sales forecast example in business plan

3 Popular Sales Forecast Examples For Small Businesses

• October 9, 2022
• Small Businesses

When creating financial forecasts for their business, entrepreneurs often face difficulties. Yet, there are 3 popular sales forecast examples you can use when creating yours. They work for the most popular revenue models , from restaurants, to retail shops, to software companies and other online businesses.

If you aren’t sure what are sales forecasts, read our article and follow these 5 simple steps to create accurate sales forecasts for your business. Looking for examples instead? In this article we explain what are the most popular 3 sales forecast examples for (almost) any type of business. Let’s dive in.

What is a sales forecast?

A sales forecast is the financial projection of a business’ sales (or revenues, turnover) over a given period. Therefore, sales forecasts are a must have of any financial forecast: by projecting sales and expenses we can then prepare the  4 financial statements  which constitute a financial forecast.

Often, sales forecasts are included within a business plan as part of your projected financial statements. Indeed, investors will want to see your business’ financial projections over a given period. Sales forecasts often are  3 or 5-years projections .

For more information on sales forecasts for small businesses and why they are important, read our article here .

Let’s now dive into the 3 most popular sales forecast examples which work for any type of business, from restaurants, to retail shops, to software companies and other online businesses.

Why are sales forecasts important?

Because sales forecasts are part of your financial forecasts, and ultimately your business plan, it is very important to get it right.

Sales forecasts help you set goals for your business

Sales forecasts aren’t simply a requirement for your business plan. Instead, they also help you set goals for your business. The sales you expect to generate as per your sales forecast should be used as a guidance for your budget and your business decisions later on.

You show you understand your business

Showing investors you’re not only a great entrepreneur but also a well-rounded and omniscient founder is very important to get the best deal. A great sales forecast will help understand how your business generates revenues, what are the different drivers affecting revenue and the potential risks involved.

Investors will give more credit to financial plans based on verified assumptions and reasonable targets. Calculate expected revenue using market size , market share and/or user adoption rates for instance. The more you justify your plan with verified assumptions, the more credible it will be.

You know how much you need to raise

Many entrepreneurs and founders do not really know exactly how much they need to raise.

Sales also drive expenses, so forecasting sales plays a pretty important role when assessing things such as your breakeven or the amount of money you need to raise . Miss the mark and you may be in trouble.

How much cash do you need to cover your losses over the next 12-18 months? The amount of money you need to raise is the result of your financial projections. This is very important to accurately estimate your revenues and expenses.

How to do a sales forecast?

Before we dive into the specifics of creating a rock-solid sales forecast for your small business, let’s first explain which approach you should follow.

Many entrepreneurs make the same mistake when forecasting their sales: they use a top-down approach. So what is bottom-up and top-down sales forecasting? Let’s use an example below.

• Top-down sales forecasting : we forecast sales using from the top down. For example, you make $500k in revenue per year and you forecast the next 3 years revenue by assuming you will capture 3% of your market size (assuming it is $100 million). By following this approach, your annual revenue is 3 years time is $3 million, a 6x increase from today.
• Bottom-up sales forecasting : we forecast sales using operational drivers (from the bottom up). For example, if your $500k sales are a function of your website traffic, we will forecast revenues based on this metric instead. Assuming website traffic increase by 50% each year (as you invest in paid and content), your revenue in 3 years time is $1.7 million, a 3x increase from today.

Bottom-up sales forecasting is the best approach for 2 main reasons:

• It allows us to relate revenues to another metric, helping us making sense of the projection. Does $3 million really make sense given this would mean multiplying website traffic by 6x over the next 3 years?
• Top-down approach requires us to make assumptions on the market size, which is often inaccurate for lack of publicly available data. Instead, bottom-up uses your own business’ historical data

Sales forecasts: 3 popular examples

1. location-based businesses.

If you are running a businesses with a physical location, such as a hotel, a restaurant, a repair shop or a retail store for example, forecasting sales boils down to forecasting street traffic.

Indeed, sales (revenues) are a function of the sales volume you generate (the number of “units” or products you sell). The sales volume itself is a function of the number of people who enter your store, and, by extrapolation, the number of people who pass by your store.

When forecasting sales for a new business, you should look at the location where your business will be based first. Assess the approximate number of people who are passing by.

Note: when assessing traffic, be careful to exclude any external factors (e.g. Christmas day), cyclicality and seasonality. Ideally, your assessment should look at a full week and all work hours in the day.

Once we have established the approximate number of people who pass by the street in a day, we will need to apply conversion rates, in order:

• How many people enter the store?
• Out of the people who enter the store, how many make a purchase?

Of course, if you already have some historical data (if you already run a store and are opening a new one), use your existing conversion rates. Else, make assumptions.

When making assumptions, you should use the data you have collected when making your own observations earlier. Use similar stores to yours, in a different street for example.

For example:

• 5% of people passing by your store enter
• 10% of people entering the store make a purchase

We can now create a simple sales forecast over a week, adding up the average traffic over a typical week:

2. Online businesses

Online businesses often acquire their customers via their website, or any type of online presence.

As such, unlike location-based businesses, sales (revenues) are a function of visitors (and not street traffic). The visitors can be visitors on a website, on a Appstore page (mobile apps) or any type of online lead acquisition page.

We often refer this type of acquisition as inbound acquisition . The traffic is two fold: paid and organic:

• Paid traffic : all visitors coming from paid marketing channels (Google Search, Facebook Ads, etc.). You are either paying for clicks, or impressions. 
• Organic traffic : all visitors landing on your landing page(s) organically (either via a referral link, direct search, social media post, blog article, etc.)

Paid marketing is the easiest way to generate traffic. Yet, because you are paying for each paid visitor, you will need to monitor your  Return on Ad Spend (ROAS)  to make sure your paid marketing campaigns are profitable.

In comparison, whilst you do not directly pay for each organic visitor, organic traffic is not free. Organic traffic is earned from investment into  SEO  and content. Whilst investing into your SEO for instance does not pay immediately, the returns can far outweigh those of your paid marketing in the long run.

So, when forecasting sales for online businesses, we should make assumptions on traffic. For example assuming:

• 30,000 visitors last month: 20,000 paid and 10,000 organic
• 3% monthly increase
• 2% conversion rate
• $50 average purchase price

This is how could look like a simplified sales forecast example for an online business:

3. Lead-acquisition businesses

Lead-acquisition businesses are companies that make sales through their sales teams efforts. This is also known as outbound acquisition (vs. inbound discussed above).

With outbound acquisition, a business acquires customers through its sales team. Whether it is via phone, email, Linkedin or even in-person, the number of acquired customers is a function of the number of sales people.

Outbound acquisition is very common for business-to-business (B2B) companies. For example, Enterprise SaaS and B2B marketplaces use outbound acquisition to acquire their customers.

Outbound customer acquisition is therefore easier to forecast vs. inbound. The simple formula to estimate new customers over time is:

The number of closings per sales person is also referred to as the efficiency of your sales team = the number of customer one sales person acquire (or “close”) each month, in average.

For example, lets’ assume you have 20 sales people. Historically, your sales team has closed (“acquired”) in average 2 B2B clients per month per sales person. Assuming you have the same number of sales persons and the same sales efficiency in the future, we can reasonably expect 40 new customers per month.

Now, assuming 1 new hire every 2 months, a sales forecast example for a lead-acquisition business could look like this:

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How to Create a Sales Forecast (Examples & Templates)

Every business needs management tools to maximize performance and keep everything running smoothly. A sales forecast is a critical tool that businesses use to measure their progress and check everything is going to plan. Here’s a closer look at why sales forecasts are important and how to create them. We have some great templates for you, too.

What Is a Sales Forecast – And Which Factors Impact It?

Sales forecasts are data-backed predictions about the sales volume a business will experience over a specific period.

A sales forecast is very important because it provides the foundation for almost all other planning activities. Businesses will rely on accurate sales forecasting to better understand how they should plan financially and execute their game plan .

This means that sales forecasts have the potential to make or break a business.

As with anything in life, though, nothing is certain. Sales forecasts can be affected by a range of factors. This means that businesses have to prepare for any and all eventualities.

Here’s a look at some of the factors that can affect sales forecasting:

A lack of sales history

Sales forecasts are often built using historical data. Businesses analyze previous results to extrapolate and create predictions. If a business starts and lacks a good body of historical sales data, it will struggle to create an accurate sales forecast.

The type of business

Each industry has its series of unique challenges and quirks. Those factors are sometimes unpredictable and could affect a business’s revenues. The ad tech industry, for instance, is often rocked by new data privacy regulations.

Outside factors

Some businesses find that everything is moving according to plan before blindsiding by an unpredictable event they cannot control. Consumer earnings may plummet, for instance, and cause people to restrict their spending.

Inside factors

Some businesses are forced to change their pricing or payment structures. This new dynamic can often have unpredictable effects and cause a business to veer off course from what its sales forecast predicted.

Why Should You Establish Sales Forecasts?

Sales forecasting is essential for every business. Here are some of the key reasons.

Perform accurate financial planning

Sales forecasts help the CFO and financial team understand how much cash is going to be coming into a business. This gives businesses a better understanding of how they can use that capital and makes it possible to calculate what profit they can expect over a given period .

Plan sales activities

A sales forecast can help executives with sales planning. Those executives will understand how many salespeople to employ, for instance, and which quotas and targets to attribute to each of those salespeople. This means that an accurate sales forecast can help salespeople to understand and hit their objectives.

Coordinate marketing

A sales forecast will have a big impact on marketing. For instance, the sales forecast might show that sales are waning, and a bigger investment needs to be placed within marketing. It might also show that a particular product or service fails to deliver appropriate amounts of value.

Control inventory

A sales forecast gives businesses a good understanding of how much inventory they will need to purchase and retain. This is an important factor; it helps businesses balance overstocking and running out of materials. This is also true for SaaS businesses needing customer support and success.

Avoid fluctuations in price

An accurate sales forecast helps businesses maintain consistent product and service pricing. A poor sales forecast might mean a business is forced to adjust its pricing unpredictably. This tactic is often the result of panic; without the proper strategy, it jeopardizes a business’s profitability.

How to Forecast Sales – The Best Sales Forecasting Methods

Businesses around the world use a range of sales forecasting techniques. Here’s a closer look at some key methods you could use.

Opportunity Stage Forecasting

What is it?

This sales forecasting technique calculates the likelihood of deals closing throughout a pipeline.

Most businesses use a sales pipeline divided into a series of sections. The likelihood of converting a prospect increases the deeper the prospect moves into the sales process. To get the most from this technique, the team must dig into the current performance of the sales team.

After that analysis, the probabilities might look something like this:

• Sales Accepted lead : 10% probability of closing
• Sales Qualified Lead : 25% probability of closing
• Proposal sent : 40% probability of closing
• Negotiating : 60% probability of closing
• Contract sent : 90% probability of closing

Using these probabilities, you can extrapolate an opportunity stage sales forecast. You’ll want to take the deal’s potential value and multiply that by the win likelihood.

Who should use it

This is a great sales forecasting method if you have access to historical data, lots of leads in your pipeline, and you need a quick estimate. It’s important to understand that this isn’t the most accurate option, given that many random factors affect those probabilities.

Length of Sales Cycle Forecasting

This sales forecasting method finds the average length of your sales cycle. This helps you predict when your deals will likely close and reveal opportunities for your sales team to expedite the sales cycle.

This method is simple. You can find the length of your average sales cycle using the following basic formula:

Total # of days to close deals / # of closed deals

Let’s imagine, for instance, that you find the following:

• Deal 1: 28 days
• Deal 2: 15 days
• Deal 3: 50 days
• Deal 4: 38 days

We closed four deals, and it took 131 days to close them all together. This means that the average length of our sales cycle is 33 days.

Equipped with that information, we can look at our pipeline and estimate how likely we are to close deals based on how old they are. The closer a deal moves toward the average sales cycle length, the more likely it will be closed.

This is a great sales forecasting method for sales managers who want to learn more about the deals spread across their pipeline. For instance, they can use this method to differentiate between different types of groups.

Sales managers might find that the average sales cycle length is much shorter for web leads, for example, when compared to email leads.

Historical Forecasting

Historical forecasting is a very quick and simple sales forecasting technique. The process involves looking back at your previous performance within a certain timeframe and assuming that your future performance will be superior or at least equal.

This is a useful reference because it helps you to get to grips with seasonality and the outside factors that affect your sales. You might find, for instance, that the holidays are a particularly slow time for your business, and looking at historical data can help you to prepare.

With that said, historical forecasting has its issues. It assumes that buyer demand will be constant, which is no longer a given. This could mean you overestimate your sales statistics and use an accurate sales forecast.

This forecasting method is ideal for a business that needs a quick and easy way to project how much it will sell over a given period. That said, historical data should be used as a benchmark instead of the foundation of a sales forecast.

Lead Pipeline Forecasting

This time-consuming sales forecasting method involves reviewing each lead within your pipeline and determining how likely the deal will be closed. That likelihood is determined by exploring factors like the value of the opportunity, the performance of your salespeople, seasonality, and more.

This is a time-consuming method, and it often makes sense for businesses with fewer high-value leads – it wouldn’t necessarily be efficient or make much sense for a SaaS business, for instance.

The big benefit of this method is its accuracy. If you have reliable and rigid data to base your analysis on, you will find that this method can give you a deeper insight into each lead.

This method makes sense for those businesses that have a lower number of leads. Inside salespeople, for instance, will want to get a clearer picture of every lead within their pipeline. This method isn’t appropriate for SaaS businesses that operate according to volume.

Test Market Analysis Forecasting

Businesses often launch exciting new products and services. But it can be difficult to get accurate sales forecasts without historical data . Test Market Analysis forecasting is the process of developing a product or service and introducing it to a test market to forecast sales and get an approximation of future sales.

This limited rollout allows businesses to track the performance of the new offering and monitor things like consumer awareness, repeat purchase patterns, and more. This is a data-gathering exercise, and it feeds businesses with the information they need to create accurate sales forecasts.

This approach is perfect for those businesses that need to perform real-world experiments to gather useful information. A new business can use sales forecasting to use its sales data to predict where future sales can come from. This can limit the cost since it’s an effective way of having a busy sales pipeline. The limited rollout of the product is also useful from a product perspective, given that adjustments can be made according to feedback.

A big issue with this form of forecasting is that one test market may not be like the others. Your data might not reflect the wider reality, so you must make prudent choices that provide you with accurate information.

Multivariable Analysis

As the name suggests, this method calls upon analyzing a range of variables to get the clearest picture possible. This means that if the method is performed well, it can often provide the most accurate forecast.

If you use this technique, you will want to bring together factors like the average length of your sales cycle, the performance of your salespeople, historical forecasting, and more.

The success of this method hinges upon two key factors within your business: 

• the accuracy of your salespeople and their reporting
• the quality of the forecasting tools that you use.

Both of these factors must be in place to make sure this forecasting method has the best chance of success.

Multivariable forecasting is most appropriate for larger and well-organized businesses, as it uses the data and tools necessary to blend various forecasting methods into one. This could be it if you need the most accurate forecast method possible.

Intuitive Forecasting

Your salespeople are on the front; their experience is very valuable. They often have a good idea of how likely they are to close a particular deal and can use educated guesses to assess the situation.

Experienced salespeople can take emotion out of the equation and rely on their experience and knowledge to make accurate predictions. Some businesses decide to incorporate those gut instincts into the way that they forecast a particular sale.

Some businesses, for instance, will add a score to the conversion probability of their various prospects according to the gut feeling of their salespeople.

This intuitive forecasting method is particularly useful for businesses that lack historical data. Without the quantifiable data to provide the basis for your sales forecasting, you might have to turn to more qualitative assessments from your salespeople.

The downside of this sales forecasting method is clear, though. These assessments are highly subjective, and you might find that your salespeople are often more optimistic in their projections. This means those projections should be taken with a pinch of salt, but they are better than nothing.

Sales Forecast Examples

We know the theory, but how about the practice? In these awesome examples, let’s take a closer look at what those sales forecast methods look like.

Standard Business Plan Financials

This example from Tim Berry (chairman and founder of Palo Alto Software) looks at what a startup sales forecast might look like .

Tim sets the scene and describes Magda’s situation – she wants to open a small café in an office park.

He goes on to show how Magda would establish a base case, estimate her monthly capacity, and what type of sales she could expect. To wrap up, she goes through her month-by-month estimates for her first year and estimates her direct cost.

This is a great exercise and unmissable reading for new entrepreneurs dreaming up a new venture.

Sales Forecast Guide by Toptal Research

This simple sales forecasting guide from Toptal Research also includes a simple example that forms the basis of the guide. These simple visuals and data will give you a good idea of how you can put your sales forecasting efforts together and what it will look like.

This example also shows that you can attractively forecast sales and inform the sales teams. Sales forecasting doesn’t have to be boring columns of data, but you can bring your sales forecast to life with colorful visuals.

Detailed Sales Forecast by Microsoft

This detailed sales forecast template from Microsoft makes it simple for you to estimate your monthly sales projections.

The formula comes with pre-built formulas and worksheet features that result in an attractive and clear template. The template also relies on a weighted sales forecasting method based on the probability of closing each opportunity.

Even if you do not use this exact template, it’s a great file to use. It can give you a great idea of the information you need to include and how it might come together in a spreadsheet format.

Sales Forecast Templates

Looking for your own sales forecast templates to get a running start? Here’s a look at some of the most practical and useful templates.

Sales Forecast Template for Excel by Vertex42

This free sales forecast template helps you keep a handle on key information like unit sales, growth rate, profit margins, and gross profit.

The template is already set up to help you compare and analyze a range of products and services on a monthly basis. The chart also includes a range of sample charts that can be used to effectively and accurately communicate the contents of your sales forecast.

The same worksheet can be used to create monthly and yearly forecasts. You can play with the template to find your desired view and information. 

Sales Forecast Template by Freshworks

This simple forecasting template helps you to put together an effective sales forecast. This finished product can then be used to grow your revenues and hit your quotas.

This template is particularly effective for small businesses and startups that need to project sales and prioritize deals at the early stages of their business. Freshworks also explains that the template can help businesses achieve a higher rate of on-time delivery and accurate hiring projections.

The free sales forecast template is very intuitive to use. Again, it’s great to flick through the spreadsheet to understand what you need in a sales forecast and how it can be put together.

Free Sales Forecast Template by Fit Small Business

This sales forecast template is perfect if your CRM doesn’t currently offer built-in sales forecasting. This template can help you create a forecast from scratch that is adjusted to your own particular needs much quicker.

The template is available in various formats, including PDF, Excel, and Google Sheets. This is great news if you create your small business on your own terms and have limited software access .

Again, this template is clear and simple to use. All of the fields are explained within the spreadsheet – you don’t have to worry about going elsewhere to find definitions.

Sales Forecasting Tools

Looking for sales forecasting tools to take your activities to the next level? Here’s a look at some of the standout options.

Pipedrive is a sales CRM that is designed for salespeople by salespeople. It is a robust CRM that includes all of the features a sales team needs to achieve sales success and grow their business.

The tool also includes a forecasting tool. This tool acts as a personal sales manager that helps salespeople to choose the right deals and activities at the right time. This helps salespeople to become better closers.

By all accounts, this function is very useful for salespeople and managers alike. The forecasting tool can also be customized to match the specific needs of salespeople.

Smart Demand Planner

Smart Demand Planner is a consensus demand planning and statistical forecasting solution that understands how accurate critical forecasts are to a business.

The tool was built on the premise that forecasts are often inaccurate and can cause various issues. Moreover, the traditional sales forecast often resides within a complex spreadsheet that is difficult to use, share, and scale.

The tool aims to fix those issues by aligning strategic business forecasting at all levels of your hierarchy. Smart Demand Planner offers a statistically sound objective foundation for your sales activities.

amoCRM is an easy and smart sales solution that focuses on the world of messenger-based sales. The platform understands the popularity and potential of messenger apps, so it offers a whole new way of using the channel to create valuable relationships.

The tool also includes visual, real-time reports that give salespeople and managers powerful insights. These analytics can be used to set targets and also forecast future sales. What’s more, they can measure performance and identify target areas.

The visual look and feel of the platform make this a very intuitive option. It can drive value through accurate forecasting in businesses where messenger-based selling is critical.

As we have seen, forecasts are critical to the success of your business. They can be cost-effective for a new business, keep sales teams and reps informed, and more. However, every business also needs the leads to make those forecasts a reality. Learn more about UpLead today and how our platform can help you to find, connect, and engage with qualified prospects.

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Sales forecasting: How to create a sales forecast template (with examples)

A strong sales team is the key to success for most companies. They say a good salesperson can sell sand at the beach, but whether you’re selling products in the Caribbean or Antarctica, it all comes down to strategy. When you’re unsure if your current strategy is working, a sales forecast can help.

What is a sales forecast?

A sales forecast predicts future sales revenue using past business data. Your sales forecast can predict a number of different things, including the number of new sales for an existing product, the new customers you’ll gain, or the memberships you’ll sell in a given time period. These forecasts are then used during project planning to determine how much you should allocate towards new products and services. 

Why is sales forecasting important?

Sales forecasting helps you keep a finger on your business’s pulse. It sets the ground rules for a variety of business operations, including your sales strategy and project planning. Once you calculate your sales projections, you can use the results to assess your business health, predict cash flow, and adjust your plans accordingly.

An effective sales forecasting plan:

Predicts demand: When you have an idea of how many units you may sell, you can get a head start on production.

Helps you make smart investments: If you have future goals of expanding your business with new locations or products, knowing when you’ll have the income to do so is important. 

Contributes to goal setting: Your sales forecast can help you set goals outside of investments as well, like outshining competitors or hiring new team members.

Guides spending: Your sales forecast may be the wake-up call you need to set a budget and use cost control to reduce expenses.

Improves the sales process: You can change your current sales process based on the sales projections you’re unhappy with.

Highlights financial problems: Your sales forecast template will open your eyes to problem areas you may not have noticed otherwise. 

Helps with resource management: Do you have the resources you need to fill orders if it’s an accurate sales forecast? Your sales forecast can guide how you allocate and manage resources to hit targets.

When you have an accurate prediction of your future sales, you can use your projections to adjust your current sales process. Leveraging inventory management software can help you implement these adjustments more effectively by providing up-to-date data on stock levels and supply chain performance.

Sales forecasting methods

Sales forecasting is an important part of strategic business planning because it enables sales managers and teams to predict future sales and make informed decisions. But why are there multiple sales forecasting methods? Simply put, businesses vary in size, industry, and market dynamics, so no single methodology suits all.

Choosing the right sales forecasting method is more of an art than a science. It involves:

Analyzing your business size and industry

Assessing the available data and tools

Understanding your sales cycle's complexity

A few telltale signs that you've picked the correct approach include:

Improved accuracy in sales target predictions

Enhanced understanding of market trends

Better alignment with your business goals

Opportunity stage forecasting

Opportunity stage forecasting is a dynamic approach ideal for businesses using CRM systems like Salesforce. It assesses the likelihood of sales closing based on the stages of the sales pipeline. This method is particularly beneficial for sales organizations with a clearly defined sales process.

For example, a software company might use this method to forecast sales by examining the number of prospects in each stage of their funnel, from initial contact to final negotiation.

