Sales forecasting has many major benefits. Here are just a few based on our own experience:<\/p>\n
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- It allows our sales team<\/a> to predict with a fair degree of accuracy which deals will close, and how much revenue will flow into the business as a result.<\/li>\n
- It gives us time to change our sales strategy<\/a> if we\u2019re trending below target, so we can manage our revenue expectations for the forecasted period.<\/li>\n
- It provides individual sales reps with visibility into their ongoing deals, allowing them to get ahead of potential blockers and course-correct as needed.<\/li>\n
- It enables our entire organization to plan ahead, looking toward new uses cases or even emerging markets where there are opportunities for expansion.<\/li>\n<\/ul>\n
How sales forecasting influences growth<\/h2>\n
Just knowing which deals are expected to close and how much money the business stands to make as a result doesn\u2019t guarantee we\u2019ll actually increase our revenue. In other words, sales forecasting itself doesn\u2019t drive growth.<\/p>\n
Instead, sales forecasting requires clear line of sight into our sales pipeline \u2013 what deals are in progress, the stages they\u2019re at and the likelihood that they\u2019ll close. That line of sight is what allows our sales reps and managers to proactively influence individual sales quotas<\/a> and the organization\u2019s overall revenue trajectory.<\/p>\n
Here are three knock-on effects from forecasting that help drive growth:<\/p>\n
1. Identifying deals that need immediate action<\/h3>\n
If a decision maker has been \u201ctrying to get budget approval\u201d for several weeks, that’s probably a sign they’re not going to close anytime soon. Sales forecasting helps us address situations like this by requiring sales reps to regularly examine their pipeline and take action long before deals are at risk.<\/p>\n
“Forecasting requires sales reps to examine their pipeline and take action long before deals are at risk”<\/p><\/blockquote>\n
By acting quickly, we can prevent \u201cpipeline bloat\u201d \u2013 when a sales pipeline is artificially inflated by deals that will never close. And if a deal does end up stalling, having a rigorous process in place means we\u2019ll remove them from our forecast before we end up with inaccurate revenue projections.<\/p>\n
2. Spotting sales tactics that are and aren\u2019t working<\/h3>\n
Good sales forecasting requires active pipeline management. By keeping a close eye on our entire pipeline, we can identify useful correlations between our reps\u2019 actions and deal outcomes. This allows us to double down on effective sales tactics and eliminate the ones that aren’t working from our sales process.<\/p>\n
Here\u2019s an example from our relationship management team<\/a>: when we first created the team, we hypothesized they would primarily use email to drive customer retention and expansion. But when we examined their book of accounts, we were proven wrong. Instead we identified a strong correlation between customer calls and account growth. Without this analysis, we could easily have kept creating email campaigns with little to show for it.<\/p>\n
3. Establishing the impact of new processes and tools<\/h3>\n
In sales operations, we\u2019re constantly trying to optimize how our sales reps work, with the goal of enabling them to close more deals faster. Oftentimes, that means making process improvements or buying new sales tools<\/a>. With sales forecasting, we\u2019re well positioned to track the impact of these major changes on our pipeline.<\/p>\n
This is exactly what we did when we rolled out Dooly<\/a>, our sales enablement tool. We\u2019re always aware of the risk of slowing down reps by adding another step to the sales process. But when we looked at how our reps were spending their time, it was clear that Dooly was helping our team work faster \u2013 saving them, on average, at least three hours per rep per week. Less time spent on administrative tasks means more time actually closing deals.<\/p>\n
![\"Intercom](\"https:\/\/www.intercom.com\/blog\/wp-content\/uploads\/2019\/07\/Dooly.png\")
Here\u2019s an example Board from Dooly, a tool we use to track conversations with our prospects.<\/p><\/div>\n
So, how do you actually build a sales forecast?<\/h2>\n
There are a number of different ways to forecast sales. You can forecast using historical sales data, weighing deals in your pipeline by opportunity stage or scoring your leads based on behavior. The right method will depend on your team\u2019s particular sales motion.<\/p>\n
