What Is Sales Forecasting and How Does It Work?

This blog post is about sales forecasting. We’ll cover this information:

What is sales forecasting? Sales forecasting is where you use existing data to predict future sales and revenue for your business.

What are the benefits of using sales forecasting? Sales forecasting helps you plan ahead for things like budget and product inventory.

How to create an accurate sales forecast:

1. Meticulously track sales data
2. Compare past data to future expectations
3. Use a sales forecasting tool

Keep reading this blog post to learn about all of that information in much more detail!

Do you ever wish you had the ability to travel into the future? If you’re like most people, you probably do — particularly when it comes to running your business. How nice would it be if you could jump forward and see exactly how many sales you’ll drive and how much revenue you’ll earn?

Unfortunately, short of you acquiring a DeLorean or a TARDIS, there’s no way for you to travel forward in time and see what the future holds in store for your sales. But that doesn’t mean you can’t make predictions. In fact, with sales data, you can make predictions that are highly accurate.

That’s the idea behind sales forecasting. But what is sales forecasting, and how does it work? Keep reading to find out. Then subscribe to Revenue Weekly, our email newsletter, to get marketing info delivered straight to your inbox!

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What is sales forecasting?

Sales forecasting is the process of predicting future sales for your company.

What to know about sales forecasting

To expand on the above definition, sales forecasting is where you analyze existing data to predict the amount of sales your business will drive over a given future period.

Sales forecasting is closely related to revenue forecasting. The difference is that sales forecasting predicts the quantity of sales while revenue forecasting predicts the amount of money you earn from those sales. However, the terms are often used interchangeably.

Benefits of using sales forecasting

There are a couple of different reasons to use sales forecasting at your business. Firstly, it can be a huge help to you as you plan, particularly when it comes to your budget. Knowing how much you expect to earn in a given year, quarter, or month helps you figure out how much you can afford to spend during that period.

If you sell physical products, sales forecasting also helps you plan for your inventory — if you expect a huge increase in sales during a given quarter, you’ll probably want to increase your production as well to ensure you have enough products for all of those sales.

Of course, these benefits only apply if your sales forecasting is accurate. An inaccurate sales forecast can be worse than not having one at all because it can lead you astray and cause you to underbudget and underproduce. That’s why it’s crucial to invest the necessary time and energy into your forecasting.

Types of sales forecasts

Not all sales forecasts are alike. There are many different forecasting models out there for you to choose from.

While we won’t try to cover every individual model here, we will go over the two broad types of sales forecasts: Bottom-up and top-down. Keep reading to learn about each one.

1. Bottom-up sales forecasts

A bottom-up sales forecast model predicts your sales and revenue by looking at past sales metrics for your company. Using those metrics, you can estimate how much you’ll earn during the upcoming period.

This model is called “bottom-up” because you’re basing your forecast on specific pieces of data related to your individual business. The advantage of this model is that you can easily alter it if any changes to your business model come along. 

2. Top-down sales forecasts

Top-down sales forecasts take the opposite approach from bottom-up models. Rather than starting with granular data from your business, they start by looking at the total addressable market (TAM), or how much revenue your entire industry is expected to gather during the upcoming period.

Then you estimate your market share, or what percentage of the available industry market you expect to capture. Once you have that information, you simply multiply your estimated market share by the TAM, giving you the amount of revenue you can expect to earn.

Both top-down and bottom-up models are effective, and the best strategy is to use both of them together to get a clear picture of how many sales you can expect to drive.

How to create an accurate sales forecast

Now that we’ve covered the basics of sales forecasting, you’re probably wondering how you can get started to earn more sales revenue and boot your bottom line. Here’s a very brief guide to creating accurate sales forecasts.

1. Meticulously track sales data

The very first thing you need to do to create accurate forecasts is to track your sales data. This is crucial. Hopefully, you’re already doing it, but if not, make sure you start. You can’t accurately predict future sales without knowing what those sales have looked like in the past.

Not only should you track your sales data, but you should also be sure to store, transform, and organize it in an easily accessible way. The best idea is to use a tool like a customer relationship management (CRM) platform, which can automatically import and sort data for future analysis.

Bonus Read: What is Data Transformation?

2. Compare past data to future expectations

If you have existing sales data available to you, you’re nearly ready to make a sales forecast — but there’s something else you’ll want to account for. Namely, you’ll want to consider any future circumstances you expect to alter your sales.

For example, maybe your data for the last three quarters was relatively consistent, but you expect to see a huge spike in sales around Christmas. If Christmas falls during the upcoming quarter, that will significantly change your prediction.

In that case, you don’t want to plan for the same number of sales as last quarter. You want to analyze your past data alongside your expectations for the upcoming quarter to get a clear picture of how many sales you’ll drive.

Bonus Read: 2024 Sales Trends

3. Use a sales forecasting tool

Manual sales forecasting is certainly an option for your business. There’s nothing stopping you from sitting down and making all the calculations yourself. That said, it’s often helpful to use a sales automation tool to do the work for you.

There are a handful of different sales forecasting tools out there, including Aviso Predict and Anaplan. However, the best option is usually to get a CRM that comes with built-in sales forecasting features.

Since a CRM already contains all your sales data, all it has to do is automatically generate a forecasting report based on that information. Of course, you can still manually check everything, but generating sales forecasts automatically can save you tons of time and effort.

Measuring the metrics that affect your bottom line.

Are you interested in custom reporting that is specific to your unique business needs? Powered by MarketingCloudFX, WebFX creates custom reports based on the metrics that matter most to your company.

• Leads
• Transactions
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Learn More

WebFX and Nutshell can boost your sales forecasting efforts

If you’re looking for the perfect CRM to help you through your sales forecasting, look no further than Nutshell. On top of its forecasting features, Nutshell comes with other sales automation capabilities, plus it lets you generate customized reports with the click of a button.

And if you want help gathering and analyzing your sales data in the first place, just check out WebFX’s marketing analytics services. We can help you apply your data to reoptimize your marketing campaigns and bring in more customers.

To get started with us, just call 888-601-5359 or contact us online today!