Pipeline forecasting method

The pipeline forecasting method is similar to opportunity stage forecasting but focuses more on the volume and quality of leads at each pipeline stage. It's particularly useful for businesses that rely heavily on sales forecasting tools and dashboards for decision-making.

A real estate agency could use it by examining the number of properties listed, the stage of negotiations, and the number of closings forecasted in the pipeline.

Length of sales cycle forecasting

Small businesses often prefer the length of sales cycle forecasting. It's straightforward and involves analyzing the duration of past sales cycles to predict future ones. This method is effective for businesses with consistent sales cycle lengths.

A furniture manufacturer, for instance, might use this method by analyzing the average time taken from initial customer contact to closing a sale in the past year.

Intuitive forecasting

Intuitive forecasting relies on the expertise and intuition of sales managers and their teams. It's less about spreadsheets and more about market research and understanding customer behavior. This method is often used with other, more data-driven approaches.

A boutique fashion store, for example, might use this method, relying on the owner's deep understanding of fashion trends and customer preferences.

Historical forecasting

Historical forecasting uses past performance data to predict future sales. This method is advantageous for businesses with ample historical sales data. It's less effective for new markets or rapidly changing industries.

An established book retailer could use historical data from previous years, considering seasonal trends and past marketing campaigns, to forecast next quarter's sales.

Multivariable analysis forecasting

Multivariable analysis forecasting is a more sophisticated method that's ideal for larger sales organizations. It analyzes factors like market trends, economic conditions, and marketing efforts to provide a holistic view of potential sales outcomes.

An automotive company, for example, could analyze factors like economic conditions, competitor activity, and past sales data to forecast future car sales.

How to calculate sales forecast

Sales forecasts determine how much you expect to do in sales for a given time frame. For example, let’s say you expect to sell 100 units in Q1 of fiscal year 2024. To calculate sales forecasts, you’ll use past data to predict future trends. 

When you’re first creating a forecast, it’s important to establish benchmarks that determine how much you normally sell of any given product to how many people. Compare historical sales data against sales quotas—i.e., how much you sold vs. how much you expected to sell. This type of analysis can help you set a baseline for what you expect to achieve every week, month, quarter, and so on.

For many companies, this means establishing a formula. The exact inputs will vary based on your products or services, but generally, you can use the following:

Sales forecast = Number of products you expect to sell x The value of each product

For example, if you sell SaaS products, your sales forecast might look something like this: 

SaaS FY24 Sales forecast = Number of expected subscribers x Subscription price

Ultimately, the sales forecasting process is a guess—but it’s an educated one. You’ll use the information you already have to create a data-driven forecasting model. How accurate your forecast is depends on your sales team. The sales team uses facts such as their prospects, current market conditions, and their sales pipeline. But they will also use their experience in the field to decide on final numbers for what they think will sell. Because of this, sales leaders are more likely to have better forecasting accuracy than new members of the sales team.

Sales forecast vs. sales goal

Your sales forecast is based on historical data and current market conditions. While you always hope your sales goals are attainable—and you can use data to estimate what your team is capable of—your goals might not line up directly with your forecast. This can be for a number of reasons, including wanting to create stretch goals that push your sales team beyond what they’ve done in the past or big, pie-in-the-sky goals that boost investor confidence.

How to create a sales forecast

There are different sales forecasting methods, and some are simpler than others. With the steps below, you’ll have a basic understanding of how to create a sales forecast template that you can customize to the method of your choice. 

1. Track your business data

Without details from your past sales, you won’t have anything to base your predictions on. If you don’t have past sales data, you can begin tracking sales now to create a sales forecast in the future. The data you’ll need to track includes:

Number of units sold per month

Revenue of each product by month

Number of units returned or canceled (so you can get an accurate sales calculation)

Other items you can track to make your predictions more accurate include:

Growth percentage

Number of sales representatives

Average sales cycle length

There are different ways to use these data points when forecasting sales. If you want to calculate your sales run rate, which is your projected revenue for the next year, use your revenue from the past month and multiply it by 12. Then, adjust this number based on other relevant data points, like seasonality.

Tip: The best way to track historical data is to use customer relationship management (CRM) software. When you have a CRM strategy in place, you can easily pull data into your sales forecast template and make quick projections.

2. Set your metrics

Before you perform the calculations in your sales forecast template, you need to decide what you’re measuring. The basic questions you should ask are:

What is the product or service you’re selling and forecasting for? Answering this question helps you decide what exactly you’re evaluating. For example, you can investigate future trends for a long-standing product to decide whether it’s worth continuing, or you can predict future sales for a new product. 

How far in the future do you want to make projections? You can decide to make projections for as little as six months or as much as five years in the future. The complexity of your sales forecast is up to you.

How much will you sell each product for, and how do you measure your products? Set your product’s metrics, whether they be units, hours, memberships, or something else. That way, you can calculate revenue on a price-per-unit basis.

How long is your sales cycle? Your sales cycle—also called a sales funnel—is how long it takes for you to make the average sale from beginning to end. Sales cycles are often monthly, quarterly, or yearly. Depending on the product you’re selling, your sales cycle may be unique. Steps in the sales cycle typically include:

Lead generation

Lead qualification

Initial contact

Making an offer

Negotiation

Closing the deal

Tip: You can still project customer growth versus revenue even if your company is in its early phases. If you don’t have enough historical data to use for your sales forecast template, you can use data from a company similar to yours in the market. 

3. Choose a forecasting method

While there are many forecasting methods to choose from, we’ll concentrate on two straightforward approaches to provide a clear understanding of how sales forecasting can be implemented efficiently. The top-down method starts with the total size of the market and works down, while the bottom-up method starts with your business and expands out.

Top-down method: To use the top-down method, start with the total size of the market—or total addressable market (TAM). Then, estimate how much of the market you think your business can capture. For example, if you’re in a large, oversaturated market, you may only capture 3% of the TAM. If the total addressable market is $1 billion, your projected annual sales would be $30 million. 

Bottom-up method: With the bottom-up method, you’ll estimate the total units your company will sell in a sales cycle, then multiply that number by your average cost per unit. You can expand out by adding other variables, like the number of sales reps, department expenses, or website views. The bottom-up forecasting method uses company data to project more specific results. 

You’ll need to choose one method to fill in your sales forecast template, but you can also try both methods to compare results.

Tip: The best forecasting method for you may depend on what type of business you’re running. If your company experiences little fluctuation in revenue, then the top-down forecasting method should work well. The top-down model can also work for new businesses that have little business data to work with. Bottom-up forecasting may be better for seasonal businesses or startups looking to make future budget and staffing decisions.

4. Calculate your sales forecast

You’ve already learned a basic way to calculate revenue using the top-down method. Below, you’ll see another way to estimate your projected sales revenue on an annual scale.

Divide your sales revenue for the year so far by the number of months so far to calculate your average monthly sales rate.

Multiply your average monthly sales rate by the number of months left in the year to calculate your projected sales revenue for the rest of the year.

Add your total sales revenue so far to your projected sales revenue for the rest of the year to calculate your annual sales forecast.

A more generalized way to estimate your future sales revenue for the year is to multiply your total sales revenue from the previous year.

Example: Let’s say your company sells a software application for $300 per unit and you sold 500 units from January to March. Your sales revenue so far is $150,000 ($300 per unit x 500 units sold). You’re three months into the calendar year, so your average monthly sales rate is $50,000 ($150,000 / 3 months). That means your projected sales revenue for the rest of the year is $450,000 ($50,000 x 9 months).

5. Adjust for external factors

A sales forecast predicts future revenue by making assumptions about your growth rate based on past success. But your past success is only one component of your growth rate. There are external factors outside of your control that can affect sales growth—and you should consider them if you want to make accurate projections. 

Some external factors you can adjust your calculations around include:

Inflation rate: Inflation is how much prices increase over a specific time period, and it usually fluctuates based on a country’s overall economic state. You can take your annual sales forecast and factor in inflation rate to ensure you’re not projecting a higher or lower number of sales than the economy will permit.

The competition: Is your market becoming more competitive as time goes on? For example, are you selling software during a tech boom? If so, assess whether your market share will shrink because of rising competition in the coming year(s).

Market changes: The market can shift as people change their behavior. Your audience may spend an average of six hours per day on their phones in one year. In the next year, mental health awareness may cause phone usage to drop. These changes are hard to predict, so you must stay on top of market news.

Industry changes: Industry changes happen when new products and technologies come on the market and make other products obsolete. One instance of this is the invention of AI technology.

Legislation: Although not as common, changes in legislation can affect the way companies sell their products. For example, vaping was a multi-million dollar industry until laws banned the sale of vape products to people under the age of 21. 

Seasonality: Many industries experience seasonality based on how human behavior and human needs change with the seasons. For example, people spend more time inside during the winter, so they may be on their computers more. Retail stores may also experience a jump in sales around Christmas time.

Tip: You can create a comprehensive sales plan to set goals for team members. Aside from revenue targets and training milestones, consider assigning each of these external factors to your team members so they can keep track of essential information. That way, you’ll have your bases covered on anything that may affect future sales growth. 

Sales forecast template

Below you’ll see an example of a software company’s six-month sales forecast template for two products. Product one is a software application, and product two is a software accessory. 

In this sales forecast template, the company used past sales data to fill in each month. They projected their sales would increase by 10% each month because of a 5% increase in inflation and because they gained 5% more of the market. They kept their price per unit the same as the previous year.

Putting both products in the same chart can help the company see that their lower-cost product—the software accessory—brings in more revenue than their higher-cost product. The company can then use this insight to create more low-cost products in the future.

Sales forecast examples

Sales forecasting is not a one-size-fits-all process. It varies significantly across industries and business sizes. Understanding this through practical examples can help businesses identify the most suitable forecasting method for their unique needs.

Sales forecasting example 1: E-commerce

In the e-commerce sector, where trends can shift rapidly, intuitive forecasting is often useful for making quick, informed decisions.

Scenario: An e-commerce retailer specializing in fashion accessories is planning for the upcoming festive season.

Trend analysis phase: The team spends the first week analyzing customer feedback and current fashion trends on social media, using intuitive forecasting to predict which products will be popular.

Inventory planning phase: Based on these insights, the next three weeks are dedicated to selecting and ordering inventory, focusing on products predicted to be in high demand.

Sales monitoring and adjustment: As the holiday season approaches, the team closely monitors early sales data, ready to adjust their inventory and marketing strategies based on real-time sales performance.

This approach allows the e-commerce retailer to stay agile , adapting quickly to market trends and customer preferences.

Sales forecasting example 2: Software development

For a software development company, especially one working with B2B clients, opportunity stage forecasting can help predict sales and manage the sales pipeline effectively.

Scenario: A software development company is launching a new project management tool.

Lead generation and qualification phase: In the initial month, the sales team focuses on generating leads, qualifying them, and categorizing potential clients based on their progress through the sales pipeline.

Proposal and negotiation phase: For the next two months, the team works on creating tailored proposals for high-potential leads and enters negotiation stages, using opportunity stage forecasting to predict the likelihood of deal closures.

Closure and review: In the final phase, the team aims to close deals, review the accuracy of their initial forecasts, and refine their approach based on the outcomes.

Opportunity stage forecasting enables the software company to efficiently manage its sales pipeline , focusing resources on the most promising leads and improving their chances of successful deal closures.

Pair your sales forecast with a strong sales process

A sales forecast is only one part of the larger sales picture. As your team members acquire leads and close deals, you can track them through the sales pipeline. A solid sales plan is the foundation of future success.  

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The Last Guide to Sales Forecasting You’ll Ever Need: How-To Guides and Examples

By Kate Eby | January 26, 2020 (updated August 26, 2024)

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Sales forecasts are a critical part of your business planning. In this comprehensive guide, you’ll learn how to do them correctly, including explanations of different forecasting methods, step-by-step tutorials, and advice from experienced finance and sales leaders.

Included on this page, you'll find details on more than 20 sales forecasting techniques , information regarding how to forecast sales for new businesses and products , a step-by-step guide on how to forecast sales , and a free sales forecast template .

What Is Sales Forecasting?

When you produce a sales forecast , you are predicting what your sales or revenue will be in the future. An accurate sales forecast helps your firm make better decisions and is arguably the most important piece of your business plan. 

A sales forecast contrasts with a sales goal . The former is the realistic representation of what you believe will occur, while the latter is what you want to occur. Forecasts are never perfectly accurate, but you should be as objective as possible when creating a sales forecast. Goals, on the other hand, can be based on optimistic or motivational targets.

Because the sales forecast is critical to business planning, many different stakeholders in a company (beyond sales managers and representatives) rely on these estimates, including human resources planners, finance directors, and C-level executives. 

In this article, you’ll learn about different sales forecasting methods with varying levels of sophistication. The most basic method is called naive forecasting , which uses the prior period’s actual sales for the new period’s forecast and does not apply any adjustments for growth or inflation. Naive forecasts are used as comparative figures for more robust methods.

What Is Sales Planning?

A sales plan describes the goals, strategies, target customers, and likely hurdles for your sales effort. The sales plan defines your sales strategy and the method of execution you will use to achieve the numbers in your sales forecast.

Overview of Sales Forecasting Steps

Your sales forecasting model can ultimately become very sophisticated, but to grasp the basics, you should first gain a high-level understanding of what is involved. There are three primary steps to getting started:

• Decide which forecasting method or technique you will use. Also, determine the time period for your forecast. Later in this guide, we will review different methods of forecasting sales, including how to know which is best for your business.  
• Gather the data to plug into your forecast model. The data points will vary by method, but will almost always include your actual past sales and current growth rate.
• Pick a tool to support your forecasting effort. For learning purposes, you can start with pencil and paper, but soon after, you’ll want to take advantage of digital solutions. Common tools include spreadsheets, accounting software, and customer relationship management (CRM) or sales management solutions.

As you get going, remember not to be overly focused on complex formulas. Do regular reality checks to make sure your sales forecasts accord with common sense. Bounce forecasts off sales reps to get realistic feedback, and revise.

You will likely achieve greater accuracy if you build your forecasts based on unit sales wherever possible, because pricing can move independently from unit sales. Use data if you have it.

Benefits and Importance of Sales Forecasting

Sales forecasting helps your business by giving you data to make decisions concerning allocating resources, assigning staff, and managing cash flow and overhead. Using this data reduces your risk and supports your growth. 

Your sales forecast enables you to predict both short and long-term performance and customer demand for your product. In the short term, having a sales forecast makes it easy for you to spot when actual sales are not meeting estimates and gives you an opportunity to make corrections early in the period.

The forecast guides how much you spend on marketing and administration, and the projections generate your sales reps’ objectives. In this way, sales forecasts are an important benchmark for gauging the performance of your sales reps. 

Sales forecasts also lead to better management of inventory levels. With a good idea of how much product you will sell, you can stock enough to meet customer demand without missing any sales and without carrying more than you need. Excess inventory ties up capital and reduces profit margins. 

In the long term, sales forecasts can help you prepare for changes in your business. For example, you might see that within a few years, your company will require more manufacturing capacity to meet growing sales. To expand capacity, you may need to build a new factory, so now you can start planning how you will pay for it. Predictive sales forecasting is a critical part of your presentation if you are seeking equity capital from investors or commercial loans for expansion. 

In short, sales forecasting helps your business avoid surprises, so you aren’t making decisions in a crisis environment. Companies with trustworthy sales forecasts see a 10 percentage point  greater increase in annual revenues compared to counterparts without, according to research from the Aberdeen Group .

What Makes a Good Sales Forecast?

The most important quality for a sales forecast is accuracy. But, the benefits of accuracy must be weighed against the time, effort, and expense of the forecasting technique.

Useful sales forecasts are also easily understood and often include visual elements, such as charts, graphs, and tables, to make important trends visible. 

Ideally, you can quickly build a highly reliable sales forecast with simple, economical methods. The ultimate forecast method would automatically (i.e., without manual intervention) fetch the relevant data and make predictions using an algorithm finely tuned to your business. 

In reality, the forecasting process is more time consuming and subjective. Sales forecasts often depend on reps’ assessments of how likely their prospects are to close, and perceptions vary widely. (A conservative rep’s 60 percent probability may be understated, while another rep’s 60 percent may be overly optimistic.) 

Sales managers, who are usually responsible for forecasting, spend a lot of time factoring in these nuances and other market factors when calculating forecasts. 

Surprisingly, spending more time on forecasting does not always improve accuracy. According to research from CSO Insights, sales managers who spend 15 to 20 percent of their time producing their forecast had win rates for approximately 46.5 percent of deals. But, when they spend more than 20 percent of their time on forecasting, the win rate declined by more than two percentage points. 

An axiom of forecasting is that accuracy is highest during time periods that are close at hand and lowest during those that are far into the future. Short-term forecasts draw upon the following: deals that are already in the sales pipeline, the current economic environment, and actual market trends. So, the data underlying short-term forecasts is more reliable.

Forecasting for distant time periods requires bigger guesses about opportunities, demand, competitor activity, and product trends, so it makes sense that the forecast becomes less accurate the further into the future you go. (This concept applies to many companies, especially those that are young and growing; the concept becomes more relevant for all businesses at three years and beyond.) Bear this thought in mind when you look at your sales forecast in order to make long-term decisions.

Sales Forecasting Methods: Qualitative and Quantitative

Sales forecasting methods break down broadly into qualitative and quantitative techniques . Qualitative forecasts depend on opinions and subjective judgment, while quantitative methods use historical data and statistical modeling.

Qualitative Methods for Sales Forecasting

Sales forecasting often uses five qualitative methods. These are based on different ways of generating informed opinions about sales prospects. Creating and conducting these kinds of surveys is often expensive and time intensive. These five qualitative methods include the following: 

• Jury of Executive Opinion or Panel Method: In this method, an executive group meets, discusses sales predictions, and reaches a consensus. The advantage of this method is that the result represents the collective wisdom of your most informed people. The disadvantage is that the result may be skewed by dominant personalities or the group may spend less time reflecting.
• Delphi Method: Here, you question or survey each expert separately, then analyze and compile the results. The output is then returned to the experts, who can reconsider their responses in light of others’ views and answers. You may repeat this process multiple times to reach a consensus or a narrow range of forecasts. This process avoids the influence of groupthink and may generate a helpful diversity of viewpoints. Unfortunately, it can be time consuming.  
• Sales Force Composite Method: With this technique, you ask sales representatives to forecast sales for their territory or accounts. Sales managers and the head of sales then review these forecasts, along with the product owners. This method progressively refines the views of those closest to the customers and market, but may be distorted by any overly optimistic forecasts by sales reps. The composite method also does not take into account larger trends, such as the political or regulatory climate and product innovation. 
• Customer Surveys: With this approach, you survey your customers (or a representative sample of your customers) about their purchase plans. For mass-market consumer products, you may use market research techniques to get an idea about demand trends for your product.  
• Scenario Planning: Sales forecasters use this technique most often when they face a lot of uncertainty, such as when they are estimating sales for more than three years in the future or when a market or industry is in great flux. Under scenario planning, you brainstorm different circumstances and how they impact sales. For example, these scenarios might include what would happen to your sales if there were a recession or if new duties on your subcomponents increased prices dramatically. The goal of scenario planning is not to arrive at a single accepted forecast, but to give you the opportunity to counter-plan for the worst-case scenarios.

Quantitative Methods for Sales Forecasting

Quantitative sales forecasting methods use data and statistical formulas or models to project future sales. Here are some of the most popular quantitative methods:

• Time Series: This method uses historical data and assumes history will repeat itself, including seasonality or sales cycles. To arrive at future sales, you multiply historical sales by the growth rate. This method requires chronologically ordered data. Popular time-series techniques include moving average, exponential smoothing, ARIMA, and X11. 
• Causal: This method looks at the historical cause and effect between different variables and sales. Causal techniques allow you to factor in multiple influences, while time series models look only at past results. With causal methods, you usually try to take account of all the possible factors that could impact your sales, so the data may include internal sales results, consumer sentiment, macroeconomic trends, third-party surveys, and more. Some popular causal models are linear or multiple regression, econometric, and leading indicators.

Sales Forecasting Techniques with Examples

In reality, most businesses use a combination of qualitative and quantitative methods to produce sales forecasts. Let’s look at the common ways that companies put sales forecasting into action with examples.

Intuitive Method

This forecasting method draws on sales reps’ and sales managers’ opinions about how likely an opportunity is to close, so the technique is highly subjective. Estimates from reps with a lot of experience are likely to be more accurate, and the reliability of the forecast requires reps and managers to be realistic and honest.

This method can be especially helpful if you do not have historical data or if you are assessing  new prospects early in your funnel. In these cases, a rep’s gut feeling after initial contact can be a good indicator. If you are a manager, you will review reps’ estimates with an eye for any outliers and work with those reps to make any necessary adjustments. 

Here is an example of the intuitive method in action: You manage a team of four sales reps. You go to each one and inquire about the leads they are nurturing. You ask each rep which opportunities they believe they will win in the next quarter and how much those sales will be worth. John, your strongest rep, tells you $175,000. Alice, another strong performer, says $115,000. Bob, who is in his second year at your company, reports $85,000. Jennifer, a recent college graduate, projects $100,000. You calculate the total of those forecasts and arrive at an intuitive forecast of $450,000. However, you suspect Jennifer’s forecast is unrealistic, because she is inexperienced, so you ask her more questions. Based on what you learn, you decide that only half of Jennifer’s deals are likely to close, so you reduce her contribution to $50,000 and revise your total quarterly forecast to $400,000.

Scenarios Method

Scenario forecasts are qualitative and involve you projecting sales outcomes based on a variety of assumptions. This process can also be a helpful business planning exercise, because once you identify major risks or uncertainty for your company, you can develop action plans to deal with these circumstances if they arise.

Scenario forecasts require an in-depth knowledge of your business and industry, and the quality of the forecast will vary with the expertise of the person or group who prepares the estimate.

To create a scenario forecast, think about the key factors that affect sales, external forces that could influence the outcome, and major uncertainties. Then, write a narrative and numerical description of how the scenario would play out under various combinations of these key factors, external forces, and uncertainties.

Here is an example of the scenarios method in action: Your company sells components for military vehicles. You notice that the most impactful things your sales reps do are meeting with procurement officers in the defense departments of major nations and holding factory tours and product demonstrations for them. These are your key factors. 

The external forces are the number of tenders or requests for proposals that military procurement departments announce, and the value of those items. The risk of conflict in various parts of the world, scarcity of your raw materials, and trends in budget authorizations for defense by major countries are your critical uncertainties. 

You look at how your key factors, external factors, and major uncertainties might combine. One scenario might entail the outcome if your reps increased the number of meetings and product events by 20 percent, the value of U.S. tenders launched rose by six percent, and France decreased defense spending by two percent. 

Under this scenario, you might forecast a six percent increase in unit sales resulting from the following: 

• Having more in-person sales contacts should boost sales by five percent based on past performance.
• You can increase revenue by three percent due to greater U.S. tender opportunities and your current market share.
• Major customer France will not purchase anything, reducing sales by two percent.

Sales Category Method

The category forecasting method looks at the probability that an opportunity will close and divides opportunities into groups based on this probability. The technique relies somewhat on intuition, as does the intuitive method, but the sales category method brings more structure and discipline to the process.

