Businesses are being more focused on accurate sales forecasting as deviations in forecast versus actual sales figure could cost them in terms of lost revenue opportunities. As a result of this, the production forecast and other business operations will also take a hit. Accurate sales forecasting enables the manager to cope with sudden changes in demand levels, counter competitive moves, and manage seasonality. For such reason, the sales forecast is no more a luxury but a necessity for an organization.
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Here are some of the most popular forecasting tools used by organizations to accurately predict sales:
Opportunity Stages Driven Model
Every salesperson would be tracking his/her sales progress by analyzing the likelihood of converting a prospect based on their sales cycle. There is a higher chance of conversion if the client is progressed further down the sales cycle.
The Calculation
All opportunities are mapped out and assigned a probability for the deal to be closed. The further down the sales cycle a prospect is in, the higher the probability of conversion.
Calculation:
Expected Revenue = Deal Amount * Probability to close
All the leads or opportunities are then mapped out according to the stages they are at, and with its help, an expected revenue figure can be forecasted.
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The manual calculation of this model can be tedious and time-consuming. Therefore, adopting a good CRM software will aid in sales forecasting by eliminating human error and simplifying the process.
The Lead Driven Model
The lead driven model focuses on the value of each lead and assigning a probability for those to convert into revenue.
The Calculation
The sales team must first figure out the average value of a lead.
Average Lead Value = Average Sales Price x Conversion Rate from Lead to Customer
Here, the conversion rate from lead to customer can be derived from historical conversion data.
The next step is to ascertain the number of leads required to achieve a target revenue. This can be estimated by:
Leads Required = Desired Revenue / Average Lead Value
For instance, if a business targets a $100,000 revenue with an average lead value of $1500.
Leads Required = $100,000 / $2,000
= 50 leads
The sales forecasting can now be done using CRM software; but it could also be carried out by identifying the expected number of leads and multiplying it by the average value per lead.
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Advanced Predictive Sales Forecasting
With the advent of software and devices with intense computing power and complex econometric models, it has become possible to assign a forecast figure by taking into account multiple factors affecting sales. By including multiple factors that influence sales, the sales team can come up with more accurate forecast. One such model is by using personal conversion rate of each employee, the average length of a sales cycle, and the probability of an opportunity closing into sales.
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