Episode 39: Best Tips In Creating And Maintaining Sales Forecasts
For a sales team leader, entrepreneur, business owner, or an individual contributor to achieve success, it is a must to know and be familiar with your numbers. In this episode, Sara Murray explains the right way to create and maintain sales forecasts. She talks about gathering and using historic data, the metrics you must closely monitor, and organizing relevant information to make it easier to dissect and apply.
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Best Tips In Creating And Maintaining Sales Forecasts
We’re covering hard skill and diving into a key element of sales, which is creating and maintaining a sales forecast. If you’re the leader of a sales team or a sales vertical, if you’re an individual contributor, or if you’re an entrepreneur, it’s important to know your numbers. Even as an individual contributor, if you can look at your sales goal and the actions that you’re taking as if you’re running your business unit, having any type of clear objective is going to help steer the ship in that direction.
Overall, the foundation of having a sales forecast or other terms you may hear would be a sales quota, sales budget, or sales target. Having a sales forecast helps you understand what is the overall goal and why. Some of the motivators for sales forecast could be maybe you want to increase your sales overall, expand into new markets, open new sales channels, maintain a certain profit margin, or maintain steady growth year-over-year. To achieve these objectives, you need a roadmap or a financial plan, and this is where creating a sales forecast comes into play.
The first step is to gather historical data if you have it. It’s like looking in the rear-view mirror to understand where you’ve been. The more data that you have, the better. This historical data is going to serve as a nice baseline for our starting point. Data can be which clients are giving you the highest sales volume, where are your sales coming from, which product sells the most, which product has the highest profit margin, or which sales channel has the highest profit margin.
If a certain business channel has a higher profit margin, it is better to focus your time there than any other channel you may have.
It may take you the same amount of effort in Sales Channel A than it does to Sales Channel B but Sales Channel B has a higher profit margin. Maybe you focus your time there. Which sales verticals are the most active? Which ones make you the highest profit margin? All of these things we can start to peel out and put together. You can’t rely on the past alone. You need to understand the present and anticipate the future. That’s why identifying which key sales drivers is essential.
You can look at this data and understand what’s driving your sales. Is it market trends? Are there certain government regulations or code requirements that are helping you with your messaging and driving that demand? Is it certain customer demographics? Is it a seasonality piece? Is it a certain marketing campaign, sales messages, or economic conditions? Looking at these different key variables is going to help you make more accurate projections.
Getting into some more specifics here, I would recommend breaking down your sales into different categories or segments. Different examples here of how you could differentiate the sales data would be having multiple product lines. Do you have goals per product? Do you have certain customers that give you revenue year-over-year? Can you focus on client types and sales coming from clients? You could also break it down into geographical regions, East, West, and Central, or however you want to break that down.
Analyzing each segment separately is going to also provide you with a more detailed picture. With your historical data and some of the key drivers in hand, now we can create some assumptions. These sales assumptions are educated guesses about how each segment will perform in the future. You’re thinking about growth rates, changes in market share, product availability, or adjustments in pricing. Another data element could be clients that are not yet customers or are current customers that could be performing better. We’re going to talk a little bit about that.
You can’t do this all the time but once every few years, if you have a price increase, that’s an automatic way to increase your sales numbers. That’s a little sidebar piece there. To bring it all together, you need to build a sales forecast model. I recommend at least two metrics. I’m going to give you three buckets or metrics here but at least two. One of the most important ones in my opinion would be to organize your sales forecast by certain time periods.
For the sake of simplicity, picture a spreadsheet where you organize your data by time. I do an annual goal and then break down the annual goal into quarterly, monthly, weekly, and daily goals if you need that level of granularity. For the sake of simple math, let’s say we have an annual sales goal of $1 million. Our quarterly breakdown would be $250,000 in sales for that quarter. Our monthly breakdown is $83,000. The weekly goal is around $19,000. The daily goal based on 260 workdays because we’re counting weekdays here would be $3,800.
If you did a quick and easy breakdown with the same goal every month, that’s going to keep you on track. You’re going to know, “I need to clear $3,800 a day to hit my overall goal.” When the month is coming to a close and you’re not at the $83,000 mark, what can you do to help make that sales goal that month? You can do a straight breakdown like that but this is where having that historical data is going to help you. If your business experiences seasonal fluctuations, then we can account for these patterns in our forecast.
If your business experiences seasonal fluctuations, take into account the patterns you are currently experiencing in your forecast.
In my experience in construction, summertime would be considerably slower. People took a lot of vacations. Kids were out of school. Summertime was always slower. Usually, after the middle of December, things slowed down. I almost didn’t count December as a month because it wouldn’t help meet my overall goal if I treated December the same way I treated February, for example. If you take a look at the seasonality trends, you can adjust your projections. Maybe in the summer months, we drop our sales goal to $60,000 instead of $83,000, and then we make up that difference in the busier months. It doesn’t have to be even-steven across the board. We can fluctuate based on seasonality.
The second metric that I would recommend would be organizing your forecast by sales channel or your client type. To give you an example of my current business, one of my sales channels is consulting. Another one is speaking opportunities, sales workshops, and digital products. I have goals for each of those. I have to manage my time accordingly to support my clients but balance the workload and the certain projects that I need to work on to hit that goal.