The categories that each company uses vary widely, but they correspond broadly to stages in the sales pipeline. These are some typical labels and definitions:

• Omitted: The deal has been lost or the prospect is no longer engaging. 
• Pipeline: The opportunity will not realistically close during the quarter.
• Possible, Best Case, Upside, or Longshot: There is a realistic possibility that the deal could close at the projected value in the quarter if everything falls into place, but this is not certain. Overall, fewer than half of the opportunities in this group end up closing in the quarter at the planned value.
• Probable or Forecast: The sales rep is confident that the deal will close at the planned value in the quarter. Most of these opportunities will come to fruition as expected.
• Commit or Confident: The salesperson is highly confident that the deal will close as expected in this quarter, and only something extraordinary and unpredictable could derail it. The probability in this category is 80 to 90 percent. Any deal that does not close as forecast should generally experience only a short, unanticipated delay, rather than a total loss.
• Closed: The deal has been completed; payment and delivery have been processed; and the sale is already counted in the quarter’s revenue. 

To compile your forecast, look at the combined value of the potential deals in the categories under three scenarios:

• Worst Case: This is the minimum value you can anticipate, based on the closed and committed deals. If you have very good historical data for your sales reps and categories and feel confident making adjustments, such as counting a portion of probable deals, you may do so, but it is important to be consistent and objective.
• Most Likely: This scenario is your most realistic forecast and looks at closed, committed, and probable deal values, again with possible adjustments based on historical results. For example, if you have tracked that only 60 percent of your probable deals tend to close in the quarter, adjust their contribution downward by 40 percent.
• Best Case: This is your most optimistic forecast and hinges on executing your sales process perfectly. You count deals in the closed, commit, probable, and possible categories, with adjustments based on past performance. The possible category, in particular, requires a downward adjustment.  

As the quarter or period progresses, you revise the forecast based on updated information. This method can quickly get cumbersome and time consuming without an analytics solution.

Here is an example of the sales category method in action: You interview your sales team and get details from the reps on each deal they are working on. You assign the opportunities to a category, then make adjustments for each scenario based on past results. For example, you see that over the past three years, only half the deals in the possible category each quarter came to fruition. Here’s what the forecast looks like:

Top-Down Sales Forecasting

In top-down sales forecasting, you start by looking at the size of your entire market, called the total addressable market (TAM), and then estimate what percentage of the market you can capture. 

This method requires access to industry and geographic market data, and sales experts say top-down forecasting is vulnerable to unrealistic objectives, because expectations of future market share are often largely conjecture.

Here is an example of top-down sales forecasting in action: You operate a new car dealership in San Diego County, California. From industry and government statistics, you learn that in 2018, 112 dealers sold approximately 36,000 new cars and light trucks in the county. You represent the top-selling brand in the market, you have a large sales force, and your dealership is located in the most populous part of the county. You estimate that you can capture eight percent of the market (2,880 vehicles). The average selling price per vehicle in the county last year was $36,000, so you forecast gross annual sales of $103.7 million. From there, you determine how many vehicles each rep must sell each month to meet that mark.

Bottom-Up Sales Forecasting

Bottom-up sales forecasting works the opposite way, by starting with your individual business and its attributes and then moving outward. This method takes account of your production capacity, the potential sales for specific products, and actual trends in your customer base. Staff throughout your business participates in this kind of forecasting, and it tends to be more realistic and accurate. 

Begin by estimating how many potential customers you could have contact with in the period. This potential quantity of customers is called your share of market (SOM) or your target market . Then, think about how many of those potential customers will interact with you. Then, make an actual purchase.

Of those who do purchase, factor in how many units of your product they will buy on average and then how much revenue that represents. If you aren’t sure how much your customers will spend, you can interview a few. 

Here is an example of bottom-up sales forecasting in action: Your firm sells IT implementation services to mid-sized manufacturers in the Midwest. You have a booth at a regional trade show, and 3,000 potential customers stop by and give you their contact information. You estimate that you can engage 10 percent of those people in a sales call after the trade show and convert 10 percent of those calls into deals. That represents 30 sales. Your service packages cost an average of $250,000. So, you forecast sales of $7.5 million.

Market Build-Up Method

In the market build-up method, based on data about the industry, you estimate how many buyers there are for your product in each market or territory and how much they could potentially purchase. 

Here is an example of the market build-up method in action: Your company makes safety devices for subways and other rail transit systems. You divide the United States into markets and look at how many cities in each region have subways or rail. In the West Coast territory, you count nine. To implement your product, you need a device for each mile of rail track, so you tally how many miles of track each of those cities have. In the West Coast market, there are a total of 454 miles of track. Each device sells for $25,000, so the West Coast market would be worth a total $11.4 million. From there, you would estimate how much of that total you could realistically capture.

Historical Method

The historical sales forecasting technique is a classic example of the time-series forecasting that we discussed under quantitative methods. 

With historical models, you use past sales to forecast the future. To account for growth, inflation, or a drop in demand, you multiply past sales by your average growth rate in order to compile your forecast. 

This method has the advantage of being simple and quick, but it doesn’t account for common variables, such as an increase in the number of products you sell, growth in your sales force, or the hot, new product your competitor has introduced that is drawing away your customers.

Here is an example of the historical method in action: You are forecasting sales for March, and you see that last year your sales for the month were $48,000. Your growth rate runs about eight percent year over year. So, you arrive at a forecast of $51,840 for this March.

Opportunity Stage Method

The opportunity stage technique is popular, especially for high-value enterprise sales that require a lot of nurturing. This method entails looking at deals in your pipeline and multiplying the value of each potential sale by its probability of closing. 

To estimate the probability of closing, you look at your sales funnel and historical conversion rates from top to bottom. The further a deal progresses through the stages in your funnel or pipeline, the higher likelihood it has of closing.

The strong points of this method are that it is straightforward to calculate and easy to do with most CRM systems. 

But, opportunity-stage forecasting can be time consuming. 

Moreover, this method doesn’t account for the unique characteristics of each deal (such as a longtime repeat customer vs. a new prospect). In addition, the deal value, stage, and projected close date have to be accurate and updated. And, the age of the potential deal is not reflected. This method treats a deal progressing quickly through the stages of your pipeline the same as one that has stalled for months. 

If your sales process, products, or marketing have changed, the use of historical data may make this method unreliable.

Here is an example of the opportunity stage method in action: Say your sales pipeline comprises six stages. Based on historical data, you calculate the close probability at each stage. Then, to arrive at a forecast, you look at the potential value of the deals at each stage and multiply them by the probability.

Length-of-Sales-Cycle Method

This is another quantitative method that shares some similarities with the deal stage method. However, this model looks at the length of your average sales cycle. 

First, determine the average length in days of your sales process. This figure is also known as time to purchase or sales velocity . Add the total number of days it took to close all of the past year’s deals and divide by the number of deals. Then, calculate the probability of new deals closing in a certain period of time as a percentage of the average sales cycle length. 

With this method, the biases of individual reps are less of a factor than with the deal stage model. Also, with this technique, you can fine-tune the probabilities for different lead types. (For example, prospects referred by current customers may close in an average of 27 days, while prospects who make contact after an online search need an average of 62 days.) But, this technique requires you to know and record how and when prospects enter your pipeline, which can be time intensive.

Here is an example of the length-of-sales-cycle method in action: You review the 37 deals your company won last year and see that they took a total of 2,997 days to close. To calculate the average length of the sales cycle, you divide 2,997 by 37 and see that the average sales cycle lasted 81 days. You then look at the five deals currently in your pipeline.

Lead Scoring Method

This technique requires you to have lead scoring in place. With lead scoring, you profile your ideal customers based on attributes (like industry, size, and location) as well as behavior (such as whether they have recently raised capital or whether the contact person has requested a demonstration of your product). 

You then classify future leads based on how closely they match your ideal customer. You can label the categories with distinctions such as A, B, or C or hot, warm, or cold, or you can assign numbers up to one hundred using formulas that add and subtract points for different attributes and behaviors. (For example, “They requested a demo, which adds 15 points, but they are not in your ideal industry, which subtracts 10 points.”)  

To create your forecast, you then look at the historical close rate for leads in each category and multiply that by the value of the opportunities currently in the group. 

Here is an example of the lead scoring method in action: Your company sells textbooks for advanced math and science. Your ideal customer is a university with at least 25,0000 students that has an engineering school and is located on the east coast. These are your A prospects. B prospects have at least 10,000 students. C prospects have at least 10,000 students, but are located elsewhere in the country.

You then look at the close rates and potential deal values for each lead score. Finally, you multiply the close rate by the potential value of the deals in the category or by your average sales value.

Lead Source Method

This model forecasts future sales based on how you acquired the lead, using the behavior of previous leads as a benchmark.

For example, say your company sells a software application. Some leads come from search traffic to your website; some originate with demonstration requests at conferences, and some are referrals from existing customers. 

Look at your historical data to track the percentage of leads who converted to sales for each lead source. In addition, calculate the average value of a sale for each source. Then, by using the conversion probability and sales values, you can forecast the sales that the leads at the top of your funnel are likely to generate. 

Here is an example of the lead source method in action: Based on source, you compile your historical data and discover the following conversion rates and sales value for leads.

One advantage of this sales forecasting method is that you can project how many leads of each type you would need to generate in order to hit a target. Suppose you have a conference coming up where participants will be able to request demonstrations of your product, and you would like to win an additional $30,000 in sales from the demo leads. Based on the average lead value of $600, you know you will want to generate 50 leads who request demos at the conference. 

One drawback to lead source forecasting is that the method does not account for potential differences in the length of the sales cycle for the lead types. That makes it difficult to pinpoint the period in which the revenue will occur. Therefore, you should do a separate analysis of time to purchase in order to allocate sales to the right period.

Another challenge is that sometimes you may not be sure of the lead source. For example, suppose that another customer has recommended your product to a contact and that that contact decides to first check you out on your website. You might very well assign a lower lead value to this prospect, assuming they will behave like our web-originated leads, when, in reality, they will probably behave more like the customer referral leads. 

Lastly, remember that this method won’t account for changes in your marketing or pricing that influence conversion rates and customer behavior.

Sales by Row Method

This method is a good fit for small businesses that sell different products or services. Rather than forecasting sales for each individual product type, you project sales for categories. 

Each row in your forecast will cover different physical products (such as pick-up trucks, heavy trucks, and delivery vans) and service units (such as hours of labor or service types like replacing a faucet, unclogging a drain, or installing a toilet). 

You can employ this method to forecast units and then factor them by average prices to arrive at revenue. Or, you can look exclusively at revenue. If you sell a subscription service, you can calculate recurring revenue for each product type.

For each row, you would look at how much you sold in the same period a year earlier and then adjust for factors such as inflation, organic growth, new products, increased workforce, or special circumstances.

Here is an example of the sales by row method: You operate a combination fuel station and mini-market. Your forecast would cover the broad categories of your business, such as sales of gasoline, diesel, food, beverages, and sundries.

For March’s forecast, you take into account that the new housing development near your business, which was under construction last year, is now almost completely sold and that there are many more commuters filling up. Your gas sales have been growing by almost 15 percent year over year. Also, in March, there will be a special event at the nearby fairgrounds that could draw thousands of additional vehicles to your area. 

On the downside, a new retail complex with a full-service grocery store has opened nearby, so your sales of food and drinks have slipped. Also, increased congestion in the neighborhood has caused some long-haul truckers who used to stop for fuel to reroute.

Regression or Multivariable Analysis Method

Regression or multivariable analysis is one of the most sophisticated forecasting methods, and allows you to build a custom model combining any factors that you feel are relevant to your sales.

For regression analysis, you need accurate historical data on all the variables under consideration, expertise in statistics, and, for practical purposes, an analytics solution or application that can perform the analysis. 

Because this method incorporates a multitude of influences on your sales, the resulting forecast is the most accurate. But, the costs tend to be high because of the data collection, expertise, and technology requirements.  

Regression analysis looks at the dependent variable (the factor that you are trying to predict, in this case, the amount of future sales) and independent variables (the factors that you believe affect sales results, such as opportunity stage or lead score). 

In a simple example, you would create a chart, plotting the sales results on the Y axis and the independent variable on the X axis. This chart will reveal correlations. If you draw a line through the middle of the data points, you can calculate the degree to which the independent variable affects sales. 

This line is called the regression line , and, by calculating the slope of the line, you can use numbers to represent the relationship between the variable and sales. The equation for this is Y = a + bX. Excel and other software will perform this analysis and calculate a and b for you. In more sophisticated applications, the formula will also include a factor for error to account for the reality that other variables are also at work.

Going further, you can look at how multiple variables interplay, such as individual rep close rate, customer size, and deal stage. Making these kinds of calculations becomes increasingly difficult with simple charts and demands more advanced math knowledge. 

Remember that correlation is not the same as causation. Bear in mind that while two variables may seem closely related to each other, the reality may be more subtle. 

Here is an example of the regression method in action: You want to look at the relationship between the amount of time a prospect has progressed in your sales cycle and the probability of the deal closing. 

So, plot on a chart the probability of close for past deals when they were at various stages of your sales cycle, which lasts an average of 100 days. Deals early in the sales cycle have a low probability of closing compared to those that occur in the later stages of negotiation and contract signing on day 85 and up. (Be sure to eliminate any prospects that stall or disengage at any stage.)

By drawing a line through those points (i.e., the intersection between the sales close probability and the percentage of the average sales cycle), you can see that there is a nearly one-to-one relationship between percentage point increases in time elapsed relative to the average sales cycle and percentage point increases in the probability of closing.

This calculation becomes more complex when you consider multiple variables. Let’s say you have two sales reps working with prospects. Gloria, your best closer, is giving a product demonstration to a new Fortune 500 account. Leonard, a strong performer, whose close rate is a little lower than Gloria’s, is negotiating with a repeat customer, a mid-sized company. 

Your multivariable analysis of these situations could take into account each rep’s average close rate for an opportunity, given the following factors: the specific stage; deal size; time left in the period; probability of close for a repeat customer versus a new customer; and time to close for an enterprise customer with more than 10 people involved in decision making versus a mid-sized business with a single decision maker.

Time Horizons in Sales Forecasting

Choosing the time period for your sales forecast is an important step. Depending on your business, the purpose of your forecast, and the resources you can devote to making forecasts, the time frame you target will vary. 

A short-term forecast will help set sales rep bonus levels for next quarter, but you need a long-term forecast to decide whether you should plan to build a new factory. A startup that has been doubling revenue every year will have more difficulty making a 20-year forecast than a century-old concern in a mature industry. Here are the three time frames for forecasts: 

• Short-Term Forecasts: These cover up to a year and can include monthly or quarterly forecasts. They help set production levels, sales targets, and overhead costs.
• Medium-Term Forecasts: These range from one to four years and guide product development, workforce planning, and real estate needs.
• Long-Term Forecasts: These extend from five to 20 years and inform capital investment, capacity planning, long-range financing programs, succession planning, and workforce skill and training requirements.

Getting Started with Sales Forecasting: What You Need to Know

Regardless of the sales forecast method you use, you generally need to have certain pieces of information and conditions in place. These include the following:

• Well-Documented and Defined Sales Process: You need to understand your customer journey and have an established sequence for nurturing each prospect. Without this, you cannot predict which opportunities are getting closer to purchasing. This structure creates accountability. 
• Consensus on Pipeline Stages: Your sales team needs to have a clear and shared understanding of what you mean by lead, prospect, qualified, possible, probable, committed, and other relevant terms. 
• Definition of Success: Communicate clearly what your sales team is striving for in terms of sales quotas or goals; include these quotas and goals for each individual rep, for the team as a whole, and for conversion through each stage of your pipeline.
• Historical Data: You require benchmarks for data points, such as average time to close, conversion rates, average deal size, lifetime customer value, win-loss ratio, and seasonal sales trends. These sales metrics and KPIs are often critical pieces of your forecast.
• Current Status: Up-to-date knowledge of your pipeline is essential, including how many opportunities are at each stage and the potential value of these sales.
• Forecasting Tools: This will almost always include a CRM application and may also include financial management or accounting software, analytics solutions, and spreadsheets.

Influences and Assumptions in Sales Forecasting

Sales forecasting should not happen in a vacuum. Take into account changes in the business environment and question assumptions, such as that past growth will continue. Also, be sure to factor in your ideas about global economic trends and competitor behavior.

Here are some common factors to consider regarding your sales forecast. Many of these can have either a positive or negative influence on sales. For example, changing reps’ account assignments may reduce sales, because members of your team will have to familiarize themselves with customers that are new to them. However, sales could increase if your new hotshot gets your biggest opportunity.

• Economic Trends: Inflation, growth, consumer sentiment, risk appetite, and purchasing power
• Regulation: Trade policies such as tariffs, duties, and quotas; health, safety, and environmental rulings on products or processes; court decisions; intellectual property disputes; and competition policy
• Seasonal Trends: Cyclical demand fluctuation, production patterns, and variation in raw material availability 
• Competitor Behavior: New product innovations, pricing changes, and market entries and exits
• Business Economics: Selling prices, direct prices, unit costs, gross margins, and the impact of accrual versus cash accounting on when you can book a sale
• Staffing and Compensation: Hiring or firing new reps, changes in leadership, policies on commissions and bonuses, and training
• Territory Management: Redrawing of territories and changes in account assignments
• Products and Services: Product lifecycle, new products and services, user experience, defects, ticket resolution, changes in distribution, and market entries and exits
• Marketing: Demand generation, advertising, pricing, special campaigns, social media activity, and prospecting

Sales Forecasting for New Businesses and Products

If you are starting a new business or launching a new product, your sales forecasts are crucial because they will determine how much you can spend in order to break even. However, when dealing with a new entity, you lack the advantage of historical data, which you need for almost every forecasting technique. 

If you don’t have historical data, you can use industry benchmarks from trade publications, industry associations, and consultants. For example, if you are launching a new recipe app, look at market research on how other cooking apps have performed. 

Dining establishments can look at number of tables, hours of service, and menu prices to estimate average order amounts and table turnover. Retail outlets use square feet, foot traffic, and average selling prices to forecast sales.

If you are adding a new product to your line, you can forecast sales by looking at how your most similar existing product performed at launch. Then, you can make tweaks based on other relevant information, such as that the new product is harder to master than its predecessor, that it is a later entrant into a crowded space, or that it already has a backlog of orders before launch.

New service businesses can base forecasts on capacity, such as number of staff and service hours and how much to charge for the most popular services. Once you have this data, you can make adjustments accordingly.

Michael Barbarita, President of Next Step CFO , works as a contracted CFO to produce sales forecasts for companies. He likes to tie the sales forecast for service businesses to a metric called sales per direct labor hour , which you can calculate this by dividing sales by the working hours of people in the field performing customer work. For example, an electrical contractor would calculate the sales per direct labor hour of its electricians and multiply that figure by the number of electricians and the hours they work.  

For instance, you may decide that operating at half capacity is a good estimate for your first six months in business. Then, you may operate at three-quarters capacity for the second six months. Therefore, you would multiply maximum capacity by average revenue and then multiply that resulting figure by 0.50 and 0.75, respectively.

Quick-Start: Sales Forecasting Formulas

If you are eager to dive in and want to generate some simple sales forecasts, you can make use of basic equations. Here are a few easy ones:

• Simple Forecast with No Organic Growth: This formula assumes that this period will duplicate the prior period, except for the impact of inflation.  Revenue Prior Period) + (Revenue Prior Period x Inflation Rate) = Sales Forecast  
• Historical Plus Growth: This formula helps you reflect current trends.You look at the prior year and then factor it by your recent growth rate. (Last Year Revenue x Percentage Growth Rate) + Last Year Revenue = Sales Forecast
• Partial Year: In this method, you project the rest of the year based on historical patterns and early results. Imagine that you know your sales for the first two months of the year and that last year these months represented seven and nine percent of your sales respectively and totaled $100,000. Using the formula below, you would forecast sales of $625,00 for the year: ($100,000 x 100) ÷ 16 = $625,000. (Current Period Revenue x 100) ÷ Percent That Equivalent Period Represented Last Year = Forecast Sales
• Pipeline Formula: This formula replicates the opportunity stage method that we discussed earlier. You calculate the value of deals at each stage of your pipeline by multiplying the potential deal value by the close probability and adding up the result for each stage. (Deal Amount x Close Probability) + (Deal Amount x Close Probability) etc. = Sales Forecast

How to Make a Basic Sales Forecast Step by Step

Here are step-by-step instructions for a manually generated sales forecast:

• Pick Your Time Period: The way in which you will use your forecast determines the most appropriate time interval, whether that be monthly, quarterly, annually, or on an even longer timeline. If you are making your first forecast, estimating on a monthly or quarterly basis for the upcoming year is a good starting point. Experts suggest doing monthly estimates for the first year and then doing annual forecasts for years two through five. 
• List Products or Services: Write down the items or services that you sell. If you have a lot of them, group them into categories. For example, if you sell clothing, your rows might include shirts, pants, and shoes. Match these revenue streams to the way you organize your accounting. So, if your books look at women’s and men’s clothing separately, do the same for your sales forecast. That way, you can pair your sales forecast with information on your cost of goods sold and overhead to project profit.  
• Estimate Unit Sales: Predict how many units you will sell in the selected time period. If you have historical data, use that and then factor in assumptions about demand for the upcoming period. For example, is your business growing? Is the economy in recession? Did you launch a big promotion? Use the answers to these questions to make downward or upward adjustments to the historical figure. You can also interview some customers to get insights into their likely purchasing plans. Lastly, don’t forget to factor in seasonal fluctuations. 
• Multiply by the Selling Price: Multiply the unit sales numbers by the average selling price (ASP). Determine the ASP by analyzing historical sales and adjusting for inflation and other factors. To obtain this figure, you also need to consider discounts, free trials, and unsold inventory. 
• Repeat for Each Forecast Period: Go through the same calculation for each category and time interval. As you forecast more distant periods, your estimates are likely to be less accurate, so you may want to make a range of forecasts, such as for best, worst, and average scenarios. As time passes, add the actual values and fine-tune your forecast. For instance, you may see that for the first few months of the year, you underestimated sales by 12 percent. Therefore, you decide to increase your forecasted sales amounts in the upcoming months.

How to Forecast Sales in Excel

Here is a step-by-step guide to building your own sales forecast in Excel:

• Enter Historical Data: Open a worksheet and enter your past date data in the first column. Then, in the second column, enter the corresponding sales values. If possible, make sure you space the dates consistently (e.g., the first day of every month). 
• Create Forecast: In the date column, fill out the next date cell with the future date you are forecasting. Select the corresponding sales value cell and in the function field, type: =(FORECAST( A10, B2:B9, A2:A9)), where A10 is the future date cell, B2 to B9 are the historical sales amounts, and A2 to A9 are the historical dates. Hit enter and the forecast sales amount will appear.
• Repeat: Continue the pattern for your remaining future dates. Remember that the formula uses only known variables, so do not add forecasted amounts to the cell ranges. This function is a linear forecasting method.
• Power Up: If you have Excel 2016, you can use the forecast sheet function, which automates forecasting and adds a chart. To use this function, select both data columns, and, on the data tab, click the forecast sheet. In the create forecast worksheet box, select whether you want a line or bar chart. In the forecast end field, choose an ending date and then click create. Excel will create a new worksheet that contains both historical and forecast sales data as well as a visual representation. 

For a pre-made basic sales forecast, download this template that projects product sales with both units and sales amount.

