How to make sales projections – this is a critical question for your business. Sales forecasting is key to any business because it can help you improve and develop a solid strategic plan by giving you in-depth knowledge of the market. If you’re wondering how to forecast sales, this one is for you. We’ll fill you in on everything you need to know.
Sales Projection Definition
Simply put, the definition of a sales projection is the amount of money a business expects to earn in the near future. You may hear it called sales forecasting. This is a prediction that draws directly from examining market trends, both current and historic. Your sales projection helps to determine your company’s health and determine whether your sale numbers will trend upward or downward. Smaller companies use different markers to help determine their sales projections.
Sales Forecasting Methods
It pays know how to make sales projections effectively. Ideally, you’ll try a few different methods to come up with your final numbers because not every method will be reliable enough for you. If you’re wondering how to forecast sales, we’ve picked out the most popular methods below.
Method One – Lead Value
The Lead Value sales forecast model involves a careful analysis of your lead source’s historical data. Take the data points you get from this analysis to create a new forecast. The start of every customer’s journey can tell us much about how they’ll end their journey. You want to assign a value to each of your lead types or sources so you can get a better sense of the probability that each lead will bring to your business in terms sales or revenue. You’ll need:
- Average sale price by source
- Leads per month for the historical data
- Lead source lead to customer conversion rate
There are a few calculations that come into play once you have these metrics in mind.
- Average Sale Per Lead Calculation – In order to get your average sale by lead, you simply have to analyse your data set for all of your customers and divide them up by source. For example, customers who request a demo could earn you $1,500 per customer while any lead from your website earns you $1,000 per customer.
- Average Lead Value Calculation – To get your average lead value, you multiple your average sale price by the average close rate for each lead source. For example, if you run a paid advertising scheme, and your leads from that earn you $2,000 at a 10% conversion rate, every lead would be worth $200.
- Number of Leads – You also want to know your number of leads, and you get this by dividing your total revenue goal by your average lead value. Say that your team achieved monthly revenue of $100,000 with an average lead value of $200. If you divide 100,000 by 200, you’d know that you would have had to generate 500 leads to hit your $100,000 revenue goal.
Method Two – Opportunity Stage
This method allows business owners to predict what opportunities are more likely to convert or close based on each stage of the customer’s journey. The further along the sales pipeline the person gets, the higher the chance is of closing the sale. For example, you could find that potential customers who schedule a call are 15% more likely to become your customers, but the customers who get to the demo stage are 35% more likely to convert.
The first step is to pick out a reporting period, and this can be monthly, quarterly or yearly. It depends on your sales team’s quota and your business’ sales cycle. Then multiply each deal’s value by the probability that it’ll happen and close. So, if you had a $1,000 potential deal with a closure probability of 40%, you’d get a forecasted amount of $600. When you have a total for every deal in your sales pipeline, add it up to get your complete forecast.
Method Three – Historical Forecasting
One of the most straightforward methods of sales forecasting is using historical forecasting. Look at your matching historical time period and assume you’ll get results that are either the same or slightly greater. However, you should use this as a benchmark prediction because it can vary from month to month.
For example, if your team sold a total of $80,000 through the month of October, you’d assume that they would sell at or around the same level going into November. If you look at your historical growth, you can make a more sophisticated sales projection. Let’s say you look at your historical data and you see positive growth of 6% to 8% each month. You could put out a conservative sales projection for November of around $84,800 based on your data.
Method Four – Multi-Variable Analysis Forecasting
One of the most sophisticated sales forecasting methods involves using predictive analysis. It draws from several factors, such as closing probability based on your lead type, average length of the sales cycle and sales team performance. Take a look at the following example.
You have a pair of sales reps who are both working on one account. Your first representative has a meeting on Friday with procurement, and your second representative just went before the buying committee and gave her very first presentation. If you look at your first representative’s success rate for this point in the sale process and combine it with the number of days left in the quarter and the deal size, he’s almost 40% more likely to close. This gives you a forecast of around $9,600.
Your second representative is only in the opening stages of the sale process, but her deal is much smaller and she has a higher close rate than the representative one. She’s 40% likely to make the sale, and this gives you a forecast of $9,000. When you combine these two numbers, your quarterly sales forecast for the two is $16,400.