Future sales channels for this business could be monetizing this show or maybe I would love to write a book with the same name. That’s not a 2023 project but it’s something that is in the roadmap for the future. You can start to ecosystem these things together. If I host a workshop or a speaking gig, I can put in my contract that they have to buy a certain number of books.
These are different streams of revenue in my business. It’s a little bit different if you’re selling a product versus a service solopreneur business like mine but in the past, when I had products that I would sell, I would usually break down my goals by my client, “Who is giving me the revenue? Where am I paying attention and managing my time? How are those clients performing year-over-year?” I would break it down by client type and product line too because certain products are more expensive than others. I would usually sell the more expensive product because it meant I had to find fewer opportunities and sell more on the job.
If you start to break these down this way, it gets a little bit easier to meet that $1 million hypothetical goal we’re using for our example here. Another metric that you can use is I would manage multi-line reps as opposed to direct employees of the company. You could break it down by your individual team’s goal and how that generates the collective overall goal. You could break it down by region.
In my example and my experience, I managed rep agencies or individual companies that would represent my product but I had sales goals attached to them. I would hold them accountable to the goals. My job as the sales leader would be to enable them and give them the right tools and knowledge for them to hit their goals. Break it down by region, individual rep agencies, individual contributors, individual salespeople, product lines, sales channels, and client types. There are a lot of ways that you can break it down. As I’m talking through this, think about what works best for your particular business model.
All of those are general elements of a sales forecast. It’s important to remember that a sales forecast isn’t a set-it-and-forget-it type of task. It is a living and breathing document that you’re looking at almost every day in a lot of cases depending on where you’re at in your role. However, if you review it and revise it regularly, ideally on a monthly or quarterly basis, incorporating actual performance data and making those adjustments as needed is going to be what helps you hit that goal. Focusing on the goal and having it be something that’s visited often is going to help you with the actions you need to take to hit that goal.
There are certain things to look for. Are your customer sales increasing year-over-year? Ideally, numbers should be going up every year. If they’re not, that’s an area you need to look at why it’s not performing and course-correct. Another thing to look at would be which customers should be performing more based on their potential and how can you collaborate with them to increase their sales.
Here’s something I always accounted for in my sales forecast and I still do this in my business as well. I would usually have a line item for clients that I haven’t met yet. I’m very much a hunter. I like to prospect for new business. Throughout a calendar year, there’s a good chance that I’m going to find a new customer that isn’t on this historical data yet because they’re new. I would budget a number, line item, or sales forecast to find that untapped opportunity. Since I have a track record of doing it, my managers were always okay with it because I was always able to fill in that gap and meet my goals.
As you move forward, continually monitor your actual sales performance against your forecast. When you start to spot these different variances, now we can dig into the reason behind them and then course-correct before it’s the end of the month, the end of the quarter, or the end of the year, and now you’re not hitting your goal. Unforeseen variables and circumstances can change things.
As your business moves forward, continually monitor your sales performance against your forecasts. Once you spot different variances, you can dig into the reason behind them and start course-correcting.
I was managing a hospitality sales vertical when the pandemic hit and construction halted because the client’s business model was so significantly impacted by the travel restrictions. Supply chain issues can impact your sales too. If you can’t ship products, you can’t book a sale. You have to be able to adapt that in your forecast. Another thing to monitor is that large and small organizations will track other parts of the business. How are we planning our production? How are we managing our inventory? How are we staffing projects? How are we doing cashflow projections? This is important because sales is going to be what impacts the rest of the organization.
Ensuring that decision-makers are using these types of estimates to make informed choices is something that helped me in managing my customer relationship management software because other parts of the business were making decisions based on the data that I put in. Make sure that’s up to date. That’s another reason why from a team perspective, it’s nice to be up to date with your data.
If you have not yet read Episode 36 of this show, Sales Implementation and Sales Team Accountability with Doug Miller, Fractional Sales VP, go back because he is a sales leader and a Fractional VP of sales for small organizations and startup organizations. We talk about the importance of holding teams accountable but also why we need to use a CRM-type of software. That’s a little plug there for that.
To close this out, achieving a sales forecast is a big rock. This is a big year-long project that you’re working on. It happens year over year and you’re going to be focusing on it always. If you know those numbers, you have a well-thought-out plan, you’re dedicated to meeting your goals, and you make that consistent effort, checking in on your progress, making adjustments as needed, and staying focused is going to help you get to that desired sales target.
I always like to try to increase it by 20% year-over-year. Twenty is the number for growth that I aim for. You can’t always hit it. Sometimes you overshoot. Sometimes you don’t but tracking your sales and knowing your numbers is so important. If you are at an organization and you know your numbers, sometimes that’s an easy way to impress your boss or your boss’s boss. You can say, “I’m up 10% this year. We closed this big project.”
Knowing your numbers is going to differentiate you and your company if you’re part of a larger team. As an entrepreneur, knowing the numbers and breaking them down in this way, honestly, in my opinion, makes the sales goal seem a lot less scary because you have a roadmap. You have a plan on how you’re going to get those numbers. Data, math, ambition, and taking action are going to help us at our goals. That wraps up this episode. Good luck with your forecasting. Thank you for tuning in.