Basic Sales Forecast Sample Template

Excel  | Google Sheets | Smartsheet

For a wide range of pre-built sales forecast templates in a variety of formats, see this comprehensive collection .

How to Choose the Right Sales Forecasting Methodology

Your goal is to build the most reliable forecast possible, with the minimum amount of resources you need to be effective. To choose the method that fits best, consider these seven questions:

• What Is the Purpose of the Forecast? Think about why you need the forecast and what you will do with it. Forecasting methods vary in their accuracy, cost, and ease of execution. If you are using it to set a budget, you will want a high level of accuracy. But, if you are trying to confirm that there is enough demand in a new geographic area to justify entering the market, you do not need as much precision. If the need is urgent, you want a fast technique. If you have time and resources, you may decide your needs are best served by a sophisticated custom model. When you want to model what would happen to sales if you changed one variable, you need a method (such as regression analysis) that can isolate this variable and reliably project the impact. 

• “Consider the purpose of the model and how the results will be used. For example, major decisions with a high degree of impact and uncertainty require more accuracy than those that are low impact or generally more predictable. You also need to consider the data that will be available and the quality of that data,” says Tyson Nicholas, Senior Director of Analytics at HealthMarkets , a national insurance agency. 
• Is the Time Frame Short, Medium, or Long Term? Qualitative methods are a good choice for short-term horizons, but they generally underperform quantitative methods for periods beyond a few months. Similarly, consider where you are in your business or product lifecycle. If you are ramping up or in a high-growth phase, you may be making costly investment decisions, so you need a method with a high degree of accuracy, but also relatively quick production time. When you are in a mature phase of your business, decisions about production and marketing are more routine. 
• How Much Data Do You Have? The less data you have, the more likely you will be to select a qualitative technique. If you have limited data, you will turn toward more simplistic models. A company that has collected a lot of data and has great confidence in its reliability can choose sophisticated quantitative models. 
• How Relevant Will History Be in Predicting the Future?  If your business has undergone big changes, such as launching major new products, experiencing large growth in the sales force, or introducing a different pricing structure, your past results will have less value as a guide to future performance. So, methods that diminish the weight put on historical data and qualitative techniques are a better choice.  
• In Terms of Time and Money, How Much Does It Cost to Produce the Forecast? How Does This Cost Compare to the Value of the Potential Benefits?You will need to make tradeoffs between the time and cost to build your forecast and the potential benefits, such as cost savings. Also, consider the potential cost of error. For example, suppose you are contemplating a high-cost sales-forecasting technique (one that takes a lot of data gathering, the creation of a custom model, and expensive staff and technology to produce). The forecast could allow your company to reduce the amount of inventory it holds. Weigh the value of inventory savings against the forecasting cost. If you reduce inventory and the forecast proves inaccurate, what are the potential costs of lost sales — because you did not stock adequately or because you did not cut back enough?  
• What Degree of Accuracy Do You Need?  Forecast accuracy rises with the cost and complexity of the methodology. Depending on how you will use the forecast, the size of your company, and the variability of your business, you may feel that it’s not cost effective to produce a maximum-accuracy forecast. If you are a giant global company, a fraction of a percentage point error in your sales forecast could represent many millions. So, the bigger the dollar values, the more meaningful every degree of enhanced accuracy becomes.
• How Complex Are the Factors That Will Drive the Forecast?   If your sales dynamic is straightforward — the more sunny days there are, the more beach umbrellas you sell at your beach kiosk — then building a sophisticated, AI-driven forecasting model will be overkill. “It's important not to spend time and energy developing a complex model, when a much simpler one will do the job,” says Nicholas. But when you are facing a subtle and complex interplay of variables, you need a technique that accounts for them. Suppose you have new products, changes in your marketing, and additional sales reps. A sophisticated model would allow you to forecast the net effects and also try out different scenarios in which the variables fluctuated.

Why Accuracy Is Important in Sales Forecasts

According to CSO Insights, 60 percent of forecasted deals do not close and 25 percent of sales managers are unhappy with the accuracy of their forecasts. Inaccuracy in sales forecasts causes problems for businesses and impacts performance. 

People throughout your company depend on your forecasts to make a multitude of decisions — from pay raises to real estate acquisitions. Let’s look at some of the important reasons to strive for accuracy:

• Early Warning: Your sales forecast helps you spot trouble early, like when revenues are not materializing as expected; the forecast also allows you to intervene and problem solve before this underperformance becomes a crisis.
• Decision Making: The forecast gives leaders confidence and a sound basis for deciding how much and where to spend or invest. Production planners, HR, and others will use the forecast.
• Goal Setting: You set achievable targets for sales reps when you have an accurate forecast. Goal setting prevents sales reps from getting discouraged by unrealistic expectations. Following this strategy also ensures that your commission and bonus scale are calibrated appropriately. 
• Customer Satisfaction: When you are prepared for the right level of demand, your company can improve its record of fulfilling orders on time and in full.
• Inventory Management: You will be more likely to have the right level of inventory if your sales forecasts are accurate. Making accurate predictions allows you to better manage your supply chain and order raw materials or parts in a timely fashion. You also gain more control over your pricing if you have the right amount of inventory. When you have to resort to discounting to get rid of excess inventory, your profitability suffers.

How to Improve Sales Forecast Accuracy and More Best Practices from Experts

Producing high-quality forecasts takes organizational commitment and long-term effort, and best practices will help improve accuracy.

”Sales forecasting is both an art and a science. Where companies tend to go wrong is relying too heavily on one or the other. You need a consistent process and reliable data,” says Charlene DeCesare, CEO of sales training and advisory firm Charlene Ignites .

She emphasizes five best practices:

• Ensure that the pipeline feeding the forecast is accurate. You don't need historical data to predict the future when you have a well-defined sales process.
• Everyone must use the CRM, and should enter notes and coding opportunities in a clear, consistent way. 
• Buyer behavior is a much more reliable predictor of future sales than gut feel. Challenge optimism that doesn't align with the applicable stage in the sales cycle or isn't supported by clear, mutually agreed-upon next steps.
• In general, buyer/seller behavior is the leading indicator to rely upon. Too many companies rely on results, which is actually the lagging indicator.
• Sales leadership can have a huge impact. Sales reps must be rewarded for both honesty and accuracy. Sales forecasting must be an individual, team, and company priority. 

Rob Stephens, a CPA whose firm CFO Perspective advises businesses on forecasts, adds: “A big planning mistake is spending too much of your precious time trying to find the one right scenario… Start with a range of reasonable forecasts based on solid fundamentals. For example, you may project from historical growth rates, customer indications of future sales, or projections of market growth. A company with a new product may need to extrapolate from existing products or early indications from potential customers. Use a higher-probability scenario as a beginning base scenario, but identify why the future may deviate from it.”

Common Mistakes and Pitfalls in Sales Forecasts

Sales pros say they see the same sales forecasting errors on a regular basis and that these often relate to letting the discipline of the forecasting process lapse. 

“The most common operational mistakes are basing forecasts on hope rather than evidence, ignoring repeated close date slippage, failing to take into account the historic forecast accuracy (or inaccuracy) of the salesperson concerned, and failing to hold salespeople accountable for the relative accuracy of their forecasts,” notes Bob Apollo, Founder of Inflexion-Point Strategy Partners, a sales training firm.  

“The most common cultural mistake is when sales leaders press salespeople to forecast a target number without any evidence or confidence that it will actually be achieved," he notes.

Evan Lorendo , Director of Revenue Accelerator, which advises service companies on revenue strategies, says he sees companies with monthly recurring revenue (MRR), such as software as a service (SaaS), frequently make mistakes in sales forecasting.

He gives the example of a company with an MRR product that wants to generate $120,000 in revenue a year. How much in new sales do they need each month? “Most of my clients say $10,000/month, but that is wrong. Because a client is paying on a monthly basis, a client that signs up in January is actually paying 12 times during the year. On the flip side, a client signing up in July will make six payments during the year,” he explains. 

That means there are a total of 78 potential payment configurations per year, not 12. The customer who buys in January will make 12 payments, but November’s buyer will make two. (12 + 11 + 10 + 9 + 8 + 7+ 6 + 5 + 4 + 3 + 2 + 1 = 78.)

“If you want to know how much you need to sell in new sales each month to hit that $120,000 goal, the answer is $1,539 ($120,000/78). That actually seems much more manageable, doesn't it? Based on poor forecasting, a miscalculation can turn off good salespeople who can't hit their quota,” he says.

KPIs for Sales Forecasting

As your sales forecasting improves, you reap bigger benefits, such as better planning and higher profits. So, you will want to assess and monitor your forecasting effort by using key performance indicators (KPIs).

Below are the main KPIs for sales forecasting. Some of them draw from statistics concepts, such as standard deviation, and computer applications and statistics guides can help you calculate them.

• Bias or Variance: This KPI tells how much the actual results deviated from the forecast over a given period of time. Calculate bias as an absolute number of dollars or units or as a percent of sales. A positive number means sales exceeded projections and a negative number indicates underperformance. Actual Units - Forecast Units = Bias
• Mean Absolute Deviation (MAD): This metric describes the size of your forecast error in total units or dollars. You calculate how much the actual results deviated from the forecast average, add the deviations, and divide the result by the total number of data points.   
• Mean Absolute Percentage Error (MAPE): This is similar to MAD, but gives the forecast error as a percent of sales volume. 
• Tracking Signal: This is another expression of forecast error and looks at how the error rate varies among forecast values. Normally, you expect all forecast amounts to be wrong by about the same degree. If, from one data point to another, there is a large variation in the error rate, you need to rework your model.  Tracking Signal = Accumulated Forecast Errors ÷ Mean Absolute Deviation
• Forecast Value Added: This metric measures how much better the forecast was than simply using unadjusted historical data. If your forecasting effort got you closer to actual than the so-called naive forecast (i.e., using historical figures as your forecast), you have added positive value. You calculate this metric by comparing the MAPE of your forecast to the naive forecast.
• Linearity: This looks at how sales are paced over the course of the period. As your reps seek to meet quota, you might see a flurry of deals at the end of the quarter. Or, deals might be spread evenly across the time period. The most stable situation is a deal cadence or velocity that is constant. If expressed as a trend line, this stable situation would appear visually as a flat line. This pattern is called highly linear .

Application of Sales Forecasting

Your sales forecast obviously gives you an idea of how much you will sell in the future, but sales forecasting has other important use cases. Here are five ways you can apply your forecast to business questions:

• Sales Planning: As noted earlier, your sales plan encompasses your goals, tactics, and processes for achieving your sales forecast. As part of this plan, your sales forecast helps you decide if you need to hire more sales reps to achieve your forecast and if you need to put more energy and resources into marketing.
• Demand Planning: Demand planning is the process of forecasting how much product your customers will want to buy and making sure inventory aligns with that forecast. In ideal conditions, forecast demand and sales would be virtually the same. But, consider a scenario in which your new product becomes the hot gift of the holiday season. You forecast demand of 100,000 units (the number consumers will want to buy). A large shipment turns out to be defective, and the product is unsellable. So, you forecast sales of just 75,000 units (how much you will actually sell.)   
• Financial Planning: Your sales forecast is vital to the work of your finance department. The finance team will rely on the forecast to build a budget, manage overhead, and figure out long-term capital needs. 
• Operations Planning: The unit-sales numbers in your forecast are also important for operations planners. They will look at the production required to meet those sales and confirm that manufacturing capacity can accommodate them. They will want to know when sales are likely to rise or fall, so they can avoid excess inventory. A big increase in sales will also require operations managers to make changes in warehousing and distribution. Retailers may change the product mix at individual stores based on your sales forecast.
• Product Planning: The trends you foresee in sales will have big implications for product managers too. They will look at products that you forecast as top sellers for ideas about new products or product modifications they should introduce. A forecast of declining sales may signal it is time to discontinue or revamp a product.

Levels of Maturity in Sales Forecasting

Sales forecasts can be simply scribbled-down estimates, or they can be statistical masterpieces produced with the aid of the most sophisticated technology. The style you pursue relates in large part to your level of forecasting maturity (as well as the size and history of your business). 

Below is a description of the four levels of the sales forecasting maturity model:

• Level One: In the beginning stages of sales forecasting, the estimates are usually not very accurate and take a lot of time to produce. The forecasting process depends on reps’ best guesses, and sales managers spend a lot of time gathering these guesses by interviewing each rep. Then, they roll them up into a consolidated forecast. Inconsistent data collection and personal bias can skew the results. Sales managers use spreadsheets, which quickly become outdated, and the forecasts often reflect little more than intuition.
• Level Two: As your forecasting culture grows, you are probably still inputting data by hand, and the forecast is often inaccurate or outdated. But, a CRM solution is enabling your team to have a shared repository for contacts, sales activity, and deal status. Reps don’t see value in spending time contributing to the forecast, and quality is weak. Your CRM automatically aggregates those results, so you can start to examine trends and anomalies. But, your system is not very flexible, and forecasting remains unwieldy and resource intensive.
• Level Three: At this point, automation starts to offer radical improvements in sales forecasting. Solutions backed by artificial intelligence automatically bring together data from a multitude of sources, including email, CRM, marketing platforms, chat logs, and calendars. There is no more manual data entry, and sales managers gain increased visibility into the sales pipeline. KPIs become reliable and an important tool for monitoring performance.
• Level Four: Technology ensures sales that data is accurate and timely. AI and machine learning find patterns and correlations in your historical data, and predictive analytics offer robust forecasting. The forecasting model is continually refined. Forecast accuracy rises, and sales managers can focus more of their time on supporting reps and developing opportunities. These tools make it apparent when reps are sandbagging or being too optimistic, and accountability increases.

Advances in Sales Forecasting Methodologies

While sales forecasting has been around as long as private enterprise, the field continues to evolve, and researchers are looking at ways to improve sales forecasting methodologies. 

Indiana University Professor Douglas J. Dalrymple performed an influential study in 1987 that surveyed how businesses prepared sales forecasts. He found that qualitative and naive techniques predominated, but that early adopters were reducing errors by using computer analysis. At this time, PCs were starting to proliferate and come down in price. 

By 2008, Zhan-Li Sun and his researchers at the Institute of Textiles and Clothing at Hong Kong Polytechnic University were experimenting with an advanced AI-driven technique called extreme learning machine to see if they could improve forecasts for the volatile retail fashion industry by quantifying the influence of factors such as design on sales.  

Scholars F.L. Chen and T.Y. Ou at the National Tsing Hua University in Taiwan took this further with a 2011 study. The study documented sales forecasting advances when combining extreme learning-machine, so-called Taguchi statistical methods for manufacturing quality with novel analysis theories that work on variables with imperfect information.

Features to Look for in a Sales Forecasting Tool

Paper forecasts and Excel spreadsheets quickly become cumbersome. Sales forecasting capability is available in CRM software, sales analytics and automation platforms, and AI-driven sales technology. These capabilities often overlap among these applications.

Here are some of the features to look for when evaluating a sales forecasting tool:

• Integrations with other software, such as ERP, CRM, marketing suites, contact management, calendars, and more
• Automated collection of data and sales rep activity
• Real-time reporting
• Robust data security
• Analytics and automated scoring of deals
• Insights on most promising deals
• Scenario modeling
• Lead scoring
• Automated forecast roll-ups or summaries by category and team
• Dashboards and graphic displays of KPIs
• Benchmarking
• Customizable forecasting algorithms
• Forecast auditing and error analysis

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How to Create a Sales Forecast

11 min. read

Updated October 27, 2023

Business owners are often afraid to forecast sales. But, you shouldn’t be. Because you can successfully forecast your own business’s sales.

You don’t have to be an MBA or CPA. It’s not about some magic right answer that you don’t know. It’s not about training you don’t have. It doesn’t take spreadsheet modeling (much less econometric modeling) to estimate units and price per unit for future sales. You just have to know your own business. 

Forecasting isn’t about seeing into the future

Sales forecasting is much easier than you think and much more useful than you imagine.

I was a vice president of a market research firm for several years, doing expensive forecasts, and I saw many times that there’s nothing better than the educated guess of somebody who knows the business well. All those sophisticated techniques depend on data from the past — and the past, by itself, isn’t the best predictor of the future. You are.

It’s not about guessing the future correctly. We’re human; we don’t do that well. Instead, it’s about setting down assumptions, expectations, drivers, tracking, and management. It’s about doing your job, not having precognitive powers. 

• Successful forecasting is driven by regular reviews

What really matters is that you review and revise your forecast regularly. Spending should be tied to sales, so the forecast helps you budget and manage. You measure the value of a sales forecast like you do anything in business, by its measurable business results.

That also means you should not back off from forecasting because you have a new product, or new business, without past data. Lay out the sales drivers and interdependencies, to connect the dots, so that as you review plan-versus-actual results every month, you can easily make course corrections.

If you think sales forecasting is hard, try running a business without a forecast. That’s much harder.

Your sales forecast is also the backbone of your business plan . People measure a business and its growth by sales, and your sales forecast sets the standard for  expenses , profits, and growth. The sales forecast is almost always going to be the first set of numbers you’ll track for plan versus actual use, even if you do no other numbers.

If nothing else, just forecast your sales, track plan-versus-actual results, and make corrections — that process alone, just the sales forecast and tracking is in itself already business planning. To get started on building your forecast follow these steps.

And if you run a subscription-based business, we have a guide dedicated to building a sales forecast for that business model.

• Step 1: Set up your lines of sales

Most forecasts show several distinct lines of sales. Ideally, your sales lines match your accounting, but not necessarily in the same level of detail.   

For example, a restaurant ought not to forecast sales for each item on the menu. Instead, it forecasts breakfasts, lunches, dinners, and drinks, summarized. And a bookstore ought not to forecast sales by book, and not even by topic or author, but rather by lines of sales such as hardcover, softcover, magazines, and maybe categories (such as fiction, non-fiction, travel, etc.) if that works.

Always try to set your streams to match your accounting, so you can look at the difference between the forecast and actual sales later. This is excellent for real business planning. It makes the heart of the process, the regular review, and revision, much easier. The point is better management.

For instance, in a bicycle retail store business plan, the owner works with five lines of sales, as shown in the illustration here.  

In this sample case, the revenue includes new bikes, repair, clothing, accessories, and a service contract. The bookkeeping for this retail store tracks sales in those same five categories.

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• Step 2: Forecast line by line

There are many ways to forecast a line of sales.

The method for each row depends on the business model

Among the main methods are:.

• Unit sales : My personal favorite. Sales = units times price. You set an average price and forecast the units. And of course, you can change projected pricing over time. This is my favorite for most businesses because it gives you two factors to act on with course corrections: unit sales, or price.
• Service units : Even though services don’t sell physical units, most sell billable units, such as billable hours for lawyers and accountants, or trips for transportations services, engagements for consultants, and so forth.
• Recurring charges : Subscriptions. For each month or year, it has to forecast new signups, existing monthly charges, and cancellations. Estimates depend on both new signups and cancellations, which is often called “churn.”
• Revenue only : For those who prefer to forecast revenue by the stream as just the money, without the extra information of breaking it into units and prices.

Most sales forecast rows are simple math

For a business plan, I recommend you make your sales forecast a detailed look at the next 12 months and then broadly cover two years after that. Here’s how to approach each method of line-by-line forecasting.

Start with units if you can

For unit sales, start by forecasting units month by month, as shown here below for the new bike’s line of sales in the bicycle shop plan:

I recommend looking at the visual as you forecast the units because most of us can see trends easier when we look at the line, as shown in the illustration, rather than just the numbers. You can also see the numbers in the forecast near the bottom. The first year, fiscal 2021 in this forecast, is the sum of those months.

Estimate price assumptions

With a simple revenue-only assumption, you do one row of units as shown in the above illustration, and you are done. The units are dollars, or whatever other currency you are using in your forecast. In this example, the new bicycle product will be sold for an average of $550.00. 

That’s a simplifying assumption, taking the average price, not the detailed price for each brand or line. Garrett, the shop owner, uses his past results to determine his actual average price for the most recent year. Then he rounds that estimate and adds his own judgment and educated guess on how that will change. 

Multiply price times units

Multiplying units times the revenue per unit generates the sales forecast for this row. So for example the $18,150 shown for October of 2020 is the product of 33 units times $550 each. And the $21,450 shown for the next month is the product of 39 units times $550 each. 

Subscription models are more complicated

Lately, a lot of businesses offer their buyers subscriptions, such as monthly packages, traditional or online newspapers, software, and even streaming services. All of these give a business recurring revenues, which is a big advantage. 

For subscriptions, you normally estimate new subscriptions per month and canceled subscriptions per month, and leave a calculation for the actual subscriptions charged. That’s a more complicated method, which demands more details. 

For that, you can refer to detailed discussions on subscription forecasting in How to Forecast Sales for a Subscription Business .

• But how do you know what numbers to put into your sales forecast?

The math may be simple, yes, but this is predicting the future, and humans don’t do that well. So, don’t try to guess the future accurately for months in advance.

Instead, aim for making clear assumptions and understanding what drives your sales, such as web traffic and conversions, in one example, or the direct sales pipeline and leads, in another. Review results every month, and revise your forecast. Your educated guesses become more accurate over time.

Experience in the field is a huge advantage

In a normal ongoing business, the business owner has ample experience with past sales. They may not know accounting or technical forecasting, but they know their business. They are aware of changes in the market, their own business’s promotions, and other factors that business owners should know. They are comfortable making educated guesses.

If you don’t personally have the experience, try to find information and make guesses based on the experience of an employee,  your mentor , or others you’ve spoken within your field.

Use past results as a guide

Use results from the recent past if your business has them. Start a forecast by putting last year’s numbers into next year’s forecast, and then focus on what might be different this year from next.

Do you have new opportunities that will make sales grow? New marketing activities, promotions? Then increase the forecast. New competition, and new problems? Nobody wants to forecast decreasing sales, but if that’s likely, you need to deal with it by cutting costs or changing your focus.

Look for drivers

To forecast sales for a new restaurant, first, draw a map of tables and chairs and then estimate how many meals per mealtime at capacity, and in the beginning. It’s not a random number; it’s a matter of how many people come in.

To forecast sales for a new mobile app, you might get data from the Apple and Android mobile app stores about average downloads for different apps. A good web search might also reveal some anecdotal evidence, blog posts, and news stories, about the ramp-up of existing apps that were successful.

Get those numbers and think about how your case might be different. Maybe you drive downloads with a website, so you can predict traffic from past experience and then assume a percentage of web visitors who will download the app.

• Estimate direct costs

Direct costs are also called the cost of goods sold (COGS) and per-unit costs. Direct costs are important because they help calculate gross margin, which is used as a basis for comparison in financial benchmarks, and are an instant measure (sales less direct costs) of your underlying profitability.

For example, I know from benchmarks that an average sporting goods store makes a 34 percent gross margin. That means that they spend $66 on average to buy the goods they sell for $100.

Not all businesses have direct costs. Service businesses supposedly don’t have direct costs, so they have a gross margin of 100 percent. That may be true for some professionals like accountants and lawyers, but a lot of services do have direct costs. For example, taxis have gasoline and maintenance. So do airlines.

A normal sales forecast includes units, price per unit, sales, direct cost per unit, and direct costs. The math is simple, with the direct costs per unit related to total direct costs the same way price per unit relates to total sales.

