Are you running a business and need to manage your resources better? Then you’ll need to spare the next few minutes to learn how to create a sales forecast. This is an invaluable tool in business and will help you figure out which products are driving your sales and profits. So, how exactly can you create a sales forecast? There are several methods you can use, as we’ll discuss in this guide.
Sales Forecasting Using Historical Data
If your company has been running for a while, you can use historical data to make predictions on future sales. Just check how your company grew in specific periods (think months, quarters, or years). You should consider using a forecast Excel template to make predictions with superhuman accuracy.
The weighted pipeline method is a popular way of forecasting sales with historical data. This is a pretty straightforward way of estimating the performance or probability of success in each section of your sales pipeline. You will need to determine the stages customers go through before making a purchase, and then you can analyze the level of interest they show at each point.
As an example, you can split the sales pipeline into the lead generation stage, inquiry stage, demonstration stage, and proposal stage.
Bottom-Up Sales Forecasting
As you probably guessed from the name, this form of forecasting starts with the lowest level of detail (usually the salespeople). You can then work your way up the chain. How you apply bottom-up sales forecasting will largely depend on your industry and business model. For example, a SaaS business that sells subscriptions may have to look at sales channels, the monthly active subscriptions, and the churn rate.
This method requires you to take historical and current data into account. Internal factors like the sales budget, production capacity, and marketing have to be considered first. They can then be compared to the larger market to see how well the company is performing.
The main advantage of bottom-up forecasting is that it gives companies a detailed and realistic view of their capacity to compete in the market. It is also easier to make adjustments in the future as you won’t need to alter an entire schedule.
Top-Down Sales Forecasting
Top-down sales forecasting is often contrasted with the bottom-up method as they’re more or less opposites. This method is quite easy to use. Don’t worry if you don’t have much knowledge of data analysis or statistical methods. You just need to look at the larger market and competitive landscape to determine the size of the market you can realistically capture. Keep in mind that top-down sales forecasting is prone to errors since you’ll be using aggregated data.
Final Word
Are you making plans for your business? Then you need to create a sales forecast. You can do this using several methods, including historical sales forecasting, bottom-up sales forecasting, and top-down sales forecasting. Remember that each option has its pros and cons. For example, with top-down sales forecasting, you will likely get errors, particularly if you’re an optimist.