Sales forecasting can act as a time machine that allows you to peek into the future. Well, maybe you cannot exactly predict the future, but you’ll know what action to take in the present. An estimated range of sales for the upcoming six to twelve months can be very helpful for planning marketing actions and establishing a proper sales strategy. You can focus the company’s resources more efficiently, plan for any challenges, allocate resources better, plan future sales, and take advantage of money-making opportunities.

It also plays a huge role in coworkers' mentality since sales forecasts can predict when business might slow down a bit. The business value of sales forecast metrics is indisputable and should be used by every reputable company. In this article, we’ll cover essential information regarding forecast sales. You’ll get to know how and when to use it and how to create one. We will also provide a few free templates that you can use for your company.

Why Should I Care About Sales Forecasts?

Before we delve into the details of different sales forecasting methods, let’s understand why you should even use them.

• Example #1. Your sales forecast predicts a 40% increase in your future sales revenue. Thanks to this information, you can invest in new product development or hire more staff. However, if it says the opposite, you know it's better to limit your expenses for the time being and try to minimize losses.
• Example #2. Your sales team achieved a 75% conversion rate last quarter. Ideally, you would like the sales to grow or at least stay at the same level. However, your forecasting tells you that your sales will drop by around 30% in the next quarter. Thanks to this prediction, you still have time to course-correct to minimize or even prevent the losses before the next quarter starts!

Check the most important reasons for establishing a sales forecast.

• Accurate financial planning. An accurate sales forecast will help you precisely estimate the revenue for upcoming months. You can plan how to use that estimated capital and further expand the profit the company expects in a given time.
• Sales planning. The estimated revenue is an invaluable help for salespeople. More estimated revenue means they can hire more people or test new marketing strategies to hit the estimated value or even exceed it. If you predict future sales correctly, they can prepare for it beforehand.
• Better marketing. As mentioned above, proper forecasting will give your marketing team enough time to introduce new strategies. For example, if a forecast shows that sales are waning, it’s a good indicator to invest resources in marketing to minimize the losses in the long term. 
• Inventory control. With an estimated revenue, the company will know how much inventory they actually need for the next quarter. If the estimated sales are rising, it's a signal to purchase more. But if it’s the opposite, it may be better to hold for a bit and avoid overstocking. You’ll find a perfect balance for inventory control with a proper forecasting method.
• Fluctuations in price. Consistent pricing is a deciding factor in attracting new customers and keeping the existing ones. Without proper sales forecasting, a company might change the pricing of its products unpredictably. It’s often a result of panic to avoid revenue loss. Such a tactic impacts the company’s credibility significantly.                

What is a Sales Forecast?

Sales forecasts predict the sales value volume a business will experience over a given time period. It’s a mandatory report for bigger companies to plan accordingly to estimated revenue. This means that a good sales forecast is a deciding factor regarding the sales process, sales reps, and sales cycle. Accurate sales forecasts can often save businesses from bankruptcy or give a green light for potential investments.

However, sales forecasts are not perfect by any means and can be affected by a range of factors. Let’s see what aspects can affect the reliability of sales forecasts.

• Lack of sales history. A proper forecast needs historical sales data to work with. If you don’t have anything to rely on, you won’t be able to predict the estimated revenue. It is possible, but the accuracy of such a forecast is comparable to asking a fortune teller.
• Business type. Every industry has its own challenges and unpredictable factors to be taken care of. Even the most accurate sales forecasting won’t be able to predict some unexpected circumstances. For example, the ad tech industry might lose revenue due to new data privacy regulations.
• Outside factors. These also can’t be predicted by any sales forecasting method. Inflation, war, law regulations – these usually appear suddenly and can’t be controlled. Sales projections are becoming outdated as you adapt to a new situation.
• Inside factors. The company management team might decide to change the sales process, which usually translates to the company’s sales cycle. An accurate forecast becomes obsolete in such a situation, and you’re forced to change the course or use a different sales forecasting model.

Sales Forecast Examples

With the theory out of the way, it’s time to include some examples to take a closer look at what proper forecasting methods look like. These templates are either in PDF or XLS formats, so MS Office or other office-related product is required. If you don’t have one, you can visit RoyalCDKeys and buy Microsoft Office 2021 Professional Plus Key Retail Global for less than $12. Compared to official prices, our offer is a bargain.  

Example #1

Industry experts create the best forecast templates, so we chose Tim Berry’s approach for the first example. He is the chairman and founder of Palo Alto Software, and his template shows what a startup sales forecast should look like.         

This particular forecast describes an example of opening a small cafe in an office park. The template shows how to establish a base case, estimate the monthly capacity, and what revenue to expect. It also includes a month-by-month estimation and the direct cost of running such a business. It shows an actual real-life scenario, so picking this one is a great exercise for those starting with forecasting or who want to start a new business. 