Multiply the units projected for any time period by the unit direct costs, and that gives you total direct costs. And here too, assume this view is just a cut-out, it flows to the right. In this example, Garrett the shop owner projected the direct costs of new bikes based on the assumption of 49 percent of sales.

Given the unit forecast estimate, the calculation of units times direct costs produces the forecast shown in the illustration below for direct costs for that product. So therefore the projected direct costs for new bikes in October is $8,894, which is 49% of the projected sales for that month, $18,150.

• Never forecast in a vacuum

Never think of your sales forecast in a vacuum. It flows from the strategic action plans with their assumptions,  milestones , and metrics. Your marketing milestones affect your sales. Your business offering milestones affect your sales.

When you change milestones—and you will, because all business plans change—you should change your sales forecast to match.

• Timing matters

Your sales are supposed to refer to when the ownership changes hands (for products) or when the service is performed (for services). It isn’t a sale when it’s ordered, or promised, or even when it’s contracted.

With proper  accrual accounting , it is a sale even if it hasn’t been paid for. With so-called cash-based accounting, by the way, it isn’t a sale until it’s paid for. Accrual is better because it gives you a more accurate picture, unless you’re very small and do all your business, both buying and selling, with cash only.

I know that seems simple, but it’s surprising how many people decide to do something different. The penalty for doing things differently is that then you don’t match the standard, and the bankers, analysts, and investors can’t tell what you meant.

This goes for direct costs, too. The direct costs in your monthly  profit and loss statement  are supposed to be just the costs associated with that month’s sales. Please notice how, in the examples above, the direct costs for the sample bicycle store are linked to the actual unit sales.

• Live with your assumptions

Sales forecasting is not about accurately guessing the future. It’s about laying out your assumptions so you can manage changes effectively as sales and direct costs come out different from what you expected. Use this to adjust your sales forecast and improve your business by making course corrections to deal with what is working and what isn’t.

I believe that even if you do nothing else, by the time you use a sales forecast and review plan versus actual results every month, you are already managing with a business plan . You can’t review actual results without looking at what happened, why, and what to do next.

Tim Berry is the founder and chairman of Palo Alto Software , a co-founder of Borland International, and a recognized expert in business planning. He has an MBA from Stanford and degrees with honors from the University of Oregon and the University of Notre Dame. Today, Tim dedicates most of his time to blogging, teaching and evangelizing for business planning.

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9 Free Sales Forecast Templates to Super-Charge Sales Growth in 2024

Sales forecasting templates might not sound all that exciting. Fair enough. After all, who wants to create more reports—on top of all your other responsibilities?

If you're feeling a little skeptical, take a walk with me and imagine this scenario involving two different sales managers :

Which of these sales managers is more likely to get the budget they want?

No brainer. It's Sales Manager 2 every day of the week.

What's the difference between their pitches? A solid sales forecast to back up the substantial investment they're asking the VP to make.

Sales forecasts can be exciting—they give you the superpower to see what's coming down the pipeline. More importantly, they're easy to create using the right sales forecasting templates.

In this guide, we'll give you a step-by-step method to create a sales forecast and access to several free sales forecast templates (in both Microsoft Excel & Google Sheets format).

But first, let’s quickly touch on why sales forecasts are key to growing your sales team—and your business.

Why are Sales Forecasts Crucial for Sales Teams?

Sales forecasting provides a window into your business's future. Depending on the template, it can help you:

• Predict sales figures for the next quarter: Much like projecting total contract value growth, sales forecasting provides a roadmap for anticipated revenue, enabling you to plan and allocate resources accordingly.
• Make more accurate cash flow projections
• Predict expenses
• See where to invest marketing dollars
• Better allocate hiring budgets
• Spot emerging trends early on
• Diagnosis of potential issues in your sales flow early

Lastly, it is a powerful motivation tool for your sales team—especially if you have a longer sales cycle. It allows you to paint a clear picture showing how the work your team is doing today will pay off.

9 Best Sales Forecast Templates (Free Google Sheets + Excel Templates)

Not every sales team needs a super complex sales forecasting model. For instance, small businesses only want (and need) to track a few important metrics. On the other hand, eCommerce companies must track multiple products, which is challenging without a template.

So, we've sorted through all the free sales forecast templates we could find (in Excel + Google Sheets format) and even created one of our own. Choose the best template for your company, sales team, and industry.

1. Best General Forecast Template (without a CRM)

This sales forecasting template from Close provides a simple way to track and forecast two years of sales. The first tab allows for adjusting funnel metrics depending on your sales cycle, average deal size, lead growth, and number of leads.

The second tab forecasts sales by month based on meetings booked, new opportunities created, and leads closed/won. A chart at the bottom displays expected growth.

The only thing better than this is having sales forecasting built right into your CRM ( like with Close ), which enables you to have powerful integrations that enrich your forecasting accuracy and pipeline health over time.

GET THE FREE TEMPLATE HERE

2. Best Forecast Template for a Lead-Driven Sales Process

This template is ideal for companies that track their lead generation efforts and monitor their monthly sales forecast. You’ll see it breaks the year into quarters and tracks leads in all stages of the sales funnel .

The best part? This is a Google Sheets template (which can be accessed via Google apps and can also be downloaded for use in Microsoft Excel).

This template tracks the deal value and uses a weighted forecast model. It can also predict the probability of closing, which is a helpful metric for B2B companies. You can download it right here .

3. Best Free Forecasting Template for Multiple Product Businesses

Does your company sell multiple products or services? This sales projection template could be a great choice for a business with more complex offerings. It tracks the number of units sold for each product line over 12 months on a single spreadsheet to streamline your forecasting accuracy.

It also carries over sales history from three previous years, making it easy to compare sales by unit, month, or year. You can download it right here in Google Sheets or Microsoft Excel format. Just make a copy and start editing the sheet.

4. Best Forecasting Template for Retail Businesses

This template is ideal for retail stores that want to forecast sales, track gross sales, and mark up percentage and profit margin for each item to generate more new business. The yellow cells allow you to input your own data, and the spreadsheet uses smart Excel automation formulas to calculate forecasts.

While it doesn't display the previous year's data in this view, you could easily create a pivot table in Excel or Google Sheets to pull data from several years. That way, you can compare average sales, total sales, and other sales KPIs that matter to your leadership. You can pick this one up right here .

5. Best for Long-Term Future Sales Analysis (36 Months of Historical Data)

This is one of the most colorful templates on the list, but that's not why we included it. This template is ideal for companies that want to monitor long-term data closely.

In addition to 12 months of full historical sales data, you'll also see detailed insights and data for the past five years, including overall revenue for each type of item. This is a good option if you want to focus your sales analysis on the long and short term. You can grab this one right here .

6. Best Sales Forecasting Model for Scenario Planning (New Product Launches)

Forecasting sales for a new product launch can be a challenge—which is why many companies do a soft launch without high expectations.

After a soft launch, use this forecasting template to track initial sales data and project your next five years of sales. Head over here to download this one .

7. Best Free Template for Multiple Products at Different Growth Rates

Looking to track product sales that grow at different rates? This spreadsheet tracks growth and forecasts revenue for 12 months—even if the products or services grow at different rates. This is a great fit for businesses with legacy products that regularly launch new products.

This forecasting chart also includes five years of historical data so you can see overall sales growth at a glance. Pick this template up right here .

8. Best for Short-Term Forecasts

Want to plan your inventory or marketing campaigns for just the next few weeks? This 3-month forecast template can help.

Customize the start date, then enter your number of units and price per unit to get projections. It’s simple and effective. Download this template right here .

9. Best for Daily Forecasts

Now, let’s shorten the projections even more—to a daily window. This one is primarily useful for businesses in the retail, restaurant, and hospitality industries.

With this template, predict your sales on a daily or weekly time frame. This granular vision can help you optimize day-to-day sales. Plus, you can rely on historical sales data and add weekly notes.

Grab this forecast template here .

How to Choose the Right Sales Forecast Template (& Forecasting Methods for Your Business)

The right forecasting template provides access to the sales KPIs that matter most to your sales team. But not all businesses are the same.

Retail businesses may need to track hundreds of products and dozens of different suppliers, while a SaaS company might only offer three pricing plans—but have a really long sales cycle.

You need to find the right template for your business needs. Otherwise, you'll be left floundering in a sea of useless data.

Here's how to select the right sales forecast template for your organization.

Get Clear on Your Sales Goals & Set Realistic Sales Revenue Targets

Different sales goals and revenue targets rely on different data. For example, if you want to predict sales over the next two years, you'll want a forecast template that covers a longer time period.

Goals can also impact which template will work best for your team.

For example, suppose an eCommerce company wants to increase monthly sales by 10 percent and boost customer lifetime value . In this case, they'll need a different template than a small business looking to increase sales from a specific customer segment.

Next, set realistic revenue targets using overall market growth as a benchmark. If your industry expands by 25 percent, a 10 percent growth rate might be too low, while 50 percent is likely too high.

Look for a template that fits your business goals and revenue targets.

Consider Your Business Type & Plan Ahead for Sales Fluctuations

Your business type is one of the most important factors to consider when selecting a template. The size, industry, age, and growth rate can all impact which template will work for you.

Also, consider how often your sales fluctuate. For example, an eCommerce store may have 10 to 15 fluctuations a year, so they need a template that can handle their data. On the other hand, a small fly fishing business may have just two fluctuations—on and off-season.

Look for a template that suits your business model and accommodates your sales fluctuations.

Decide Which Method of Sales Forecasting to Use for Your Sales Team

When it comes to sales forecasting methods, there is no one-size-fits-all solution.

You'll need to adjust your forecasting based on your historical data, the metrics you need to track, and your confidence in the data. Your goals and KPIs also impact the forecasting methods you use.

Here are seven sales forecasting methods, including who should use them:

• Lead-driven forecasting : Looks at previous lead conversion rates and projects future sales based on current lead volume. Best for organizations with clear historical data and a steady stream of inbound leads, such as SaaS or technology companies.
• Length of sales cycle forecasting : Tracks how long a typical lead takes to close based on lead type. Best for organizations with insights into the entire sales pipeline and well-aligned sales and marketing teams, especially B2B.
• Opportunity stage forecasting: Calculates how likely a lead is to close based on specific actions and lead type. Ideal for businesses with good historical data on closing rates.
• Test-market analysis forecasting: Leverages data from a soft release to get a sense of projected revenue. Best for startups or businesses launching a new product line or service.
• Historical forecasting : Forecasting data based on historical data and market trends. Works well for any business with at least a year of historical data.
• Multivariable analysis: A complex analysis that considers multiple factors and closing ratios. Best for companies with varying deal sizes and close rates or selling multiple products or services.

Make sure whatever template you choose fits your analysis method.

Look at Historical Data & Past Sales Metrics

We've already discussed how historical data can impact your sales forecasting, but it's also an important factor in choosing the right template.

Before choosing a template, look at your past metrics and historical data. How much data do you have? Consider a template with a longer forecasting model if you have several years' worth of data.

What data do you want to include based on your business type and forecasting methods? Make sure the template you choose includes the fields important to your business.

Research External Market Conditions to Create an Accurate Sales Forecast

Finally, spend a few hours researching current market conditions and consider how they may impact your sales forecast. For example, if your industry is growing fast, you might select a forecasting template that updates in near real-time.

On the other hand, if a large competitor is acquiring another company, growth might be more challenging, and you might need to lower your growth expectations.

Look for a template that works well with current market conditions.

How Do You Calculate Sales Forecasts Quickly?

Here’s a simple formula that SaaS businesses can use for a specific forecast period:

Number of expected new customers x Average deal size

The accuracy of such a forecast depends on various factors, including your churn rate, upsells, changes to your existing subscriptions, market conditions, etc. The more informed your assumptions, the better your accuracy.

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How to Create a Custom Sales Forecast Template: Five Easy Steps

Sometimes, you need to do it yourself. Sales forecasting can be simple—especially if you create a forecasting template based on your own sales process and KPIs. Assuming you’re already tracking your sales, here are the steps to create your own template.

Step 1: Choose Sales Performance Metrics

What do you want to track? Whether it’s the sales quotas of individual sales reps, your gross profit, or simply one-year sales projections, choose KPIs based on your goals.

You can check out this exhaustive list of KPIs , but most SaaS businesses can start by calculating their run rates. Keep in mind that it requires a few months of revenue data to project your annualized revenue.

Here's the sales run rate formula :

Projected sales = Run rate (Current sales/number of sales periods elapsed) X the remaining number of sales periods

This is one of the easiest ways to predict future growth, and it’s a great starting point. We’ll refine it in the fourth step, but now, let’s start creating a template.

Step 2: Create a Layout for Your Template and Add Formulas

Now, add relevant formulas for your chosen metrics so that your sheet can make automatic forecasts based on your data input.

The specific columns you include in your layout depend on the KPIs you want to track and the information you want to include.

If we were calculating the annual run rate, you could use one column for the month, another for the sales in that month, and another for calculating the total sales up to the current month.

Next, you want to create formulas for the average monthly rate and the annual run rate formula (ARR), which will be your average monthly sales X 12. These two can be additional columns.

Step 3: Calculate Your Sales Forecast

Now, it’s time to test your template. Input data and let the spreadsheet automatically calculate your sales forecast. In our example, after inputting data for January through March, here’s what the forecasted annual run rate looked like:

Step 4: Adjust for External Factors and Strategic Business Plans

Our simple run rate formula doesn't consider seasonality, competition, market changes, or business growth.

If seasonality or trends impact your sales, calculate the percent change from your average month during periods of spike or dip. For example, if your sales typically spike by 30 percent in November, you can adjust your sales run rate to account for these trends.

Internal changes can also impact sales forecasting. Are you launching new products ? How have product launches performed in the past? Are you marketing to new customer segments? How many new customers do you expect these new markets to add to your customer file?

Refining your formula will improve your forecast's accuracy, leading to informed sales plans and decisions.

If you want to create a comprehensive SaaS revenue forecast model from scratch in Excel, check out this tutorial .

Step 5: Integrate the Template Into Your Process (& Keep Improving It)

Most sales reps spend only one-third of their day selling to prospects. So, you want to integrate the sales forecasting template into your workflow naturally so it doesn’t diminish productivity. Work to blend it with your team's existing spreadsheets or software.

Set up a regular cadence for importing data into the template—either manually or automatically from another software. Then, generate forecasts based on inputted data.

To keep your forecasts relevant, regularly review the accuracy of the results. Adjust your template as needed, and remember that a change in business strategy or market conditions should also invite revisions.

Want to sophisticate your forecasts and consider advanced trends? Then, you must use evolved sales forecasting methods. Get more detailed insights into sales forecasting here .

Using Forecasting Templates to Predict + Optimize Future Revenue

When it comes to sales forecasting, the right template can make all the difference. If you're still doing the process manually, you might miss out on actionable insights that could help your team meet and exceed your sales goals. Plus, manual forecasting takes a lot of valuable time—and is prone to error.

So, choose one of the above templates to create a standardized forecasting approach for your company, but don’t be afraid to make it your own. Add columns, include metrics that matter, and even plug in your brand color and name.

Or, you can just design a template from scratch.

Remember that your template isn’t static. Keep refining your forecast assumptions, and iterate to improve accuracy. Over time, you'll end up with a custom sales forecasting spreadsheet that makes you look like a superstar—and boosts your revenue potential.

Want even more actionable insights? See how Close gives you access to the reporting metrics that matter .

But even if you’re working without a CRM or using another product to manage your sales process, grab our free sales forecast template to achieve your goals that much faster.

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How to Forecast Sales

Yes, you can forecast your sales. Don’t think you need to have an MBA degree or be a CPA. Don’t think it’s about sophisticated financial models or spreadsheets. I was a vice president of a market research firm for several years, doing expensive forecasts, and I saw many times that there’s nothing better than the educated guess of somebody who knows the business well. All those sophisticated techniques depend on data from the past. And the past, by itself, isn’t the best predictor of the future. You are. So let’s look at how to forecast sales, step by step.

Your sales forecast won’t accurately predict the future. We know that from the start. What you want is to understand the sales drivers and interdependencies, to connect the dots, so that as you review plan vs. actual results every month, you can easily make course corrections.

If you think sales forecasting is hard, try running a business without a forecast. That’s much harder.

Your sales forecast is also the backbone of your business plan. People measure a business and its growth by sales, and your sales forecast sets the standard for expenses, profits and growth. The sales forecast is almost always going to be the first set of numbers you’ll track for plan vs. actual use, even if you do no other numbers.

If nothing else, just forecast your sales, track plan vs. actual results, and make corrections; that’s already business planning.

Match Your Forecast to Your Accounting

It should be obvious: Make sure the way you organize the sales forecast in rows or items or groups matches the way your accounting (or bookkeeping) tracks them.

Match your chart of accounts, which is what accountants call your list of items that show up in your financial statements.

If the accounting divides sales into meals, drinks, and other, then the business plan should divide sales into meals, drinks, and other. So if your chart of accounts divides sales by product or service groups, keep those groups intact in your sales forecast. If bookkeeping tracks sales by product, don’t forecast your sales by channel instead.

If you’re planning for a startup business, coordinate the bookkeeping categories with the forecasting categories.

Get your last Income Statement (also called Profit & Loss) and keep it in view while you develop your future projections.

• If you don’t have more than 20 or so each rows of sales, costs, and expenses, then make the rows in the projected statement match the rows in the accounting.
• If your accounting summarizes categories for you – most systems do – consider using the summary categories in your business plan. Accounting needs detail, while planning needs a summary.

If your categories in the projections don’t match the accounting output, you’re not going to be able to track plan vs. actual well. It will take retyping and recalculating. And you’ll lose the most valuable business benefit of business planning: management, steering your company.

The math is simple

Normally your sales forecast will group sales into a few manageable rows of sales and show projected units, prices, and sales monthly for the next 12 months and annually for the second and third years in the future. Here’s a quick example from the bicycle retailer named Garrett I’ve used in other examples (with columns for April-November hidden on purpose, to make viewing easier):

The math for a sales forecast is simple.

• Multiply units times prices to calculate sales. For example, unit sales of 36 new bicycles in March multiplied by $500 average revenue per bicycle means an estimated $18,000 of sales for new bicycles for that month.
• Total Unit Sales is the sum of the projected units for each of the five categories of sales.
• Total Sales is the sum of the projected sales for each of the five categories of sales.
• Calculate Year 1 totals from the 12 month columns. Units and sales are sums of the 12 columns, and price is the average, calculated by dividing sales by units.
• The numbers for Year 2 and Year 3 are just single columns; unless you have a special case, projecting monthly results for two and three years hence is overkill. It’s a problem of diminishing returns; you don’t get enough value to justify the time it takes. Other experts will disagree, by the way; and there may be special cases in which extended monthly projections are worth the effort.

Estimate Direct Costs

A normal sales forecast includes units, price per unit, sales, direct cost per unit, and direct costs. Direct costs are also called COGS, cost of goods sold, and unit costs.

Most people learn COGS in Accounting 101. That stands for Cost of Goods Sold, and applies to businesses that sell goods. COGS for a manufacturer include raw materials and labor costs to manufacture or assemble finished goods. A bookstore’s COGS include what the store owner pays to buy books. COGS for a bicycle store owner are what he paid for the bicycles, accessories, and clothing he sold during the month. Direct costs are the same thing for a service business, the direct cost of delivering the service. So, for example, it’s the gasoline and maintenance costs of a taxi ride.

Direct costs are specific to the business. The direct costs of a bookstore are its COGS, what it pays to buy books from a distributor. The distributor’s direct costs are COGS, what it paid to get the books from the publishers. The direct costs of the book publisher include the cost of printing, binding, shipping, and author royalties. The direct costs of the author are very small, probably just printer paper and photocopying; unless the author is paying an editor, in which case what the editor was paid is part of the author’s direct costs.

The costs of manufacturing and assembly labor are always supposed to be included in COGS. And some professional service businesses will include the salaries of their professionals as direct costs. In that case, the accounting firm, law office, or consulting company records the salaries of some of their associates as direct costs.

The illustration below shows how Garrett uses estimated margins to project the direct costs for his bicycle store. For the highlighted estimates, the direct entry for bicycles unit cost is the product of multiplying the price by 68 percent. The total direct costs for bicycles in January are the result of multiplying 30 units by $340 per unit.

Some Quick Notes About Standards

Timing matters.

Standard accounting and financial analysis have rules about sales and direct costs and timing. A sale is when the ownership of the goods changes hands, or the service is performed. That seems simple enough but what happens sometimes is people confuse promises with sales. In the bike store example, if a customer tells Garrett in May that he is definitely going to buy 5 bicycles in July, that transaction should not be part of sales for May. Garrett should put those 5 bicycles into his July forecast and then they will actually be recorded as sales in the bookkeeping actual sales in July when the transaction takes place. In a service business, when a client promises in November to start a monthly service in January, that is not a November sale.

Direct costs also happen when the goods change hands. Technically, according to accounting standards (called accrual accounting), when Garrett the bike storeowner buys a bicycle he wants to sell, the money he spent on it remains in inventory until he sells it. It goes from inventory to direct costs for the income statement in the month in which it was sold. If it is never sold, it never affects profit or loss, and remains an asset until some day when the accountants write off old never-sold obsolete inventory, at which time its lowered value becomes an expense. In that case it was never a direct cost.

What’s Accrual Accounting and Why You Care

Business accounting is either cash basis or accrual . I hate how attractive “cash basis” sounds, because accrual is way better, and easier to manage too. Cash basis accounting only works right if you absolutely always pay immediately for every business purchase, and you never buy something before you sell it, and all of your customers pay you in full whenever they buy something from you. So accrual is better.

Here’s why, in a few obvious examples.

• You make a sale when you deliver the goods. If the customer doesn’t pay you immediately, in cash basis nothing is recorded. The sale doesn’t even show up in your books until the customer pays. In accrual, you record the accrued amount as Accounts Receivable, so you keep track of the amount, the date, and the customer who owes it to you. It’s obvious that unless you never sell without immediate payment, accrual basis is better.
• You order some goods. When you receive them, you don’t pay for them. You owe the money. You have an invoice to pay. In cash basis, nothing happens until you pay up. In accrual basis, you record the accrued amount as Accounts Payable, along with the date, a record of what you bought, and who and when you are supposed to pay. So cash basis is better only if you pay everything immediately; all normal businesses need accrual.

I hate the fact that the accounting standards set a few generations ago chose to call it “cash basis” when you don’t record money owed into your books until it’s paid; or money you owe until you pay it. It’s a terrible idea to keep that information in your head instead of in your bookkeeping. That causes many mistakes as we business owners fail to keep track and remind ourselves of these outstanding obligations. And yet, ironically, they call that “cash basis” accounting. I do wish that the right way to do it, which is accrual accounting, didn’t have such an off-putting name.

Gross Margin

Once you have sales forecast and direct costs, you can calculate your estimated gross margin. Gross Margin is sales less direct costs. Gross Margin is a useful basis of comparison between different industries and between companies within the same industry. You can find guidelines and rules of thumb for different industries that give you an industry profile or average gross margin for different industries. For example, industry profiles will tell you that the average gross margin for retail sporting goods is 43%. Every business is different, but knowing the standards and averages gives you some useful comparisons.

The distinction isn’t always obvious. For example, manufacturing and assembly labor are supposed to be included in direct costs, but factory workers are paid sometimes when there is no job to work on. And some professional firms put lawyers’ accountants’ or consultants’ salaries into direct costs. These are judgment calls. When I was a young associate in a brand-name management consulting firm, I had to assign all of my 40 hour work week to specific consulting jobs for cost accounting.

