Why Is a Sales Forecast Important?

Kushal Saini Kakkar
February 18, 2022
5 min read

Once upon a time, a group of people walked into a bar and sat at a corner table to discuss the art of divination. 

They were tradesmen of the highest order, with businesses that sprawled cities and sustained civilizations. Emboldened by their purpose and success, they wanted more and more than more. So, they sat down to craft a practice that would help them to keep selling better and win at their respective trades. 

We do not know what these ancient tradesmen called their system of prediction. But, they were generous enough to pass the practice down to those who wished to walk the same path as them. Their descendants adapted it to each changing age and today, we call it sales forecasting.

Ok, so all of that may not be strictly accurate, historically speaking. But what is true is that no business can hope to be successful without practicing the ancient art of sales forecasting.

A tip-of-the-iceberg look into what a sales forecast is

A sales forecast is an in-depth rundown of what a sales rep, a sales team, and the company as a whole are expected to sell on a weekly/ monthly/ quarterly/ annual basis. 

The forecast is put together using historical data, present-day sales activities, and pipeline, plus a dash of industry trends.

At its core, the sales forecast is an attempt to answer the question: what sales and revenue can we expect if we continue down our present path in the current industry climate?

Why put stock in a sales forecast?

The primary reason why the sales forecasting process is crucial is that it informs larger business processes to a certain extent. These include:

The process of making better business decisions

Allocating budgets, hiring, determining quotas for a particular time frame, deciding whether new products can/ need to be launched, setting performance benchmarks- all of these business decisions rest upon the results of sales forecasting.

For example: if sales data and industry trends indicate a steady rise in flight bookings, then a company may need to allocate more budget to hiring for handling increased customer queries. At the other end of the spectrum, you might need to hold off on launching any new products if forecasts indicate that consumer spending is unlikely to rise in the near future.

The process of resource allocation

At the end of the day, there are only two resources that anyone possesses: time and money. For businesses, each second and every dollar counts. Sales forecasting ensures that you are spending those seconds and dollars where the highest returns are more or less assured.

For example: Adam Mosseri, the head of Instagram, announced in a reel on 28th December 2021 that the app was going to heavily focus on consolidating its video formats into reels in the coming year. Now, if your company uses Instagram as one of its primary marketing platforms, then your marketing plans will need to change to center videos (particularly reels) more. You might need to invest more money in video-centric marketing campaigns and more time in educating your marketing team on what optimized video content looks like.

The process of proactive improvement in the right direction

A slight misstep in business can cost hundreds and thousands of dollars. A sales forecasting report decreases the probability of these missteps by predicting sales performance over a timeframe and giving businesses the opportunity to change and improve internal processes and systems in the right direction.

For example: if your conversion rates are predicted to remain more or less stagnant, then it's a problem that needs to be recognized at the earliest and not when the month/ quarter/ year is over. Your sales forecast will help you do that by alerting you early on. You can then take the necessary steps to refine your sales force's approach and fix the sales pipeline where it seems to be leaking or broken. The domino effect will be seen in the uptick of your cash flow. 

One of the coolest things about aligning your business plan with a sales forecast is when sales performance improves due to it, you can draw up a new forecast which will inevitably predict better performance and revenue due to the improved historical data. You can then share this new report with your teams, clearly showing them how the changes made have improved metrics and will continue to do the same if they keep at it. Tangible and irrefutable proof.

The (Almost) Accurate Sales Forecast Mix

While mythical ancient tradesmen (and businesses from the pre-digital era) did not have the means to create very accurate predictions, modern businesses do. There are clearly defined metrics, state-of-the-art sales forecasting software, and sales CRMs that can help in creating the most accurate forecast possible. 

If you aren't taking advantage of them, then you are missing out on the chance of improving future sales. 

No matter the medium you choose, however, there are basic ingredients that are common to all accurate forecasts. Three of these are:

Accurate historic data

Accurate historical data will pull the curtain aside on past sales performance, allowing you to predict future performance and revenue with accuracy. It will tell you the conversion rate you are achieving with your current resource allocation, sales pipeline, sales software (if any), and other correlated factors.

For a more holistic view, pull in data from marketing, finances, product, PR, and other interrelated departments. This will give you a more wholesome perspective, allowing you to see how sales performance might be affected if you change the status quo in other departments. Also, consider the industry climate, economic conditions, and the seasonality of your business. Your business exists in symbiosis with them.

A defined sales process

A defined sales process with consistent steps and stages will help you to predict how likely it is that a deal will close. It will also set standard lead, prospect, close, and opportunity definitions, ensuring everyone is on board on how to define the various aspects of a sales funnel.

If the sales process is not clearly defined and articulated, it will lead to a whole lot of misinterpretation, inconsistent sales data, and of course, a really inaccurate sales forecast.

The right technology

The outcomes from your defined sales process need to be input somewhere and tracked over a regular timeframe so that the forecast accuracy is as precise as it can be.  Wingman can step in to do the job by being able to store sales data over long periods of time. 

  • Wingman records and tracks the sales calls of your sales reps and its AI-infused algorithms identify granular, impactful instances in calls relating to the behavior of your sales reps and prospects
  • You get to capture critical insights such as - the likelihood of conversion at different sales stages, talk to listen ratio, moments of hesitation, and more metrics to fuel your forecast
  • With these insights at your hand, your forecasting-wingman facilitates the process by pushing the right key insights to you - at times when you are identifying what to factor into your sales forecast

Whether you're a startup or an established business looking to scale, having all of your historic data organized in one place will definitely pay off in the long run. Without a CRM to house your sales data, you will be relying on scattered spreadsheets, PPTs, and Excels that provide no coherent picture and ultimately decrease your forecast accuracy.

Once you have the forecast in place, it's time to begin crafting your sales strategy. This is where you enter the arena and actively begin trying to enhance sales performance and cash flow.

A pinch of common sense

Technology and the world as a whole change too rapidly to assure accurate sales forecasts. They are a great tool to help you map your monthly/ quarterly/ yearly plans. But beware of thinking that forecasts are prophecies. Hey, even prophecies can go wrong, as some will attest to.

The sales forecast should inform the direction of your sales strategy. If you have a vision of trying something new but forecasts indicate it won't work out, don’t remove it from consideration. Take a shot depending on your resources. At least you’ll go in more cautiously, instead of staking it all.

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