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How To Create More Accurate Sales Forecasts

Updated: October 2021

If ten CEOs were asked if they had confidence in the sales forecast that their sales leader gives them, nine of them would say no. This is seen time and time again. So why does this have to be so hard? Here is how to create more accurate sales forecasts.

Three Different Forecasters

Sales leaders often lack confidence in their sales forecasts, as well as their expertise to improve them. According to Intangent, “55% of sales leaders do not have high confidence in their forecasting accuracy.” There are three different types of salespeople forecasters.

Opportunity Sales Forecasts

Some sales leaders provide a list of all of the opportunities in the system with dollar amounts and close dates associated. Let’s call this the “opportunity dump.” It typically has everything from “I talked to someone there” to “I should get the PO next week.” The sales leader expects the CEO to interpret this report and decide what is real and what is not. That’s never going to happen, and that forecast is useless.

Weighted Sales Forecasts

Next, you see the “Weighted Forecast.” The salesperson takes all of the opportunities and multiplies the deal amounts by some probability factor, either defined by stage or by the salesperson’s opinion, and then adds up all of those amounts. However, these forecasts are often unreliable because a $500,000 deal at 25% does not mean you should forecast $125,000. If something is really at 25% probability, the forecast should be $0.

Later-Stage Sales Forecasts

Then there is the approach where sales leaders say, “I am only going to forecast deals that are in stage x or later.” Maybe they even take these later-stage opportunities and apply a weight factor. This is better because you filter out all the noise from the early-stage deals that won’t close and discount some, but these forecasts still include deals that the salesperson doesn’t feel great about.

Why these Forecasts don’t Work

All of these approaches miss some fundamental elements that CEOs want to see:

  • What can I count on because I need to manage cash flow?
  • When will the revenue hit? Just because the CRM says it has a close date of 10/31, that doesn’t tell me when the revenue will hit.
  • How do I know if this is accurate and that you are not just overly optimistic?

What’s the Answer?

So what’s the answer? There is a simple approach that many companies and CEOs love. The basic concept is segmentation. By segmenting your forecasts into the following groups, you’ll be able to get more accurate numbers.

The groups are:

  • Forecastable or Known: These are deals you know you can count on. They should be rock solid or close to it.
  • Upside: These are deals that you feel good about, but you’re not entirely sure.
  • Other: These are early-stage deals, super-competitive deals, deals you don’t feel good about, or deals you don’t know enough about, etc.

Segment Examples

Segmenting these deals can be easy. If you use a CRM, create a “Forecast Status” field or something similar. If you are on spreadsheets, create a column.

  • Separate your segments on the forecast.
  • Apply timing to the revenue.

Here is what a segmented forecast might look like:

forcast1 forcast2 forcast3

Now the CEO can count on the possible upside and can plan accordingly. They will know the timing of revenue, which can help them manage other areas like inventory and operations costs. Just as importantly, they will also know that the sales leader is taking a realistic look at the business and not just counting everything.

The Results

An accurate sales forecast shouldn’t demotivate or discourage you. However, there are many reasons why sales forecasts are inaccurate. This is a different way of looking at sales forecasts, but it can make a huge difference in how CEOs and sales leaders communicate.

About Gary Braun

Gary is a founder and co-owner of Pivotal Advisors. He has worked for 20+ years as a salesperson and sales leader. Gary has been a guest speaker for many groups such as Vistage, Allied Executives, CEO Roundtable, Sales Management Association, and more. If you want to find out more about Gary check out his profile here.
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