The techniques used in sales forecasting include mathematical methods, as well as qualitative and subjective approaches. The latter are most commonly used for long-term forecasting when there is limited historical demand data available. Observed trends, however, may not continue. In fact, they may change due to changes in government policies, new innovations, or consumption patterns. In such cases, sales managers rely on mathematical methods. The following is a brief overview of the most popular sales forecasting methods.
MEDDIC is an acronym for Multiple Element Deal Qualification Instrument (MEDIC) developed by Dick Dunkel and Jack Napoli at PTC. It outlines six core criteria for assessing deal quality. You can score each criterion individually or aggregate the metric across many data points. In this way, you can use the scores to predict the likelihood of closing a deal. This method helps you to prepare for post-sales activities such as customer support, development of implementation timelines, and more.
As with any planning tool, sales forecasting should be done with care. Accurate forecasts give business leaders the information they need to make informed decisions. Accurate forecasts will also prevent cash flow issues and ensure that sales managers are focused on the highest-profitable lead opportunities. However, sales forecasts should not be relied upon as a guarantee for the future. Therefore, the importance of accurate data is paramount. Once you have the data you need, you should begin constructing a sales forecast.
To begin, choose a reporting period. This will depend on how long your sales cycle takes. Also, take into consideration the quota you have for each sales team. Next, multiply the value of each deal by the probability of closing and add the totals of the deals in the pipeline. This method is relatively simple, but it does not take into account the age of an opportunity. If you have a long sales cycle, you may want to use a CRM to automate this process.
The most accurate sales forecasts come from the solution that you offer to a prospect’s problem. In addition, the forecast should be more precise if it takes into account how your prospects use your products. If you consistently exceed the forecast, you should adjust your sales forecast to reflect peak precision. This method ensures smoother operations and happy leaders. But how can you improve your sales forecasts? There are several ways to improve accuracy. The first is a culture change within your sales organization. Don’t pressure your salespeople to inflate the forecast or overestimate them. Rather, encourage them to share information and be candid.
Sales forecasting can influence nearly every department within your business. From the finance department to the product leader planning demand for new products, the HR department uses sales forecasting to align hiring plans. All of these departments benefit from accurate sales forecasting. It also helps set quotas and encourage proactive sales reps. When sales forecasts are accurate, sales teams will strive to hit their target, whether it’s in the form of a monthly goal or an annual target.