Garrett can easily calculate the gross margin he’s projecting with his sales forecast. The illustration below shows his simple calculation of gross margin using his sales and direct costs.

How do I know what numbers to use?

But how do you know what numbers to put into your sales forecast? The math may be simple, yes, but this is predicting the future; and humans don’t do that well. Don’t try to guess the future accurately for months in advance. Instead, aim for making clear assumptions and understanding what drives sales, such as web traffic and conversions, in one example, or the direct sales pipeline and leads, in another. And you review results every month, and revise your forecast. Your educated guesses become more accurate over time.

Use experience and past results

• Experience in the field is a huge advantage . In the example above, Garrett the bike storeowner has ample experience with past sales. He doesn’t know accounting or technical forecasting, but he knows his bicycle store and the bicycle business. He’s aware of changes in the market, and his own store’s promotions, and other factors that business owners know. He’s comfortable making educated guesses. In another example that follows, the café startup entrepreneur makes guesses based on her experience as an employee.
• Use past results as a guide . Use results from the recent past if your business has them. Start a forecast by putting last year’s numbers into next year’s forecast, and then focus on what might be different this year from next. Do you have new opportunities that will make sales grow? New marketing activities, promotions? Then increase the forecast. New competition, and new problems? Nobody wants to forecast decreasing sales, but if that’s likely, you need to deal with it by cutting costs or changing your focus.
• Start with your best guess, and follow up . Update your forecast each month. Compare the actual results to the forecast. You will get better at forecasting. Your business will teach you.

How to Forecast a New Business or New Product

What? You say you can’t forecast because your business or product is new? Join the club. Lots of people start new businesses, or new groups or divisions or products or territories within existing businesses, and can’t turn to existing data to forecast the future.

Think of the weather experts doing a 10-day forecast. Of course they don’t know the future, but they have some relevant information and they have some experience in the field. They look at weather drivers such as high and low pressure areas, wind directions, cloud formations, storms gathering elsewhere. They consider past experience, so they know how these same factors have generally behaved in the past. And they make educated guesses. When they project a high of 85 and low of 55 tomorrow, those are educated guesses.

You do the same thing with your new business or new product forecast that the experts do with the weather. You can get what data is available on factors that drive your sales, equivalent to air pressure and wind speeds and cloud formations. For example:

• To forecast sales for a new restaurant (there is a detailed example coming in the next section ), first draw a map of tables and chairs and then estimate how many meals per mealtime at capacity, and in the beginning. It’s not a random number; it’s a matter of how many people come in. So a restaurant that seats 36 people at a time might assume it can sell a maximum of 50 lunches when it is absolutely jammed, with some people eating early and some late for their lunch hours. And maybe that’s just 20 lunches per day the first month, then 25 the second month, and so on. Apply some reasonable assumption to a month, and you have some idea.
• To forecast sales for a new mobile app, you might get data from the Apple and Android mobile app stores about average downloads for different apps. And a good web search might reveal some anecdotal evidence, blog posts and news stories perhaps, about the ramp-up of existing apps that were successful. Get those numbers and think about how your case might be different. And maybe you drive downloads with a website, so you can predict traffic on your website from past experience and then assume a percentage of web visitors who will download the app (The following sections on Sample Sales Forecast for a Website and Sample Sales Forecast for Email Marketing offer more examples).

So you take the information related to what I’m calling sales drivers, and apply common sense to it, human judgment, and then make your educated guesses. As more information becomes available — like the first month’s sales, for example – you add that into the mix, and revise or not, depending on how well it matches your expectations. It’s not a one-time forecast that you have to live with as the months go by. It’s all part of the lean planning process.

Sales forecast depends on product/service and marketing

Never think of your sales forecast in a vacuum. It flows from the strategic action plans with their assumptions, milestones and metrics. Your marketing milestones affect your sales. Your business offering milestones affect your sales. When you change milestones — and you will, because all business plans change — you should change your sales forecast to match.

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Never think of your sales forecast in a vacuum. It flows from the strategic action plans with their assumptions, milestones and metrics. Your marketing milestones affect your sales. Your business offering milestones affect your sales. When you change milestones — and you will, because all business plans change

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Thank you for your submission., 6 sales forecast examples that generate more accurate predictions.

Jonathan Costet

Written by Jonathan Costet

Sales forecasting is a crucial activity for high-performing sales teams. It helps them create concrete action plans to close more deals in any given quarter.

The problem is there doesn’t seem to be a whole lot of consensus on  how  to actually do a sales forecast.

Teams of all sizes use a bunch of different methods, making it difficult for those of us looking to put together our first sales forecast to understand what steps to take.

In this article, we’re going to look at six different sales forecast examples using different forecasting methodologies so you can understand and decide which calculation makes the most sense for your organization.

What is sales forecasting? 

Before we get into the examples, let’s all get on the same page:

What is sales forecasting anyway?

Sales forecasting is the process of looking forward and projecting what your sales revenue will look like in the coming financial period (usually monthly or quarterly). 

While some financial forecasts might look at a year or even two in the future, sales forecasts are much more tangible and shouldn’t look any further than three months ahead.

There are a number of different ways to forecast sales (we’re going to look at six of them shortly), but most of them look at a combination of historical data (previous sales), current information ( pipeline reviews  and salesperson judgment), and forward-looking estimates (such as new products that are about to hit the market).

Generally speaking, sales leaders are responsible for sales forecasting duties, though they often involve their sales team in this process, particularly if they’re using a pipeline-based methodology.

Sales leaders then forward their sales forecasts up the chain to senior leadership and finance leaders to make important decisions that inform changes to the  sales strategy , investments, and resourcing choices.

What’s important when creating a sales forecast? 

Sales forecasting should be largely data-driven.

Yes, it’s okay to rely a little on your own intuition and the judgment of your sales reps (they’ll need to tell you how likely it is that a certain deal will close, for instance), but hard data should be your foundation.

So, you’re going to need:

• A clean and up-to-date sales pipeline.  Push your reps to keep it updated with deal probabilities loaded in and all lead cards in the  correct pipeline stages .
• An understanding of previous performance.  Pull your numbers from the past few quarters and analyze growth trends that may be applicable to your forecast.
• Lead scoring/rankings.  If your sales team uses a lead scoring or ranking system, this data may prove helpful in formulating a forecast.
• Industry/competitive analysis . It will be important to know of any major changes in your industry. For example, a new market entrant may disrupt sales, as might a legislative change relevant to your vertical. 

Gather the above information, then dive into your sales forecast, using the below examples as a reference.

Still need more guidance?

Get our expert tips on how to create your sales forecast .

6 sales forecast examples 

Ready to create your own sales forecast but not sure where to start?

Explore six different sales forecast examples below, each using a different methodology for projecting sales revenue.

Note the differences, and choose the sales forecasting methodology that best suits your organization.

1. Historical data forecast 

A historical data sales forecast is exactly as it sounds.

You’re going to look at historical sales records (i.e., sales volumes and revenue figures for previous quarters) and use them to estimate future sales.

A smarter historical data forecast would take into account growth trends. Note that in the above example, sales revenue is growing at $20k per quarter. So, we could assume that if our quarter four sales revenue was $290k, quarter one of the following year should be $310k.

Historical forecasting is great because it’s easy, but that’s about it.

As your stockbroker will tell you (if they’re honest): ”past performance is not indicative of future results.”

That’s the major drawback of relying solely on historical data for sales forecasts; you’re not taking into account what’s happening right now (in your pipeline and in the market).

2. Opportunity stage probability forecast 

This kind of sales forecast looks at the deals you have in your sales pipeline right now and builds a projection based on:

• The probability of closing at each stage of the sales process
• The expected revenue from each deal

This type of forecast obviously depends on you having that data available, meaning your sales reps need to be proactive with adding deal amounts to each card, and you need to have deal stage probabilities loaded in based on historical performance.

Let’s say you have the following deal stage probabilities: 

• Prospecting – 10% 
• Qualification – 25%
• Proposal – 40%
• Negotiation – 60%
• Closing – 90%

First, analyze each sales opportunity and add up the expected future revenue from each deal. Let’s say yours looks like this:

• Prospecting – $2.5m 
• Qualification – $1.2m
• Proposal – $800k
• Negotiation – $700k
• Closing – $450k

For this sales forecasting model, you’ll simply multiple the revenue projections for each deal stage by the average sale probability at each stage, for example:

• Prospecting – $2.5m x 10% = $250k
• Qualification – $1.2m x 25% = $300k
• Proposal – $800k x 40% = $320k
• Negotiation – $700k x 60% = $420k
• Closing – $450k x 90% = $405k

Your sales forecast, in this case, is the total across all deal stages (in this case, $1.695m).

Deal stage probability is one of the more accurate sales forecasting methods, plus it’s pretty easy to pull together (at least if you use a  revenue intelligence platform ).

It does have a couple of drawbacks, however.

First neglects to include the age of each deal. A 3-month-old deal sitting in Qualification doesn’t have the same likelihood of closing as a 3-day-old deal, right?

Secondly, the opportunity stage probability forecast assumes that conversion rates remain constant from one period to the next. We know this isn’t always the case, and thus can lead to wide gaps in the accuracy of your forecasts.

Looking at the above example, if we were to lose 10% conversion rate in the Closing stage, the forecast would be around $45k off.

3. Sales cycle forecast 

The sales cycle method covers what the previous sales forecasting process missed: the age of each sales opportunity.

Busy sales pipelines often include old deals (even though that’s commonly a sales manager no-no), so the  sales cycle  forecasting method takes this into account.

With this method, you compare the age of the deal to the average sales cycle length. You’ll need to come up with a weighting system based on deal age.

Let’s say, for example, that the average period of time for a deal to close at your organization is 62 days, and we’re going to weight deals into five categories:

• Over 62 days – 10% close likelihood
• 45-62 days – 30% close likelihood
• 31-44 days – 45% close likelihood
• 18-30 days – 35% close likelihood
• 0-18 days – 25% close likelihood

Then, you’ll multiply each deal’s relevant close likelihood by its expected revenue, add it all up, and there’s your sales forecast.

The sales cycle forecasting method is similar to the deal stage probability forecast in that it has a drawback. It pays attention to the age of each opportunity but ignores historical probability based on the pipeline stage that deal is in.

For more accurate sales forecasts, consider using both approaches and then taking an average figure.

Need a refresher on sales cycles? Here’s our complete guide to understanding the sales cycle .

4. Bottom-up forecast 

The pipeline-based sales forecast is probably the most commonly used method for creating sales projections.

It’s one of the best ways to build an accurate forecast because it’s purely based on the deals your team has in play right now.

Of course, you’ll need to rely on what your reps say about the likelihood of each deal closing, but you trust them, right?

With this methodology, sales organizations perform a thorough pipeline review, going through each deal on the table and asking:

• What’s likely to close (and what isn’t?)?
• Why or why not?
• What’s the dollar value of each of these sales deals?
• What time periods are we looking at? (i.e., are they going to close in the upcoming months that we’re currently forecasting for?

Then, you simply add up the total value of each of the deals, and there’s your forecast.

If you want to get a little more sophisticated, you can combine other types of forecasts, using actual sales data from previous periods and historical deal stage probabilities to supplement sales rep intuitions.

Or, you can just jump straight in with your  Bottom-Up Sales Forecast Template for Excel .

5. Top-down sales forecast

Top-down sales forecasts don’t look at what you’ve got in the pipeline now. Instead, they assess the total revenue value of the target market (which we call the total addressable market) and your company’s ability to capture that revenue.

Here’s how it works:

First, you need to determine what the TAM dollar value is. Let’s say in your industry, it’s $250m.

Then, you look at your market share. Maybe you own 10% of the market.

From here, it’s just a bit of simple math: $250m x 10% = $25m. What’s your annual sales forecast?

As you’re probably thinking, this isn’t the most accurate forecasting method. It relies on a knowledge of your available market, but that doesn’t mean they’re ready to buy.

Plus, it doesn’t take into account:

• Your sales team’s ability to close deals
• Your marketing team’s developments for the coming period
• Changes to the business plan which may impact monthly sales

The top-down sales forecast is best used by those who are new to the market and who can’t analyze a sales pipeline or review historical sales data.

6. Multi-variable forecast 

Multi-variable sales forecasts are a little complicated, but they’re the most accurate around.

More typically used by larger organizations, multi-variable forecasts combine the approaches we’ve looked at above.

For instance, you might start with a pipeline review led by your sales reps, based on their own intuition and understanding of what opportunities are likely to turn into sales.

Then, you’ll check out the historical sales trend. How fast is sales revenue growing? 3% a quarter? How does that align with the pipeline-based forecast?

You may also compare sales rep predictions with deal stage probabilities to assess accuracy (or maybe your probabilities need updating).

On the whole, there is no single way to perform a multi-variable sales forecast. Each organization uses a different formula.

We’d recommend experimenting with each of the above methods and assessing which are the most accurate for your company.

Then, you can build a multi-variable calculation that makes sense.

Dive into sales forecasing with Gong

Sales forecasting can be a painful, long-winded process that takes a large team of reps, managers, and sales leaders days of meetings and dredging through reports. 

Notice, though, that we said  can .

That’s because if you’re savvy with a bit of tech, you can get your  sales forecasting software  to take care of the whole thing for you or at least help you get there  much  faster.

Ready to dive in?  Get our free sales forecasting template here  and start making more accurate revenue projections.

See the magic of Gong in action

Related articles, these 6 crucial stages define a b2b sales funnel (plus examples).

• Sales and Revenue Operations
• Sales Engagement
• Sales Forecasting
• Sales Management

Introduction to the Gong mobile app

11 surefire ways to shorten your sales cycle.

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Sales Forecasting 101: The Ultimate Guide To Sales Forecasting

The ultimate guide to sales forecasting: sales forecasting 101 for your sales team.

Sales forecasting is a crucial component of any successful sales strategy. This article serves as the ultimate guide to sales forecasting, offering insights into the essential processes, tools, and methodologies needed to create accurate sales forecasts. Whether you're a sales manager or a sales rep, understanding and implementing effective sales forecasting can significantly impact your sales performance and future sales revenue.

Article Outline

What is a sales forecast, why is accurate sales forecasting important, sales forecasting 101: getting started with basics, the sales forecasting process: steps to follow, common sales forecasting methods and techniques, tools and software for sales forecasting, challenges in sales forecasting and how to overcome them, how sales forecasting impacts your sales strategy, tips for improving sales forecast accuracy, the role of sales data in forecasting.

A sales forecast is a prediction of future sales revenue that uses historical sales data, current sales trends, and market conditions. It helps sales teams and sales managers set realistic sales goals and plan their strategies effectively.

Sales forecasting is an educated guess about future sales that can guide your sales team in making informed decisions. Accurate sales forecasts can help businesses allocate resources efficiently, manage inventory, and set achievable targets.

Here is a video to get a different view on sales forecasting:

Accurate sales forecasting is crucial for several reasons. It enables businesses to predict future sales revenue accurately, helping them make informed decisions about budgeting, staffing, and production. Accurate sales forecasts also help in setting realistic sales goals and managing the sales pipeline effectively.

Without accurate sales forecasting, businesses risk overestimating or underestimating their future sales, leading to potential financial losses and missed opportunities. Inaccurate sales forecasts can result in poor resource allocation, excess inventory, and unmet sales quotas.

Sales forecasting 101 involves understanding the basics of sales forecasting and implementing fundamental techniques to create accurate forecasts. Begin by collecting past sales data, analyzing sales trends, and identifying factors that impact your sales. Use this information to create a sales forecast that reflects your business's unique sales cycle and market conditions.

Sales managers should involve their sales team in the forecasting process to ensure that the forecast reflects the sales reps' insights and experiences. This collaborative approach can lead to more accurate sales forecasts and better alignment with the sales team's goals.

The sales forecasting process involves several key steps:

• Data Collection : Gather historical sales data, market trends, and other relevant information.
• Analysis : Analyze the collected data to identify patterns and trends.
• Forecasting Method Selection : Choose a forecasting method that suits your business needs.
• Forecast Creation : Use the selected method to create a sales forecast.
• Review and Adjust : Regularly review and adjust the forecast based on actual sales performance and new data.

By following these steps, sales teams can create accurate sales forecasts that guide their sales strategies and help them achieve their sales goals.

Several sales forecasting methods can be used to predict future sales. Some common techniques include:

• Historical Sales Data Analysis : Using past sales data to predict future sales.
• Market Research : Conducting market research to understand trends and customer behavior.
• Sales Rep Estimates : Gathering estimates from sales reps based on their experience and knowledge.
• Statistical Models : Using statistical models and algorithms to forecast sales.

Here is a Comparison of Sales Forecasting Methods:

Each method has its strengths and weaknesses, and businesses may use a combination of methods to create the most accurate sales forecast.

Various sales forecasting tools and software can help businesses create accurate sales forecasts. These tools often include features like data analysis, trend identification, and predictive modeling. Some popular sales forecasting software includes Salesforce, HubSpot, and Zoho CRM.

For more advanced tools, SalesMind AI offers LinkedIn Prospecting Automation , which integrates sales analytics to enhance forecasting accuracy. These tools can streamline the forecasting process, making it easier for sales teams to create and manage their forecasts. By using advanced analytics and machine learning algorithms, these tools can provide more accurate and reliable sales forecasts.

Sales forecasting comes with several challenges, such as data accuracy, market volatility, and changing customer behavior. To overcome these challenges, businesses should:

• Ensure Data Accuracy : Regularly update and clean sales data to maintain accuracy.
• Monitor Market Trends : Stay informed about market trends and adjust forecasts accordingly.
• Involve the Sales Team : Engage the sales team in the forecasting process to gain valuable insights and improve forecast accuracy.

By addressing these challenges, businesses can improve their sales forecasting accuracy and make more informed decisions.

Sales forecasting plays a crucial role in shaping your sales strategy. Accurate sales forecasts help sales leaders set realistic sales goals, allocate resources efficiently, and manage the sales pipeline effectively. By understanding future sales trends, businesses can plan their sales activities and marketing campaigns to maximize revenue.

Sales forecasting also helps in identifying potential risks and opportunities, allowing sales teams to take proactive measures to address them. This can lead to improved sales performance and better alignment with overall business objectives.

To improve sales forecast accuracy, businesses can implement the following tips:

• Use Reliable Data Sources : Ensure that the data used for forecasting is accurate and up-to-date.
• Regularly Review and Adjust Forecasts : Continuously monitor sales performance and adjust forecasts as needed.
• Involve Multiple Stakeholders : Engage various stakeholders, including sales reps and sales managers, in the forecasting process to gain diverse perspectives.

By following these tips, businesses can create more accurate sales forecasts that guide their sales strategies and help them achieve their goals.

Sales data plays a vital role in sales forecasting. Historical sales data provides the foundation for predicting future sales trends and setting realistic sales goals. By analyzing past sales data, businesses can identify patterns and trends that inform their sales forecasts.

Sales data also helps in tracking the performance of sales reps and understanding the effectiveness of different sales strategies. By leveraging sales data, businesses can make more informed decisions and improve their sales performance.

Enhanced Forecasting Techniques for Better Sales Performance

Improving your forecasting techniques is essential for building an accurate sales forecast. Utilizing sales analytics and understanding the length of the sales cycle can help in creating a sales forecast that aligns with your sales targets. Employing multiple forecasting techniques and tools allows sales organizations to better forecast sales and achieve their goals.

Sales forecasting allows businesses to anticipate market changes and adjust their strategies accordingly. Accurate forecasting helps in managing the current sales pipeline and predicting the status of the current sales, ensuring that sales reps are informed and can communicate effectively with prospects.

Factors That Impact Sales Forecasting

Several factors can impact sales forecasting, including market conditions, economic trends, and the performance of individual sales reps. Understanding these factors is crucial for achieving sales forecasting accuracy. Sales managers should track the age of the sales opportunity and the length of the sales cycle to make more precise forecasts.

Sales forecasting is different from other business processes because it involves making an educated guess about future sales. By considering various factors that impact sales forecasting, businesses can make more accurate predictions and improve their overall sales performance.

Understanding Sales Forecasting Challenges

Sales forecasting challenges are common in many sales organizations. These challenges can arise from fluctuating market conditions, data inconsistencies, and the unpredictable nature of customer behavior. Addressing these challenges requires a strategic approach, including the use of sales analytics for accurate forecasting and leveraging multiple forecasting techniques.

Creating a sales forecast that is both realistic and flexible can help mitigate these challenges. Sales forecasting allows businesses to prepare for various scenarios, ensuring they remain resilient in the face of uncertainties. By using two or more sales forecasting methodologies, companies can enhance the reliability of their forecasts and better navigate sales forecasting challenges.

Impact of Sales Forecasting on Sales Performance

Sales forecasting has a significant impact on sales performance as a company. By accurately forecasting future sales revenue, businesses can set achievable sales targets and track progress against these goals. This helps in maintaining a clear focus and aligning the efforts of the sales team towards common objectives.

Using sales forecasting to monitor the status of the current sales pipeline can provide valuable insights into the effectiveness of different sales strategies. This allows sales managers to make data-driven decisions and adjust their approach to maximize sales performance.

To further enhance your sales forecasting capabilities, consider signing up for SalesMind AI's advanced tools. Register here to get started.

Summary of Key Takeaways

• Understanding Sales Forecasting : Sales forecasting is the process of predicting future sales revenue using historical data, market trends, and other factors.
• Importance of Accuracy : Accurate sales forecasting is crucial for effective resource allocation, inventory management, and goal setting.
• Steps in the Forecasting Process : The sales forecasting process involves data collection, analysis, method selection, forecast creation, and regular review.
• Methods and Tools : Common forecasting methods include historical data analysis, market research, and statistical models. Popular forecasting tools include Salesforce, HubSpot, and Zoho CRM.
• Overcoming Challenges : Address challenges like data accuracy and market volatility by involving the sales team and staying informed about market trends.
• Impact on Sales Strategy : Sales forecasting helps set realistic goals, allocate resources efficiently, and manage the sales pipeline effectively.
• Improving Accuracy : Use reliable data, regularly review forecasts, and involve multiple stakeholders to improve forecast accuracy.
• Role of Sales Data : Sales data is essential for identifying trends, tracking performance, and making informed decisions.
• Enhanced Forecasting Techniques : Utilize sales analytics and multiple forecasting techniques to improve sales forecast accuracy.
• Impact of External Factors : Understand and monitor external factors that can impact sales forecasting for better predictions.

By understanding and implementing these key aspects of sales forecasting, businesses can enhance their sales strategies and achieve their sales goals effectively. This ultimate guide to sales forecasting provides a comprehensive overview of the tools, techniques, and processes needed to create accurate and reliable sales forecasts. For more resources, visit the SalesMind AI home page .

Julien Gadea specializes in AI prospecting solutions for business growth. Empowering businesses to connect with their audience with SalesMind AI tools.

Julien Gadea

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22 Sales Projection Templates for 2021 Forecasts

Casey O'Connor

What Is Sales Forecasting?

Types of sales forecast templates, forecasting templates for startups, forecasting templates for businesses with multiple products, forecasting templates for b2b companies.

Sales projection templates can help you quickly and easily create an accurate, data-driven sales forecast for your team.

