How Many of You Have Ever Gotten a Sales Forecast Exactly Right?

Jim Delaney
Founder & CEO
July 28, 2022

I remember sitting in one of my first finance classes in business school - the professor asked all of the eager MBA students to raise their hand if they’ve ever had to produce a forecast. Immediately, everyone quickly raised their hands, seeking to publicly acclaim their business privilege. Then, the professor said, “Okay, now the important question, keep your hands in the air if you’ve ever gotten a forecast exactly right”. Every hand in the room dropped in unison. No one had ever gotten a forecast exactly right. He responded, “How could this be? Your ability to forecast accurately is the single most important superpower to demonstrate your professional competence.” A quality forecast incorporates everything you should know about your industry, your company and its ability to sell, market, and service its clients, your competition as well as government regulations and broader economic, social and environmental conditions.

“Your ability to forecast accurately is the single most important superpower to demonstrate your professional competence.” – John R. Percival

It’s been nearly 20 years since Professor John R. Percival’s lecture that fall semester afternoon and I still haven’t gotten a forecast exactly right, but I now better understand his teachings. He emphasized that while we will likely not predict right, we can predict well by ensuring that our forecasts are complete and not biased. They must properly balance the effects of the various factors that drive our ability to deliver our projections.

Why is Sales Forecasting Important?

Quality sales forecasting provides valuable information to inform decisions regarding future sales strategies and budget. Sales forecasting is a key component of proactively planning your upcoming sales strategy and allocating sufficient investment in your sales activities required to meet your sales plan. A good sales plan defines your objectives, high-level tactics, target audience and identifies potential obstacles in reaching your audience. An accurate forecast supports your sales plan and can help uncover gaps in your sales team's methodology, identify areas for cost savings, as well as potential shifts in market focus based on performance trends.

Now that we’ve discussed why forecasting is important, what are the most important steps to building a better forecast?

Define Your Consideration Set

Of course, there's a seemingly endless number of factors that can impact our forecasting accuracy, and often limitations to retrieving our desired datasets. Any influences that affect our company, community, or industry has the potential to affect our forecasting. Some of the most common factors affecting sales, which should be taken into account when creating your forecast, include:

  1. Your industry's potential and recent growth or contraction rates
  2. The economic condition in general and seasonal market fluctuations
  3. Your competition's offering of similar items and relative strength
  4. Your newest product or service launches
  5. Fluctuations in your usual operating costs or sales prices
  6. New regulations restricting your usual operations
  7. Your company's marketing activities and level of spend
  8. Your company’s abilities to contract and on-board customers

Know your Data (and its Limitations)

All of these things must be taken into consideration in order to not only ensure an accurate forecast, but to understand its shortcomings. One of the biggest factors that influence our forecasts is the quality of data within the company’s revenue architecture systems – specifically marketing automation and CRM platforms. Here are a few challenges to consider:

Begin With Your Baseline

Because a revenue forecast is a prediction, it must, by definition, use current knowledge to preview upcoming changes. Although sales forecasts extrapolate from current data, they primarily concern future conditions. Accurate forecasting should be built on the foundation of an accurate baseline. Before you begin forecasting your future revenue, expenses, net income, and profit margin, it will be important to assess your current situation. Once you have this baseline, you’ll be able to build on it and make more accurate, realistic forecasts for sales, expenses, and net profits for the coming year and beyond. Statistical methods of sales forecasting can also be very effective in increasing forecasting accuracy.

Hopefully some of this advice will be helpful to you with your forecasting exercises. And, remember, your ability to forecast accurately is the single most important superpower to demonstrate your professional competence.

If you’d like to create better, more informed forecasts, please feel free to contact us at Traction AI. We’d love to help you accelerate your market traction.

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