Categories Articles, Sales and Marketing

Sales Forecasting Methods

When asked what superpower they could have if given the choice of any special ability, a vast majority of Sales VPs would undoubtedly choose the ability to predict the future. With that mutant ability, those Sales VPs would not join the X-Men, but rather use their special powers to accurately predict their sales forecasts.

Alas, superpowers are somewhat rare, even among ultra-talented Sales VPs. Therefore, sales leaders must instead rely on effective, data-driven sales forecasting methods. There are many elements that go into an accurate sales forecast. We will be focusing on one of the first and most important steps to take: defining your opportunity pipeline stages.

Many sales managers traditionally relied on forecasting stages, such as commit or upside. These are notoriously subjective inputs that depend on the judgments and intuition of your sales reps. Unfortunately, sales reps are known for their “happy ears” and general optimism regarding the opportunities they are working on. Using opportunity stages instead can help eliminate some of this subjectivity.

(For more detailed information about sales forecasting, check out our FREE eBook: The Ultimate Guide to Sales Forecasting.)

 

First, make sure you have a clearly defined sales process and formal definitions of each opportunity stage in the sales funnel. These definitions should be driven by the buying process, rather than the selling process – even if your rep is executing perfectly, their steps do not necessarily reflect the customer’s likelihood of buying. Therefore, it is more accurate to map your opportunity stages to the buyer’s process, with distinct qualification requirements before moving on to the next stage.

Thinking like a buyer vs. thinking like a seller

Buyer’s Process

Seller’s Process

Initial Interest

Initiate

Education

Educate

Transfer of Ownership

Validate

Rationalize

Justify

Decide

Close

Opportunity stages should run the entire gamut of the sales funnel, all the way from “New” at the top of the funnel to “Closed” at the bottom. There should never be an active opportunity that is not residing in one of your stages. There should also be enough differentiation between each stage to provide meaningful insights – a sales funnel with a dozen different opportunity stages is not likely to be very helpful.

Discover Jason Jordan's Secrets to Pipeline Management »

Looking at your average historical conversion rates from one stage to the next provides a data-driven, objective and accurate benchmark for sales forecasting that is based on the conversion rates from analysis of recent closed sales. There should be a measurable – but gradual – drop-off in conversions as opportunities make their way through the sales funnel. Drastic drops should raise a red flag in the definitions of your opportunity stages.

With opportunity stages, you will be able to accurately measure what percent of opportunities make it to Closed-Won based on your historical performances. You can then apply those historical averages to your current opportunity pipeline to accurately forecast what you are likely to close in the next month or quarter.

Data-driven sales forecasting methods are all about measuring win rates and forecasting objectively. Using quantitative stages that are well-defined and match your buyer’s process will allow you to do so.

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