Sales forecasting is an important exercise for any sales team that wants to see significant year-over-year growth and the ability to fine-tune their sales process in specific, targeted ways. 

In this article, we’ll go over the basics of sales forecasting, as well as provide various forecast templates to help you streamline the process. 

Here’s what we’ll cover:

• Top Forecasting Templates for Startups

A sales forecast is a data-driven prediction of the financial outcomes a business will most likely see at the end of a given time period. A sales forecast can provide insight into the performance of individual sales reps, full sales teams, or even entire organizations. 

For overworked salespeople, making financial projections about future sales that may or may not come to fruition can seem like an exercise in futility. But a thorough, carefully considered sales forecast can be a huge asset to your business .

In order to create an accurate sales forecast, consider how the following factors currently impact your bottom line:

Your business goals are a very important benchmark for your sales team to keep in mind as you create your sales forecast. While your goals may not directly factor into the actual template, they will help steer your decision-making processes. Both short-term and long-term SMART goals will help give structure to your forecast.

Sales Process

Your sales process map will be another helpful tool in creating your sales forecast (if you don’t have one yet, check out our tips on creating one here ). Use your sales process map to pull data points and determine areas of strength and growth.

Company Standards

Chances are that your sales team is made up of salespeople from all different backgrounds and experiences — what one sales rep considers a “qualified lead” may be entirely different from the next. The same goes for things like follow-up communication — how much is too much? Should the follow-up process start on LinkedIn , or via email? 

While it may feel laborious, it’s worth your time to standardize and define these kinds of terms with your team. Use your sales process map to guide this exercise. Having consistency in your metrics will go a long way in pinpointing your sales projections.

In business, every penny counts (this is particularly true for small businesses and start-ups). If you’re not tracking every single penny that goes into and out of your business ( many businesses aren’t ), you need to start ASAP. Your sales projections will only be as accurate as your accounting, and the devil here is in the details. 

Don’t worry — you don’t need to go and cut funds from every department. Sometimes knowing the numbers is just as powerful as trimming them. But you’ll only reap the benefits of sales forecasting if you take a good hard look at the dollars you’re currently spending — all of them. 

Befriend Your CRM

If your company utilizes any CRM software, now’s the time to start maximizing it. Your CRM can be a great way to track the many moving pieces that make up a sales forecast. Make sure you understand its full functionality , as many companies tend to only stick to the surface-level features.

When executed correctly, sales forecasts can give you very valuable insight into various aspects of your sales performance over a period of time. It also gives investors a really compelling reason to inject money into your business — if your forecasted sales are promising, they’ll be much more likely to invest.

Different businesses have different needs for sales forecasting templates. These templates may include things like multiple products, multiple time frames, seasonality considerations, and other variables. It’s important to make sure the template you choose captures the full financial picture without overcomplicating it. 

In general, there are seven main types of forecast templates. Some of these standardized templates may work for your business, but you should also feel free to use these as a starting point, and customize as needed

(Don’t be intimidated by this process — you can do most of this with Microsoft Excel or Google Sheets!)

1. Lead Driven Forecasting

With this lead-driven forecasting template , you’ll be relying on extensive knowledge of your leads. Each lead source gets a value assigned, and projections are calculated accordingly.

Because this template requires a lot of data about leads and their behaviors, it may not work well for businesses that are just starting out and still researching their customer base. 

2. Length of Sales Cycle Forecasting

Length of sales cycle forecasting  predicts the probability of a deal closing based on where they are in your sales cycle. It then assigns each deal a value based on how far along they are in the process. 

This template works well for companies who have robust CRM or other automation tools.

3. Opportunity Stage Forecasting

Opportunity stage forecasting is similar to the previous two templates, though it doesn’t account for source of leads or exact length of sales cycle. Instead, it assigns a probability to each prospect based on what stage of the sales process they’re in. 

This template will take these probabilities, assign them a value, and add those values into your sales projection as your leads move through the sales process. 

4. Intuitive Forecasting

Intuitive forecasting is pretty self-explanatory, and the least objective approach to sales forecasting . It relies on a sales rep’s experience to make judgments about how much  value each deal will bring to the company. 

Sales reps might consider any of the following as they make their forecast:

This method is difficult to scale, but it also doesn’t require a ton of historical sales data — it’s a good fit for many startups as they gather sales data. 

5. Test-Market Analysis Forecasting

Test-market analysis forecast templates are used when launching new products. This method requires that you perform and collect data on a small test launch, and apply those results to your overall forecast.

6. Historical Forecasting

This is a very data-driven approach — it uses your historical sales data to predict future  growth. It’s relatively quick and easy, but it has its downfalls. 

Historical forecasting  does not take any external factors into account, like market conditions or sales team changes. It simply looks at your history of sales. It also assumes year-over-year growth, which isn’t always the case. For most companies, historical sales data is a hugely beneficial piece of the sales forecast, but not the entire basis.

7. Multivariable Analysis

This multivariable analysis example spits out forecasts for gross profit and growth rate, but you could also formulate to predict things like profit margin or total revenue.

Without long-term historical sales data, it can be hard for many startups to create detailed projected sales reports. This is also true for older businesses who are launching a new product. In cases like these, it’s best to start with a simple projections template. 

Here are some of the most basic, easiest-to-use templates we found for businesses that are just starting out. Click on the template’s header to download each one. 

8. One-year Sales Forecast

One-year Sales Forecast (Google Sheets):

This template has very few inputs for historical sales data. All you need to include are the year, product, unit type, and the number of units sold. The spreadsheet has built-in formulas that will calculate the remaining rows automatically.

9. Best & Worst Case Scenario

Best & Worst Case Scenario (Excel):

This template works well for companies who have only minimal data, and can give new businesses a target forecast range rather than precise numbers. For startups, this can allow for flexibility while still pursuing aggressive growth.

10. Expense-Focused

Expense-Focused (Excel):

This template does a really nice job of breaking down all the various expenses that go into running a business. It could work really well for startups who are still learning how their cash flows in and out. 

11. Monthly Sales

Monthly Sales (Microsoft):

This template is great for startups that want to cut out the extra noise and simply determine whether their efforts are paying off month-to-month while they’re starting out.

12. Simple Monthly Reporting

Simple Monthly Reporting (PDF):

Businesses with multiple products (many e-commerce businesses fit this description, for example) sometimes struggle to create a sales forecasting template that’s fluid enough to capture the performance of many different profit streams. 

Take a look at some of the best templates we found that are flexible enough to meet those needs. 

13. 12-Month Forecast for Multiple Products

12-Month Forecast for Multiple Products (Excel):

This template is detailed enough to see how each product fits into the bigger picture, but also simple and intuitive enough that a fledgling business could use it effectively.

14. Color-Coded Outputs

Color-Coded Outputs (Excel):

This template does a really nice job of streamlining the data from multiple product sales and arranging them in an aesthetically pleasing and easy-to-read manner. 

15. Opportunity-Based

Opportunity-Based :

This template  allows you to input sales based on deal stage, size, and probability. It’s best suited for companies who have a more developed understanding of their leads and sales process.

16. New Product Launch

New Product Launch (Excel):

This template is great for companies who are launching a new product and want to look at projections for that product in isolation. Because new products sometimes take longer to get off the ground and aren’t necessarily representative of sales projections as a whole, it can be good to look at their performance removed from the bigger picture — at least in the beginning.  

17. Individual Growth Rates by Product

Individual Growth Rates by Product (Excel):

This template does the dirty work for you by breaking down growth rates by individual products, so you can pinpoint the ones that are making the biggest impact.

Here are a few examples of sales forecasting templates for B2B companies.

18. Lead-Driven B2B

Lead-Driven B2B (Excel):

This template allows salespeople to enter data following a lead-driven approach. It assigns a projected value based on what stage the lead is in.

19. Projected Volume

Projected Volume (Excel):

20. Site Traffic Projections

Site Traffic Projections (Google Sheets):

This template download has wonderful step-by-step instructions for inputting your data and analyzing the results. The template uses site traffic as one of its metrics, so it would work best for e-commerce or other heavily web-based businesses.

21. Multivariable Analysis

Multivariable Analysis (Google Sheets):

This template allows for projections based on a number of different variables, including seasonality. The template is great for businesses that have many external variables to consider. 

22. Historical Growth Rate

Historical Growth Rate (Excel):

This template uses your historical sales data to predict future growth. Because the only inputs are past sales, it’s important to make sure that this data is very robust — we recommend at least two years of historical sales figures for this template.

Hopefully, one of many of these templates will be a good fit for your sales forecasts. They can be used as a guide to creating your own custom template in Excel or Google Sheets. Make sure to include the constants — things like unit sold and cost of goods sold — but tweaking the templates can go a long way in making them a more powerful tool for your business.

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How to Calculate Sales Forecasts with Formulas (With Examples)

Clari Staff

Published May 01, 2024

Ready to take your revenue to new heights?

Trying to predict your business’s future? 

A sales forecasting formula may not be a crystal ball, but using one can help you plan your revenue strategy.

Why is sales forecasting important?

If you don’t know what’s ahead, you won’t know how to plan your revenue activities.

By leveraging the right sales forecasting formulas, you’ll be able to see what’s ahead and make the right moves to grow your revenue.

In this guide, you’ll learn all about sales forecasting formulas: what they are, the different types, how they work, and some practical examples so you can start planning your revenue strategy today.

Table of Contents: 

What is a sales forecast formula?

Why is it beneficial to use formulas for sales forecasting.

• What data is typically needed to use sales forecast formulas?

The sales forecasting method you choose will determine the formula

4 key formulas for sales forecasting, using excel for sales forecast formulas, examples of sales forecasting calculations, use clari forecast to predict and grow your revenue.

You need to establish a proper forecast to plan for your business’s future.

A sales forecast formula is a math equation you use to predict how much money your customers will spend in the future.

How do you calculate it?

Simply multiply the number of customers you expect to do business with next month (or quarter or year) by how much money they’ll spend on your products and services.

For example, if you have 72 new customers next month, and they’ll spend an average of $1,950, the equation looks like this:

72 x $1,950 = $140,400.

So, you’re forecasting $140,400 for the next month.

Sounds easy, right?

The basic formula is simple, but many details and nuances are involved in coming up with an accurate forecast for your specific business.

That’s why there are several types of sales forecasting formulas.

For example, there are dozens of external factors that can impact your future revenue:

• Seasonality
• Market fluctuations
• Global economic conditions
• A good (or bad) review by a large customer

Not all external factors may be a bad thing for your company. There may be positive trends that explode your revenue from time to time.

So, how do you plan for fluctuations? How do you confidently tell your sales reps and revenue teams what activities and campaigns they should work on?

By relying on accurate sales forecasting.

Even if external factors impact your sales occasionally, you can leverage forecasting to weather those fluctuations better.

Sales forecasting formulas are crucial to reaching your sales goals every month, quarter, and year.

Maintaining accurate financial records

While sales forecasting can help you grow revenue, the most important benefit is the impact on your financial records. With proper forecasting, you can ensure your books are clean, accurate, and predictable to keep your business in good health.

Staying within budget

With better books, you’ll not only be able to predict future sales, but you’ll also be able to properly forecast future expenses. If you know you’ll likely have lower sales next month, you can keep your budget lower.

Improving inventory management

Sales forecasting can help your sales leaders manage your inventory better so you’re not overordering inventory that may not be sold next month.

Following the laws of the land

Compliance is key with forecasting. Since sales forecasting can help you maintain good books, you’ll be less likely to get audited.

Growing revenue

The sweetest side effect of better forecasting is your ability to grow your revenue. When you can predict future revenue, you can plan the correct actions to reach your sales target.

What data is typically needed to use sales forecast formulas? 

There are several ways to forecast future sales , but here are a few common data points:

Historical leads

Your historical leads are all the leads you get at stage one of the sales process.

These are the total (unqualified) leads in your pipeline that you haven’t contacted or filtered yet.

Historical leads contacted

Once you have leads placed in your pipeline, it’s time to qualify those leads. The best way to do that is by reaching out via:

You need to ensure you follow up with your leads as soon as possible (once they enter your pipeline), or you could lose them.

Historical leads qualified

Another key data point in generating an accurate sales forecast formula is the leads you’ve qualified. You’ve contacted these leads and gathered more information from those who could be a good candidate. 

Historical leads with proposals sent to them

Once you’ve qualified leads, it’s time to send proposals to them. If you want to make the sale, you need to first make the ask.

Number of leads converted to customers

Your historical sales are broken down by the number of leads you’ve officially turned into paid clients or customers.

Ultimately, this data point is the greatest predictor of future sales.

There are a few common sales forecasting methods:

Opportunity stage forecasting

Opportunity stage forecasting is a common method that analyzes the volume of leads in certain pipeline stages. The idea is that the more leads you have in the pipeline, the more deals you will close.

On the one hand, it’s one of the easiest forecasts to set up, and the calculations are simple.

On the other hand, any bit of inaccuracy in data can lead to poor forecasts. The calculation also doesn’t consider each lead's size (or even the age).

Historical forecasting

Historical sales forecasting is one of the most popular sales forecasting methods. Simply look back at a previous time period to determine future results.

One upside to this is that it’s another easy forecasting method. For example, you could take what you got last year and predict that it will happen again with your annual sales forecast.

One downside is that it doesn’t account for seasonality or market fluctuations.

Length of sales cycle forecasting

Length of sales cycle is another forecasting strategy that looks at the age of certain deal opportunities to forecast when they’re likely to finalize as a deal.

One positive with this method is that it relies on objective data rather than sales team feedback. 

But you need to ensure you’re carefully tracking exactly when our leads come into your sales funnel for this method to work well.

Pipeline forecasting

The final method to calculate sales forecasts is pipeline forecasting. It works by reviewing each opportunity in your pipeline and giving you a prediction of the chances of you closing it.

This method is great for helping analyze the likelihood of deals closing. However, it’s challenging to calculate, especially if you aren’t using a sales analytics tool with accurate data .

Now that you know which forecasting methods to choose from, it’s time to dive into their formulas:

Opportunity stage formula

Once you have your reporting period (i.e., the previous month or year), multiply each deal’s (potential) value by the probability it will close.

Historical formula

This is the simplest formula. If you want to forecast next month’s revenue, all you have to do is look at the previous month.

The same works for analyzing future weeks, quarters, or years.

Length of sales cycle formula

How long does your average sales cycle last?

Multiply that number by how long your sales team has been working on a deal.

Pipeline formula

With pipeline forecasting, you simply look at every opportunity in your sales pipeline and analyze the likelihood of closing it.

Wondering how you can start forecasting your sales?

The simplest way to start is with an Excel spreadsheet.

1. Create a new Excel sheet

Open Microsoft Excel and click “New” to launch a new spreadsheet.

2. Create your forecast

Pick your forecasting method and insert the data into Excel.

You can use straight line, moving average, and simple linear regression sales forecasting formulas with Excel.

3. Adjust your sales forecast 

You need to keep updating and adjusting your forecast every day or week. New opportunities come along (and fall apart), so you should update it regularly.

4. Review your sales forecast

Every week, month, quarter, and year, you should review your sales forecast to analyze how many deals are coming in so you can adjust your sales strategy.

Remember, you can use Excel or Google Sheets to forecast your sales.

For more robust sales forecasting, try Clari today .

Curious how a sales forecasting calculation works?

Here are a few examples of how you can calculate these formulas:

Opportunity stage example calculation

Let’s say you determined the following likelihood to close at the qualified lead stage is 15%, and the average potential value of each deal is $12,000. 

This means each deal’s forecasted amount is $12,000 x 15% = $1,800.

Historical example calculation

If you generated $120,000 in revenue last month, you can predict the same for next month.

You can add historical growth data if you want to make it a bit more sophisticated. For example, if you grow at 5% each month, you could calculate $120,000 x 1.05 = $126,000.

Length of sales cycle example calculation

Let’s say your average sales cycle is two months.

Your sales rep has been working on a deal for half a month, which means you could say they’re 25% likely to close the deal.

Pipeline example calculation

For example, if you have 30 deals in your sales pipeline, split equally between 3 reps.

Each rep has a different close ratio. Add up the likelihood of them closing each deal by the amount in each deal.

Breaking it down:

Rep 1: 20% close ratio and $20,000 total potential revenue = $4,000

Rep 2: 15% close ratio and $40,000 total potential revenue = $6,000

Rep 3: 12% close ratio and $33,000 total potential revenue = $3,960

Forecast = $13,960

You have the power to keep growing your revenue.

But, without knowing what’s ahead, knowing how you should strategize is hard.

With sales forecasting formulas, you can calculate your future revenue, which can help you adjust course and develop new revenue growth plans.

There’s no greater sales forecasting tool than Clari.

Clari Forecast gives you an accurate view of your revenue future with the tactical insights to get there. Many Clari customers are seeing as much as an 11% increase in win rates when they start using Clari Forecast.

Book a demo of Clari today.

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A good sales forecast is more than just a prediction of what your sales will be in the next few months. It should also include information about how you can improve your sales forecasting process so that it’s more accurate and useful over time.

In this article, we’ll walk you through some widely-used sales forecast examples you can use for your business.

What Do You Need to Create a Sales Forecast?

Below are a few things you’ll need to create an effective sales forecast.

• Data : The first step in creating a sales forecast is to collect data. You can gather information from your teams, including sales, marketing, customer service, and other departments. You might also want to look at industry statistics to understand market trends and changes in customer behaviors.
• A sales forecast platform : A sales forecast platform includes tools for collecting data, analyzing it, and putting together an accurate forecast. Powered by artificial intelligence, it gives you access to data from your past and present operations as well as real-time insights about your business. Hence, you’ll quickly understand what your sales will be in the future.

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• A sales forecasting process : When you’re trying to predict your future sales, it’s essential to have a well-designed sales process in place. A good sales process will help you understand how your reps have been doing to hit their sales targets, what stages they work most effectively, and where they need more support from them. By tracking your reps’ activities, you can provide them with the support they need to boost their productivity and sales performance.

Sales Forecasting Examples

Intuitive sales forecasting.

When companies don’t have historical sales data because they are less than a year old or they are small businesses with not enough customer data, they have to rely on other financial planning methods to predict sales.

Typically, a company relies on sales projections from reps based on the rep’s current sales. This method of determining sales forecasts is often referred to as intuitive forecasting .

The intuitive sales forecasting method relies on the sales rep’s perspective and intuition about their pipeline. The rep reports the likelihood and timing of when their deal will close, as well the total worth of the sale. Some teams like this sales forecasting method since the rep knows the client best. So, their intuition is usually based on specific client communication and insight.

Reps typically rely on the following factors and data to create the intuitive forecasting:

• Seasonality of sales that refers to fluctuations in your sales revenue that are caused by external factors and occur on a predictable schedule around the same time(s) every year
• Market trends analysis that refers to the comparison of industry data over a set time period, designed to recognise any consistent trends or results that could be used to map your forecast – aligning it with the general direction of your industry.
• Monthly sales reports that are used to monitor, evaluate, analyze, and determine sales trends on a monthly basis.

As you can probably imagine, this method is incredibly hard to quantify since it relies heavily on the sales rep’s subjectivity. It’s also difficult to replicate since each individual thinks differently. However, this may be a helpful method for new businesses or ones that lack a large amount of historical data.

Here are five other analytical methods you can use to do sales forecasting in your organization. These methods are typically used in various types of businesses from SMB to Enterprise.

1. Historical Forecasting Example

Historical forecasting is a method of creating projections based on past data.

For example, a company looked at their historical data for the last three years and found that sales have increased by 20% each year. Based on this information, they projected that sales would increase by 20% this year.

2. Multivariable Forecasting Example

Another way to forecast sales is to use a multivariable model. It predicts future sales based on multiple factors such as current sales, previous sales, and other variables.

A multivariable sales forecasting model can take into account different factors like deal sizes, close rates, number of opportunities, and leads to produce a more accurate forecast. It’s becoming increasingly popular as businesses strive to increase their efficiency.

3. Length of Sales Cycle Forecast Example

The length of the sales cycle is the time between when a customer first expresses interest in your product and when they make a purchase. It’s important to have accurate forecasts because if you’re not aware of how long a customer will take to purchase your product, you’ll end up spending too much money on marketing and promotion.

Sales cycle length is typically measured in weeks, but it can depend on the type of customer you’re dealing with. For example, if you’re selling to businesses (as opposed to consumers), they may take longer to make a decision since they need approval from higher-ups first.

4. Opportunity Stage Forecasting Example

This method is a simple way to predict the likelihood of an opportunity closing. You can use it by looking at the following:

• How much time has passed since the opportunity was created?
• How many times have you interacted with the customer?
• How much money have you spent on the opportunity?

All these factors will help you determine whether or not your prospect will convert into a client.

5. Pipeline Forecast Example

Pipeline sales forecasting is a method for predicting the number of opportunities you can expect to close in your pipeline. It looks at each opportunity in your pipeline and analyses it based on several factors, which could include age, deal type, and deal stage.

The aim is to understand what will happen to your opportunities as they progress through their lifecycle. Hence, you can determine how many total opportunities are likely to convert into closed deals at any given time.

Sales Forecasting FAQs

What is an example of sales forecasting.

Different companies can use different methods to forecast their future sales. Common sales forecasting examples include historical forecasting, opportunity stage forecasting, length of sales cycle forecasting, multivariable forecasting, and pipeline forecasting.

What are the Most Common Sales Forecasting Mistakes?

Sales forecasting can be a tricky business. But if you don’t know what you’re doing, it can be easy to make a mistake.

These are some of the most common sales forecasting mistakes:

• Not having an accurate picture of your current customer base
• Not using the right forecasting tool or methods
• Not updating your forecasts with new information as it becomes available
• Not learning from past errors and improving your forecasts accordingly
• Failing to take into account external factors that could affect your business

Which Forecasting Method is The Best?

There’s no one-size-fits-all sales forecasting technique.

While many methods can help you forecast your sales, they all have pros and cons. Some methods are more complex than others, some require more data than others, and some are better suited to certain industries than others.

To determine which method is best for your business, consider how much time you’re willing to devote to getting your forecasts right (and keeping them updated), how much data is available, and what technology you already have in place.

Now that you’ve understood sales forecast examples and how to use them. If you want to learn more about sales forecasting, check out these blogs:

• Measuring Forecasting Accuracy: Formula, Best Practices And Tips
• What is Sales Forecasting and How Do You Forecast Sales?
• Bottom-up Forecasting: What Is It and How to Use it

Lavender Nguyen is a Freelance Content Writer focusing on writing well-researched, data-driven content for B2B commerce, retail, marketing, and SaaS companies. Also known as an Email Marketing Specialist, she helps ecommerce B2C brands develop high-converting, customer-focused email strategies.

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How to create a sales forecast for your small business

May 21, 2024 | 7 minute read

What you know about tomorrow can help you make better decisions about running your small business today. A sales forecast can be a helpful tool in estimating future sales, so you can take that information into account in your planning. Simply put, a sales forecast estimates the quantity of goods and services you can reasonably expect to sell over a specified period, the cost of those goods and services and the potential profit. It’s based on your sales in the past, industry benchmarks and market conditions. 

A sales forecast is an invaluable tool for better  managing your cash flow , spending, staffing and more. Once you complete your forecast, you’ll have a better sense of what’s driving your revenues and profits, know where to put your time and resources and be able to identify efforts that are not fueling growth so you can consider eliminating them. 

