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Billys Blog

Why Do I Have to Forecast My Sales?

October 17th 2012

Posted by Dave Claunch

When pressed for next year’s sales forecast, most sales reps cringe at the idea. I usually get a response along the lines of, “Just put me down for the same amount I did this year.”  They assume that they will add some new business, but lose some business as well, so where’s the need to forecast?  This thought-track can be dangerous for both the sales rep and the company. 

Sales forecasts are an important step in helping a sales organization plan for the future.  It acts as a gauge to measure your progress against your goals.  It has been well documented that if you set early goals, and measure your progress toward them, you are far more likely to achieve the desired outcome.  Although this industry is somewhat difficult to forecast, it is still vitally important to set your course for the coming year. 

So, how is a rep to forecast sales when there is a high level of uncertainty?  How do I know that those large orders I received last year are going to be placed again next year?  What about the uncertainty of the economy?  What if a large client’s budget gets cut? Where do I start?

The first thing you have to realize is that every sales organization struggles with forecasting. It is an inherently unpredictable occupation but, with aggressive but attainable goals; healthy prospecting habits; and a desire to achieve, you can add predictability to your process.

Forecasting Tips :

<> List your largest accounts and use your current year’s sales as a barometer.  If there are known events or reasons to adjust either up or down, factor those into your forecast.

<> Use the 80/20 rule.  That is, try to forecast for the top 20% of your accounts that make up 80% of the total.  Lump the rest of the sales into a miscellaneous bucket.  It is important to also forecast gross profit for each of these sales. 

<> Factor in new business.  You should target approximately 15% of your current year’s sales as new business.  This allows for some uncertainty from your existing business and guarantees overall growth in sales.

<> Assign a probability factor to forecasting prospect sales growth.  For example, you may want to lump together prospects you have been working on that have a good chance of turning them into clients and assign them a higher probability than those on your target list that you haven’t had much contact with.

<> You must be committed to the new business goal.  This isn’t a number that you hope to hit; it is a number you are committed and well prepared to hit no matter what happens to your current business.

Accurate forecasts are also vitally important to the company’s overall budget.  All other areas of targeted spending are dependent on the forecasted revenue.  When accurately predicted, the forecasts allow management to measure their expenses against forecasted spends and profitability.  If revenue is below forecast, management must make adjustments to their spending levels to insure the profitability of the company.  If forecasts are not accurate, it is harder to make decisions regarding spending levels and to maintain good fiscal responsibility.  This could lead to unexpected losses over time.

Sure it is a difficult process, but one that is necessary and important.  The time spent on planning a solid forecast will payoff for both the sales rep and the company in the long run.

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