Seven Reasons Why Sales Forecasting is so Important
We’ve given you several sales forecasting methods to try out on your own, but now we want to outline a few of the biggest benefits that come with incorporating it into your business. These include;
- Controlling Inventory – The more accurate your sales projections are, the more prepared your business will be to manage your inventory levels. Accurate sales projections can help you avoid overstocking items, but it can also guard against understocking items. Having a stable inventory means you have a better grasp on your company’s production levels and customer satisfaction.
- Managing the Supply Chain – When you can manage production efficiently and predict demand, you get better control over your entire supply chain as a whole. In turn, you’ll be able to better manage your resources and take advantage of any promotional ordering you may find.
- Financial Planning – Being able to accurately anticipate your sales figures gives you everything you need to predict your business’ profit and revenue at any given point. Once you get a solid sales forecasting method in place, and start getting an influx of information, you can start to explore avenues to help increase both your business’s net income and revenue.
- Stability in Pricing – When a business has solid forecasting in place, they usually end up with a stable inventory. This removes the need to have panic flash sales in at attempt to move all of your excess inventory. Instead, you can take your time and plan out your sales to maximise your return.
- Marketing Opportunities – Your marketing team will be able to take all of the data you gather and analyse it in order to try and capture future sale trends. If they see areas that are consistently weak like a slow period each year, they can offset that by offering a promotion, discount opportunity or sale to draw new customers and pick up any slack. It can also point out slow-moving products that you can then get rid of.
- Improve Performance – Every business should strive to improve on a continuous basis, and it’s a very common goal. Forecasting your sales and revisiting your sales process will help improve your business’s accuracy. This can ripple out to other areas of your business, and it can create continuous improvement in all areas.
- Sales Planning – When your sales team gets sales projections, they’re starting to plan for future sales or activities. It allows them to set out a business plan to manage all of the future promotional or sale events. If each member has a quota to hit, sales forecasting is the thing that helps them identify customers and help them hit their goals month after month.
Sales Forecasting Template
This can sound like a lot to take in, but having a comprehensive sales forecasting template on hand can make the process smooth and streamlined. Each sales forecasting method has a common thread in the data. They all hinge on using data to know how many opportunities you have in your sales pipeline and the chances of each one converting or closing. In order to keep all of these things organised, you can use a sales forecasting template. Ideally, this template should include:
- A spreadsheet that lists all of your deals. It should include your guaranteed and likely deals as well as your potential deals and those unlikely to close each month. This way, you’ll know at a glance where you sit from month to month in terms of profits.
- A revenue forecast that goes month by month and updates automatically with the information you input into your deal tracking spreadsheet.
- A yearly goal tracker. This goal tracker will help you effectively monitor your business’ progress toward hitting your sales goals at any given point.
At the very least, these three things are what you want to have in your sales forecasting template. As your business evolves and gets more sophisticated, so can your sales forecasting template. For example, you’d ideally like your template to calculate everything by itself without you having to go back and manually run any numbers.
How Billdu Can Help With Sales Projections
The key to getting successful sales projections comes from having a very organised documentation system in place. You need both current and historical data at your fingertips to get the right numbers. You can pull this data from a variety of sources, including payment records, invoices and sales records that are all organised in one centralised location. This allows you to easily find all of the data you need to make your forecasts, and this is where Billdu comes in.
Billdu is a platform that makes storing and locating all of the necessary documents quick and easy. This cloud-based platform puts all of your documents in a neat order by date or invoice number. You also get access to mobile apps that run on iOS and Android, and this lets you download all of your information on the go on your tablet and smartphone as well as viewing it on your PC. You can easily tackle your sales projections from the comfort of your own home and use your office time to focus on all of the other important parts of running your business.
The user-friendly platform makes it easy to input new expenses, and it keeps a running total of any invoices you may have. In turn, you can adjust your sales projections based on the information in the platform.
Try Billdu Today!
If you’re ready to take control of your sales projections and organise all of your documents in one centralised location, Billdu can help. We invite you to find out what a difference Billdu can make with your business, and it all starts by clicking below to start your completely FREE trial.