A sales forecast is a projection of what your performance as a sales organization will be at the end of a measurement period.
Opportunity Stages Forecasting
In CRM system such as Salesforce.com, your opportunities each have a status or Opportunity Stage. Each stage represents a milestone as you work towards taking a validated sales opportunity across the finish line and closing the deal. As an example, in the software world, these stages might be steps like “Completing an assessment call”, “Providing a demo”, “Enrolling in a trial”, “Submitting Quote” and “Closed – Won”.
Each of these stages will have a “probability of closing” associated to them. So an opportunity in an early stage might have a win rate of 23%, whereas a later stage might have a 86% probability of closing.
This Month's Forecast
|Opportunity Name||Stage||Probability||Amount||Forecasted Amount|
To combat some of the flaws of the previous approach, other sales organizations use Forecast Categories to generate their forecast. Independent of the milestone hit by the opportunities, sales reps and managers are asked to make an assessment of their opportunity. Common forecast assessments might be “Commit” (i.e. I am committing to bring this in) and “Best Case” (i.e. if a few things go our way, this could come in).
Sales managers use these assessments to build out different scenarios for the consumers of their forecasts (CEOs, CFOs). The “worst case” scenario would be just closing the Committed opportunities. The “Best Case” scenario assumes more deals closing, which is more optimistic.
Advanced Predictive Forecast
More advanced techniques can of course be used. One such advanced method would use the length of the sales cycle, employee’s personal win rates, and the probability an opportunity will close in the period. This method evaluates the age of each of your opportunities and compares it to the typical length of your sales cycle, then multiplies that by the owner’s win rate at that stage.
This allows you to judge algorithmically the likelihood the opportunity will close in the period you’re forecasting as opposed to a later one. The math in an approach such as these can get complex, quickly. Which is why more advanced reporting and analytics solutions are useful. You, as a sales manager, can focus on your strengths and leave the fancy math to the MIT PhDs behind the scenes.