic sales quotas and producing reasonable future estimations, you can tackle some ways to keep your team on track.
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