At Intercom we practice \u201ccategory forecasting,\u201d which combines insight from the sales rep and clear indicators from the account. I\u2019ve boiled down our process to two repeatable steps.<\/p>\n
Step one: Assign a status to every deal<\/h3>\n
The first step is having each sales rep assign a status to all their active deals. These statuses reflect how likely it is that a particular deal will close within the forecasted period \u2013 in our case, weekly.<\/p>\n
These are the labels that we use:<\/p>\n
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- Firm:<\/strong> We expect to win these deals in the current forecast period. Our decision makers haven\u2019t signed on the dotted line yet, but there are no major blockers we can see that will prevent us from winning the deal. We may be in the process of getting legal sign-off or finishing a security review.<\/li>\n
- Upside:<\/strong> We have a chance at winning these deals within the forecast period, but there are still obstacles that need to be overcome. For instance, we may not have buy-in from the budget owner or have just started the procurement process.<\/li>\n
- Pipeline:<\/strong> These are deals with the potential to be won in the forecast period but are unlikely to cross the finish line in time. This may be due to significant obstacles, like having to replace an existing vendor, or these deals may simply be new.<\/li>\n<\/ul>\n
![\"Category](\"https:\/\/www.intercom.com\/blog\/wp-content\/uploads\/2019\/07\/Category-forecasting-Intercom.png\")
Every sales rep in a closing role provides a forecast for each status \u2013 firm, upside, pipeline.<\/p><\/div>\n
Step two: Create your rollup forecast<\/h3>\n
The second step is creating your rollup forecast. We do ours every week, but if your sales organization is still growing, you might do it bi-weekly or monthly.<\/p>\n
Here\u2019s how we handle it: sales reps provide their managers with a forecast, which sales managers summarize for sales directors. Directors then provide a forecast based on trends and projections, plus the status of key deals and actions to be taken. Finally, our sales leaders use the forecast to set revenue expectations with the C-suite and our go-to-market partners.
\n![\"Sales](\"https:\/\/www.intercom.com\/blog\/wp-content\/uploads\/2019\/07\/Sales-rollup-forecast.png\")
Having a weekly rollup forecast drives accountability throughout our entire sales organization, starting from the bottom up. It holds every person responsible for delivering revenue to the business.<\/p>\nAvoid these common forecasting mistakes<\/h2>\n
You don’t need to have a lot of deals to start forecasting. But you do need proper sales pipeline hygiene \u2013 clear milestones that support your hypothesis about how likely it is that a deal will close. When sales organizations lack this hygiene, they usually make these mistakes:<\/p>\n
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- Unrealistic closing dates:<\/strong> Without clear milestones, sales reps have to guess when a deal will close based on they\u2019ve been told. They don\u2019t have any indicators to determine if \u201cI’ll have approval in a week\u201d actually means \u201cI\u2019ll have approval in a month\u2026 or two.\u201d<\/li>\n
- Overly optimistic forecasting:<\/strong> Similarly, a lack of visibility into the sales process can result in overly optimistic forecasts. A sales rep may be convinced that an account is going to buy your product\u2019s premium plan, only to be surprised when they hear “We\u2019ll stick with the free version\u201d a few days later.<\/li>\n
- Bloated sales pipeline:<\/strong> As I mentioned earlier, one of the big risks with poor pipeline management is \u201cpipeline bloat\u201d \u2013 when your forecast is stacked with deals that will never close. A messy sales process can make it hard for sales reps to tell the difference between a promising deal and a stalled one.<\/li>\n<\/ul>\n
4 ways to improve your sales forecast<\/h2>\n
There are a few simple, yet crucial, ways you can make your forecasting process even more accurate. Here are four we recommend that any high-growth sales organization consider:<\/p>\n
1. Experiment with different types of forecasting<\/h3>\n
While we prefer category forecasting, it’s not the only option. If you’re looking to update your sales forecasting methods, there are a few other methods you might consider.<\/p>\n
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- Historical forecasting:<\/strong> With this method, you use your past performance to predict your future performance. It\u2019s the top-down approach to forecasting where you assume that under the same conditions, you\u2019ll sell the same amount. If you have a steady growth rate, you’ll end up with a linear revenue projection that’s growing. This model works best for companies with highly transactional sales.<\/li>\n
