Sales forecasting methods are used to predict how much of a particular product is likely to be sold within a specified future period in a particular market at a specified price. Using accurate sales forecasting methods is vital for any business to be able to produce and sell the required quantity of goods at the right time. Furthermore, by helping companies to gauge the demand, sales forecasting techniques ensure better inventory management.
Why are sales forecasting methods important?
By leveraging the right sales forecasting methods that suit the business, companies can spot potential threats and demand fluctuations while there is enough time to avoid and mitigate them. For instance, if a business uses sales forecasting techniques and notices that their team is trending much below quota, it gives the business the opportunity to understand what is going wrong and undertake a corrective course of action. Discovering such problems at the early stage rather than at the end of the month or the quarter makes a huge difference to the overall sales. Sales forecasts can also be taken into consideration for a decision including hiring, resource management, goal-setting, and budgeting.
Factors that affect sales forecasting
Sales forecasts are often influenced by both internal and external factors of an organization. These factors can also greatly influence the sales forecasting methods chosen by companies.
Changes in sales territory
If territory assignments are shuffled, boundaries are redefined, or a new sales territory management plan is introduced, there are chances of a temporary dip in sales. However, sales will bounce back to an even higher point once the company’s sales representatives adjust to their new, optimized territories.
Changes to compensation plan
If a company decides to make changes to its sales compensation plan or commission structure, it is likely to have an impact on the sales structure. For instance, if a company switches to a structure that rewards sales representatives for increasing revenue rather than closing more deals, their forecast should anticipate fewer new accounts with a focus on targeting higher-value customers.
Changes in the team size
When more sales representatives are hired, the company will expect a spike in sales as more people on the team are working to close deals. Likewise, as sales representative quit or retire there might be a dip in sales until a replacement is found.
Changes to products or services
Whenever a business introduces a new revenue stream, releases highly-anticipated features, or restructures how offerings are bundled or priced, the changes will impact their sales forecasting methods. If a new offering enables sales reps to speed up the sales cycle or increase their win-rate, for instance, the sales forecasting methods used should reflect that positive gains.
The decisions and actions of your competitors can affect the outcome irrespective of the sales forecasting methods used. For example, if a major competitor of a company suddenly discounts their prices, that will impact their ability to sell at the current prices.
Market changes in supply and demand
If companies don’t pay attention to the changes around them, sales forecasting methods used can become ineffective. If there’s a growing need for the company’s product or service, that’s a sign the business can be more optimistic in their sales forecast and projected growth (especially if there’s a gap in market supply).
Depending on what is being sold, a company’s sales might naturally rise and fall during certain times of the year. This is different than market changes, as seasonal highs and lows occur on a cyclical basis. Since seasonality is reasonably easy to predict, it should be factored into the sales forecasting methods in order to avoid skewing the results.
The rate of inflation
For long-term forecasting, in particular, potential inflation and how it will affect costs and pricing strategies need to be accounted for.
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