Example #2 

MS Office users can download detailed sales forecast template from Microsoft. It’s not the most aesthetic template you can find but definitely an intuitive one. If you want to estimate your monthly sales projections, it can’t get simpler than that.

The template includes pre-built formulas and MS Office-exclusive features to encourage more users to use their software. It’s worth noting that this template relies upon a weighted sales forecasting method based on the probability of closing each opportunity.

Even if you don’t plan on using this template, it’s a great training file. Fiddle with the settings, fill out your own numbers, and understand how the template works. The spreadsheet format is also the most accessible format for other users with office-related software.

Example #3

This template is aimed at more advanced users, given the information it provides. You can keep track of unit sales, growth rate, profit margins, and gross profit. Everything is already set up, so you must fill it with your company’s data. Here, you can compare and analyze different products every month. 

There are also other sample charts included in this file that can further improve your sales forecast. It means that the same worksheet can be used for both monthly and yearly forecasts. It’s not the easiest template on this list, but once you get the hang of it, you won’t need anything else to work with. 

Download:

• MS Excel template

Example #4

It’s the least advanced template on our list, suitable for small companies or for training purposes. With this template, you can create a simple forecast from scratch, adjusted to your personal needs. The main benefit of using this template is its accessibility. It’s available in various formats like Excel, PDF, or Google Sheets. That’s great news if you have limited access to the necessary software.

Download:

• MS Excel and PDF template   

Sales Forecasting Tools

Apart from sheet templates, you can find online tools to help you organize your forecasting work. Online tools are meant to help you create a proper sales forecast. Here are the best examples.

Pipedrive

Pipedrive’s main asset is the ability to organize your sales. In short, this one is the way to go if you need a robust CRM tool designed for salespeople. While forecasting isn’t the main purpose of Pipedrive, its forecasting tool is quite useful if you’re also a salesman. It allows you to choose the right deals and activities at the right time. However, only managers and salesmen will use it to its fullest potential. So, if you don’t opt for becoming a better closer, you should look somewhere else. 

Smart Demand Planner

Smart Demand Planner is a more versatile tool focusing strictly on forecasting. Manual forecasts can often be inaccurate, which can cause short and long-term issues. Also, using a complex spreadsheet may not be intuitive for some, so using an online tool might be better for less advanced users. 

And even if you’re familiar with office spreadsheets, they’re often difficult to use, share, and scale for others. Simply put, you can align business forecasting at all levels of your hierarchy. So, if you want to ensure your forecasting is error-free, Smart Demand Planner is the way to go.

Kommo

Kommo is a revolutionary tool that uses the most popular messaging apps to significantly boost your company’s sales. The potential and popularity of messaging apps are undeniable, so using them to create profitable relationships is a perfect way to extend your sales. Another great function is visual, real-time reports that provide true insight into forecasting your future revenue. 

Moreover, you can use this tool to identify target areas and measure performance. It’s probably the most intuitive platform for forecasting you can find, but also quite unique. It focuses solely on messenger-based selling and does it perfectly. If you’re looking to extend your business marketing, it’s a perfect way to do that.

Sales Forecasting Methods

Having a proper template or tool for forecasting is one thing, but utilizing them fully is a different factor. Here are essential forecasting methods, viable for Excel templates and online tools. 

Historical Sales Data

This method revolves around analyzing your previous income. For example, let’s say you had $150,000 in revenue for the last year, and your sales revenue has grown 12% each month. Within the same time frame, your monthly churn has been about 1% each month. This means that your forecasted revenue for next month would be $166,500.

Here is a formula where you multiply last month’s revenue by your expected growth and subtract your expected churn:

($150,000 * 1.12) – ($150,000 * .01) = $166,500

Current Funnel

In another example, you have three business opportunities this month:

• Connect Call: 30% chance of closing
• Demo: 40% chance of closing
• Offer: 70% chance of closing

With this method, you’ll calculate the forecasted value of the deal and then sum all up for a total sales forecast. 

Lead Scores and Multiple Variables

This method requires more preparation. It assumes that you’ve done your research and have lead scoring set up in your CRM. Your task is to group your leads based on their quality. This will help you determine how likely an opportunity is to close. 

The close rate depends on the number of employees your company hires. Companies with fewer employees close at a slightly lower rate, while bigger ones are more likely to close. Our table shows the forecasted value of any given opportunity in a table like this:

Conclusion

Sales forecasting isn’t the easiest thing to manage and usually requires a specialized sales teams to do it properly. However, this rule applies to large companies. The tips we provided can be used by a single person in a small company with enough historical data. The sales forecasting methodology presented here is enough for properly monitoring the average sales cycle. We also encourage you to check other software and business-related articles on the RoyalCDKeys blog!