- Opportunity stage forecasting:<\/strong> This forecasting method requires having clearly defined sales stages. Leads are put into stages like \u201cdiscovery,\u201d \u201cdemo,\u201d \u201cnegotiation\u201d and so on. Reps then use these stages to determine how likely it is a deal will close. For example, you might determine that if a prospect schedules a demo, there\u2019s a 15% chance the deal will close. This typically works well for sales team who sell to SMBs with predictable sales cycles.<\/li>\n
- Pipeline forecasting:<\/strong> This method leverages specific data about your accounts to determine how likely it is deals will close. For example, if companies in the healthcare industry with 100-500 employees take six weeks, on average, to close, you’d apply that same logic to similar companies currently in your pipeline. This type of forecasting works best at sales organizations with lots of data to reference.<\/li>\n<\/ul>\n
2. Continuously qualify sales opportunities<\/h3>\n
Not everyone who comes into your pipeline will be a good fit for your business. As you’re evaluating leads, be sure they meet the profile of your ideal customer. Without continuous lead qualification<\/a>, you might end up chasing accounts that won’t close, ultimately wasting time and energy.<\/p>\n
For example, for leads in a free trial<\/a>, leveraging their customer data in Intercom helps our sales reps make informed predictions about who will or will not become a paying customer. We pay attention to key milestones like installing the Messenger or setting up their first chatbot<\/a>. Frequent usage is a good sign that the prospect will end up converting, while inactivity is one sure sign they won\u2019t.<\/p>\n
![\"We](\"https:\/\/www.intercom.com\/blog\/wp-content\/uploads\/2019\/07\/free-trial-message.jpg\")
We proactively message prospects during their free trial, so we can continuously qualify them and improve our conversion rates.<\/p><\/div>\n
3. Identify opportunities for sales coaching<\/a><\/h3>\n
At Intercom we believe every sales manager should also be a sales coach, committed to enabling their reps and their team to drive to the right outcomes. That includes helping sales reps understand how to assess and manage their pipeline \u2013 things like how qualified prospects are, how likely deals are to close and when they’ll close.<\/p>\n
By coaching our individual sales reps to better performance, our entire sales organization benefits. Our sales forecasts are more accurate, our reps are more likely to hit their quota and as a result, our combined revenue impact on the business is greater.<\/p>\n
4. Create deep integrations between your sales tools<\/h3>\n
Finally, aim to integrate all your sales tools. An integrated tech stack leads to more accurate forecasts by ensuring your data flows seamlessly from one tool to the other. Manually copy-pasting information between tools isn\u2019t just the bane of every sales rep\u2019s existence. It\u2019s also the fastest way to end up with bad data and an unwanted surprise at the end of the quarter.<\/p>\n
- Opportunity stage forecasting:<\/strong> This forecasting method requires having clearly defined sales stages. Leads are put into stages like \u201cdiscovery,\u201d \u201cdemo,\u201d \u201cnegotiation\u201d and so on. Reps then use these stages to determine how likely it is a deal will close. For example, you might determine that if a prospect schedules a demo, there\u2019s a 15% chance the deal will close. This typically works well for sales team who sell to SMBs with predictable sales cycles.<\/li>\n
- Overly optimistic forecasting:<\/strong> Similarly, a lack of visibility into the sales process can result in overly optimistic forecasts. A sales rep may be convinced that an account is going to buy your product\u2019s premium plan, only to be surprised when they hear “We\u2019ll stick with the free version\u201d a few days later.<\/li>\n
- Upside:<\/strong> We have a chance at winning these deals within the forecast period, but there are still obstacles that need to be overcome. For instance, we may not have buy-in from the budget owner or have just started the procurement process.<\/li>\n
- It gives us time to change our sales strategy<\/a> if we\u2019re trending below target, so we can manage our revenue expectations for the forecasted period.<\/li>\n
![\"Our](\"https:\/\/www.intercom.com\/blog\/wp-content\/uploads\/2019\/07\/Intercom-Salesforce-integration.png\")