Why sales forecasting is important

A sales forecast helps you understand your financial position. It can be a good starting point for setting goals and provides guidance in many areas of your business, such as planning for new hires, purchasing inventory and equipment, knowing when to preserve cash, increasing your marketing budget or alerting you that you need to find new  ways to make more money . It can also help you illustrate your business’s potential to investors.

What factors impact a sales forecast?

A forecast is really an educated guess. There are any number of conditions that might shake up your projections, such as new laws and regulations. A downturn in the economy could mean a change in business conditions, making it harder to get credit. A dip in consumer confidence could lead to less spending on your company’s goods and services. New competition in your market, a drop in customer satisfaction or extreme weather (a major storm that essentially shuts down a city for a few days, for example) could all make a difference in what you thought was going to happen. Something like seasonality can also impact your forecast. Internal factors like new production processes and procedures can also keep you from hitting your target. 

Sales forecasting methods

There are several methods to creating a sales forecast. Here are three that many small businesses use:

Historical forecasts

This method is based on your business’s past performance. If you’ve been in business for a year or more, you can look back at data by the week, month, quarter or year. If you’ve launched your business recently, this option won’t work well because you won’t have enough data available. 

Bottom-up forecasts

To come up with these forecasts, you must project the number of units you will sell, then multiply that figure by the average cost per unit. If you run a larger small business, you can also include metrics like the number of locations, sales representatives or online interactions. The rationale behind a bottom-up sales forecast is to begin with the smallest components of the forecast and build up from there. The advantage of this type of forecast is that if any variables change (like cost per item or number of reps), the forecast is easy to adjust. 

Top-down sales forecasts

Start with the total size of the market and estimate what percentage of the market the business can capture. If the size of a market is $20 million, for example, a company may estimate it can win 10% of that market, making its sales forecast $2 million for the year. If you’re a natural optimist, it’s a good idea to ask an advisor to provide a reality check on the percentage of customers in your market that you can reasonably expect to attract and serve so that your projections are more accurate. 

How to create a sales forecast

Once you’ve selected a sales forecasting method, you’ll want to take several steps.

1. List the goods and services you sell

In a sales forecast, you’ll want to account for each product or service that you are selling so your forecast is accurate. 

2. Quantify your sales

Each sales forecasting method has its own way of estimating future sales: 

In  historical forecasting , you will need to project the quantity of each product or service you will sell and multiply the unit price by that number. In this type of forecasting, you can base your estimate on the sales figure you brought in last month as long as nothing major has changed in the marketplace. So, if you sold $50,000 worth of your product in July, you might estimate selling $50,000 worth in August. 

In  bottom-up forecasts , you must first estimate the total number of orders that customers will place for your products or services through your website, social media channels and other places you make sales. Then you estimate the average price minus any discounts you offer. Finally, you must multiply the estimated number of orders for each item by the average price to get estimated revenue. 

In  top-down forecasts , you start by estimating the total market for each item you sell. For example, if you were lucky enough to capture 100% of the sales, how much would you have sold? Then project how much of that market you can realistically capture. So, for instance, if the total addressable market for what you sell is $1 million, and you capture 7% of that with your product, your estimated sales will be $70,000. 

3. Make adjustments

Some owners adjust their forecasts to reflect projected market conditions, regulatory changes, new marketing efforts and other variables.

4. Subtract costs

Business owners will typically subtract the costs of creating each good or service they sell from their estimated sales forecast to understand how much profit would be generated from sales. Let’s say you sell a backyard game you invented by outsourcing the manufacturing to a local factory. You might subtract  overhead expenses , such as paying the factory and buying materials, from your projected revenue to anticipate how much money would be left over as profit. Or if you run a social media agency that has taken on new clients who’ve hired you on retainer, you might subtract costs, such as paying freelancers to write social media posts and subscribing to a website that provides stock photos, to get a clearer picture of future profits. 

Tools for sales forecasting

If you haven’t done so already, you might want to consider software to help with sales forecasting. 

Sales forecasting software

Sales forecasting software can use historical business data and trends to create a report of expected sales revenue. Forecast reports can compare sales targets with actual sales. 

Ideally, sales software can help you answer questions like: 

What is your expected revenue? 

Which forecasting method produces the most accurate forecast for your business? 

How did actual sales compare with expected sales?

Sales pipeline forecasting software

With sales pipeline forecasting software, you’ll get an analysis of existing opportunities and a calculation of your success rate in pursuing them, helping you prioritize your efforts. This method focuses on pipeline management and calculates a historical win-rate percentage based on the value and age of the opportunity and the sales representative working on it. Some software programs include features that will give you the ability to view pipeline activity and internal sales data or save you time, letting you integrate information from third-party sales software, for instance. You can create sales forecasts using software such as QuickBooks, Salesforce Sales Cloud, Zoho CRM and Pipedrive.

Historical sales forecasting software

Historical sales forecasting software analyzes previous company performance to calculate a mean (or average) sales level you can expect for the following month, quarter or year. It emphasizes historical trends and seasonality of products and services sold, but it does not consider the opportunities in your pipeline. This software is ideal for small businesses that don’t have big swings in their monthly sales. 

Bottom line

Your sales forecast can be a vital tool as you make plans to grow your business or adjust to challenges. By comparing your actual performance to your forecasts, you’ll be able to get a clear handle on your success and failures, fine-tune your strategies and capitalize on what is working for you so you can keep your business moving to the next level. 

Explore more

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How to Do a Sales Forecast for Your Business the Right Way

Posted june 8, 2021 by noah parsons.

New entrepreneurs frequently ask me for advice about forecasting their sales . These entrepreneurs are always optimistic about the future of their new company. However, when it comes to the details, most aren’t sure how to predict future sales and how much money they’re going to make.

It’s an intimidating task, looking into the future. The good thing is, none of us are fortune tellers and none of us know any more about your new business than you do. (If you do happen to be able to see into the future, please just skip the whole startup thing and go play the stock market. It’ll be much easier and make you richer!)

So, my advice is always to just take a deep breath and relax. You’re as well equipped as everyone else to put together a credible, reasonably accurate forecast. Let’s dive right in and figure it out.

What is sales forecasting?

Sales forecasting is the process of estimating future sales with the goal of better informing your decisions. A sales forecast is typically based on any combination of past sales data, industry benchmarks, or economic trends. It’s a method designed to help you better manage your workforce, ash flow, and any other resources that may affect revenue and sales

It’s typically easier for established businesses to create more accurate sales forecasts based on previous sales data. Newer businesses, on the other hand, will have to rely on market research, competitive benchmarks, and other forms of interest to establish a baseline for sales numbers. 

Check out our detailed guide on creating a full financial forecast without historical data for more.

Why is sales forecasting important?

Your sales forecast is the foundation of the financial story that you are creating for your business. Once you have your sales forecast complete, you’ll be able to easily create your profit and loss statement , cash flow statement , and balance sheet.

Sales forecasts help you set goals

But beyond just setting the stage for a complete financial forecast, your sales forecast is really all about setting goals for your company . You’re looking to answer questions like:

• What do you hope to achieve in the next month? Year? 5-years? 
• How many customers do you hope to have next month and next year?
• How much will each customer hopefully spend with your company?

Your sales forecast will help you answer all of these questions and potentially any others that involve the future of your business.

Sales forecasts inform investors

Having a solid sales forecast also provides a picture of your performance and performance milestones for potential investors. Like you, they want to be sure you have established goals and a firm trajectory for your business laid out. The more detailed, organized, and up-to-date your forecast is, the better you explain the position of your business to third parties and even employees.

How to use your sales forecast for budgeting

Your sales forecast is also your guide to how much you should be spending. Assuming you want to run a profitable business, you’ll use your sales forecast to guide what you should be spending on marketing to acquire new customers and how much you should be spending on operations and administration. 

Now, you don’t always need to be profitable, especially if you are trying to expand aggressively. But, you’ll eventually need your expenses to be less than your sales in order to turn a profit.

How detailed should your forecast be?

When you’re forecasting your sales , the first thing you should do is figure out what you should create a forecast for. You don’t want want to be too generic and just forecast sales for your entire company. On the other hand, you don’t want to create a forecast for every individual product or service that you sell.

For example, if you’re starting a restaurant, you don’t want to create forecasts for each item on the menu. Instead, you should focus on broader categories like lunch, dinner, and drinks. If you’re starting a clothing shop, forecast the key categories of clothing that you sell, like outerwear, casual wear, and so on.

You’ll probably want between three to ten categories covering the types of sales that you do. More than ten is going to be a lot of work to forecast and fewer than three probably means that you haven’t divided things up quite enough.

You really can’t get this wrong. After all, it’s just forecasting and you can always come back and adjust your categories later. Just pick a few to get started and move on.

Which forecasting model is best? Top-down or bottom-up?

Before they have much historical sales data, lots of startups make this mistake—and it’s a big one. They forecast “from the top down.” What that means is that they figure out the total size of the market (TAM, or total addressable market) and then decide that they will capture a small percentage of that total market.

For example, in 2015, more than 1.4 billion smartphones were sold worldwide. It’s pretty tempting for a startup to say that they’re going to get 1 percent of that total market. After all, 1 percent is such a tiny little number, it’s got to be believable, right?

The problem is that this kind of guessing is not based on any kind of reality. Sure, it looks like it might be credible on the surface, but you have to dig deeper. What’s driving those sales? How are people finding out about this new smartphone company? Of the people that find out about the new company, how many are going to buy?

So, instead of forecasting “from the top-down,” do a “bottom-up” forecast. Just like the name suggests, bottom-up forecasting is more of an educated guess, starting at the bottom and working up to a forecast.

Start by thinking about how many potential customers you might be able to make contact with; this could be through advertising, sales calls, or other marketing methods. This is your SOM (your “share of the market”), the subset of your 1 percent of the market that you will realistically reach—particularly in the first few years of your business. This is your target market .

Of the people you can reach, how many do you think you’ll be able to bring in the door or get onto your website? And finally, of the people that come in the door, get on the phone, or visit your site, how many will buy?

Here’s an example:

• 10,000 people see my company’s ad online
• 1,000 people click from the ad to my website
• 100 people end up making a purchase

Obviously, these are all nice round numbers, but it should give you an idea of how bottom-up forecasting works.

The last step of the bottom-up forecasting method is to think about the average amount that each of those 100 people in our example ends up spending. On average, do they spend $20? $100? It’s O.K. to guess here, and the best way to refine your guess is to go out and talk to your potential customers and interview them. You’ll be surprised how accurate a number you can get with a few simple interviews.

How to create a sales forecast

Keep in mind that your sales forecast is an estimate of the number of goods and services you believe you can sell over a period of time. This will also include the cost to produce and sell those goods and services, as well as the estimated profit you’ll come away with.

We’ll dive into specific methods, assumptions, and questions you’ll need to ask in order to build a viable sales forecast. But to start, here are the general steps you’ll need to take to create a sales forecast:

• List out the goods and services you sell
• Estimate how much of each you expect to sell
• Define the unit price or dollar value of each good or service sold
• Multiply the number sold by the price
• Determine how much it will cost to produce and sell each good or service
• Multiply this cost by the estimated sales volume
• Subtract the total cost from the total sales

This is a super basic rundown of what is included in your sales forecast to give you an idea of what to expect. For example, you may find the need to aggregate similar items into unified categories, if you sell a large variety of items. And if at all possible, try to keep your forecasted items grouped similarly to how they appear on your accounting statements to make updates easier.

Check out this video for a quick overview of how to forecast sales:

Now let’s dive into some specific elements of your forecast you’ll need to define ahead of time.

Should you forecast in units or dollars?

Let’s start by talking about “unit” sales.

A “unit” is simply a stand-in for whatever it is that you are selling. A single lunch at a restaurant would be a unit. An hour of consulting work is also a unit. The word “unit” is just a generic way to talk about whatever it is that you are selling.

Now that’s out of the way, let’s talk about why you should forecast by units.

Units help you think about the number of products, hours, meals, and so on, that you are selling. It’s easier to think about sales this way rather than to think just in dollars (or yen, or pounds, or rand, etc.).

With a dollar-based forecast, you are only thinking about the total amount of money that you’ll make in a given month, rather than the details of the number of units that you are selling and the average price you are selling each unit for.

To forecast by units, you predict how many units you’re going to sell each month—using the bottom-up method of course. Then, you figure out what the average price is going to be for each unit. Multiply those two numbers together and you have the total sales you plan on making each month.

For example, if you plan on selling 1,000 units at $20 each, you’ll make $20,000.

When you forecast by units, you have a couple of different variables to play with: What if I’m able to sell more units? What if I raise or lower my prices?

Also, there’s another benefit: At the end of a month of sales, I can look back at my forecast and see how I did compared to the forecast in greater detail. Did I meet my goals because I sold more units? Or did I sell for a higher price than I thought I would? This level of detail helps you guide your business and grow it moving forward.

Sales forecast assumptions

One thing to remember is that your sales forecast is built on assumptions. You’re not predicting the future, but aggregating information to help define your future outlook. These assumptions are always changing, meaning that you’ll need to have a pulse on the following:  

Market conditions

Having a general understanding of the macro effects on your business can help you better predict overall growth. A growing or shrinking market can either provide a low or high ceiling for potential sales increases. So, you need to understand how your business can react to any changes.

What does the broader market look like? Is the economy slowing or growing? Is the industry you operate in seeing an influx of competition? Maybe there’s a labor or material shortage? Are there new customers you now have access to?

Products and services

You may find yourself making regular changes to your products and services. This can be sales factors that impact the customer, or production factors that impact the overall cost. 

Are you making any changes or updates to current offerings? Are you launching a new product or service that compliments or disrupts your existing sales? Are you adjusting prices or sales channels? Are you able to decrease the cost of production? Or are expenses rising due to material, labor, or other production costs?

Seasonality

Depending on what you’re selling, you may find dips or increases in sales at specific times during the year. This seasonality may have to do with the weather, holidays, product/feature releases, or a number of other predictable factors. 

If you have been operating for a while, you can likely look at your accounting data to identify any trends. If you’re a new business look to your competitors to see how they act during specific times of the year to help you identify these trends earlier on.

Marketing efforts

How much you spend on marketing, and even your messaging may have an impact on your overall sales. Make sure that you connect any performance changes to marketing efforts that may affect your performance.

Are you launching a new marketing campaign? Are you spending more or less on advertising? Are you adjusting your targeting for digital ads? Are you branching out or removing specific marketing channels from your overall strategy?

Regulatory changes

You may find that specific laws or regulations directly impact your industry. It’s difficult to anticipate what legislation will provide a negative or positive impact, and just how often this type of regulatory change may occur. The best thing you can do is keep your ear to the ground, and be ready to adjust expenses or sales when any changes appear to make traction.

How far forward should you forecast?

I recommend that you forecast monthly for 12 months into the future and then just develop an annual sales forecast for another three to five years.

The further your forecast into the future, the less you’re going to know and the less benefit it’s going to have for you. After all, the world is going to change, your business is going to change, and you’ll be updating your forecast to reflect those changes.

12 months from now is far enough into the future to guess. You’ll have to update your forecasts regularly with actual performance to help keep them accurate. 

And don’t forget, all forecasts are wrong—and that’s O.K. Your forecast is just your best guess at what’s going to happen. As you learn more about your business and your customers, you can change and adjust your forecast. It’s not set in stone.

Why using visuals will make forecasting easier

My final word of advice is to make sure that you graph your monthly sales with a chart.

A chart will make it easy to see how your sales might dip during a slow period of the year and then grow again during your peak season. A chart will also highlight potentially unreasonable guesses at your sales growth. If for example, you show a big jump in sales from one month to the next, you should be able to back this up with a strategy that’s going to deliver those sales.

Adjust your forecasts based on actual results

Your sales forecast isn’t done when you start sharing it with lenders and investors. Instead, smart businesses use their sales forecast to measure their progress and ensure that they’re on the right track. Their sales forecast becomes a live forecast . An up-to-date management tool that helps them run their business better.

The easiest way to convert your sales forecast into a management tool is to have a monthly financial review meeting where you look at your business’s finances. You shouldn’t just look at your accounting system, though. You should compare the numbers from your accounting software to your forecast and see if you’re on track. 

Are you exceeding your goals? Or maybe you’re falling a little bit short. Either way, knowing if you’re meeting your goals or not will help you determine if you need to make some shifts in strategy. This way, your business numbers drive your strategy.

Forecasting is easier with LivePlan

Sales forecasting tools like LivePlan can help with this. LivePlan uses a smart dashboard to automatically compare your forecast to your numbers from your accounting system—no cutting and pasting or complicated spreadsheets required. And with LivePlan’s LiveForecast feature , you can update the forecasts within your Profit and Loss Statement, with the push of a button. 

This allows you to spend less time updating and more time analyzing performance to make better decisions. In fact, the LiveForecast feature allows you to expand the details of your performance and identify the variance in performance within your statements. You’ll know your current cash position and the impact on projected year-end totals at a glance. It provides you with enough information to then explore the dashboard with questions and potential steps in mind.

Sales forecasting isn’t as difficult as you think

Just remember that sales forecasting doesn’t have to be hard. Anyone can do it and you, as an entrepreneur, are the most qualified to do it for your business. You know your customers, and you know your market, so you can forecast your sales.

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Learn how to create an accurate sales forecast with key features and step-by-step examples in our sales forecasting guide

Sales forecasting  is the process of estimating future revenue by predicting how much of a product or service will sell in the next week, month, quarter, or year. At its simplest, a sales forecast is a projected measure of how a market will respond to a company’s go-to-market efforts.

Whether you’re new to sales forecasting or a seasoned pro in need of a refresher, use this blog as your sales forecasting guide.

Why is sales forecasting important?

Forecasts are about the future. It’s hard to overstate how important it is for a company to produce an accurate sales forecast. Privately held companies gain confidence in their business when leaders can trust forecasts. For publicly traded companies, accurate forecasts confer credibility in the market.

Sales forecasting adds value across an organization. Finance relies on forecasts to develop budgets for capacity plans and hiring, and production uses sales forecasts to plan their cycles. Forecasts help sales operations with territory and quota planning, supply chain with material purchases and production capacity, and sales strategy with channel and partner strategies.

There are many types of sales forecasts depending on your go-to-market strategy such as:

• Opportunity forecasting
• Retail sales forecasting
• E-commerce sales forecasting
• Services forecasting
• Consumption-based forecasting
• Run-rate forecasting

These are only a few examples. Unfortunately, at many companies these methodologies stay disconnected, which can produce adverse business outcomes. If information from a sales forecast isn’t shared, for example, product marketing may create demand plans not aligned with sales quotas or sales attainment levels. This leaves a company with too much inventory, too little inventory, or inaccurate sales targets — all mistakes that hurt the bottom line. Committing to regular, quality sales forecasting can help avoid such expensive mistakes.

Close the gap between how you run your business and how you plan for it. Check out our guide for more reliable sales forecasting.

How to accurately forecast sales

To create an accurate sales forecast, follow these five steps:

Assess historical trends

Examine sales from the previous year. Break the numbers down by price, product, rep, sales period, and other relevant variables. Build those into a “sales run rate,” which is the amount of projected sales per sales period. This forms the basis of your sales forecast.

Incorporate changes

This is where the forecast gets interesting. After you have your basic sales run rate, you want to modify it according to several changes you see coming. For example:

• Pricing:  Are you changing the prices of any products? Are there competitors who may force you to modify your pricing schemes?
• Customers:  How many new customers do you anticipate landing this year? How many did you land the previous year? Have you hired new reps, gained quantifiable brand exposure, or increased the likelihood of gaining new customers?
• Promotions:  Will you be running any new promotions this year? What is the ROI on previous promotions, and how do you expect the new ones to compare?
• Channels:  Are you opening any new channels, locations, or territories?
• Product changes:  Are you introducing new products or changing your product suite? How long did it take for previous products to gain traction in the market? Do you expect new products to act similarly?

Anticipate market trends

Now is the time to project all the market events you’ve been tracking. Will you or your competitors be going public? Do you anticipate any acquisitions? Will there be legislation that changes how your product is received?

Monitor competitors

You’re likely doing this already, but take into account the products and campaigns of competitors, especially the major players in the space. Also check around to see if new competitors may be entering your market.

Include business plans

Add in all your business’s strategic plans. Are you in growth mode? What are hiring projections for the year? Are there any new markets you’re targeting or any new marketing campaigns? How might all this impact the forecast?

Once you’ve quantified these things, build them into your forecast. You want everything to be itemized, so you can understand the forecast in as granular a level as possible. Different stakeholders in the company will likely want to understand different aspects of the forecast, so it behooves you to be able to zoom in or out as far as needed.

Keys to success in sales forecasting

Improving the accuracy of your sales forecasts and the efficiency of the forecast methodology depends on multiple factors, including strong organizational coordination, automation, reliable data, and an analytics-based process. Ideally, sales forecasts should be:

• Collaborative.  Leaders should synthesize input from a variety of sales roles, business units, and regions. Frontline sales teams can be of great value here, providing a perspective on the market you hadn’t considered before. 
• Data-driven.  Predictive analytics can reduce the impact of subjectivity, which is often more backward-looking than forward-looking. Using common data definitions and baselines will foster alignment and save time. 
• Produced in real time.  Investing in the real-time capability to course-correct or reforecast allows sales leaders to quickly gain insight so they can make more informed decisions. This enables them to quickly and accurately update the forecast based on demand or market changes.
• Single-sourced with multiple views.  Generating the forecast as a single source of data gives you great visibility into rep, region, and company performance, and helps align different business functions across the organization. 
• Improved over time.  Use the insights provided by an improved sales forecasting process to create more refined future forecasts where accuracy improves over time against a set of accuracy goals.

Companies with more advanced forecasting processes and tools perform better than their peers because they more deeply understand their business drivers and can shape the outcome of a sales period before the period closes.

Top sales forecasting challenges

It can be difficult to produce a consistently accurate sales forecast. Here are some of the top sales forecasting challenges to avoid:

Accuracy and mistrust

When companies use spreadsheets for sales forecasting, they can run into issues with accuracy, which in turn creates a less trustworthy forecast.

Subjectivity

Although producing a quality sales forecast does rely to a small degree on the forecaster making good decisions about how to use the data, in general, companies rely more on judgment and less on credible predictive analytics than they should.

When a sales forecast isn’t generated in a way useful for stakeholders across the company, it becomes far less effective than it should be. A good forecast should produce relevant and understandable data for multiple teams.

Inefficiency

Sales forecasts can be especially difficult to produce when inefficiencies are built into the forecasting process. For example, when a forecast has multiple owners, or the forecast process is not clearly spelled out with a standard set of rules, there can be disputes about how the forecast will be produced.

Company forecasts across the enterprise

To forecast across the enterprise, a company needs different elements from each business function. Here’s what different functions can contribute to the sales forecast:

• Sales:   Provides the bottom-up view, using data from the CRM and PRM, building in judgment from sales leaders. Sales can manage this process through the sales operations function, using the right tools and reporting. 
• Finance:   Provides macroeconomic guidance and works with the product teams. Finance can help integrate the forecast with their financial planning software. 
• Marketing:   Provides macro-market guidance, especially in industries like telecom, retail, and CPG. Marketing can also provide finance teams with market data. 
• Supply Chain:   Provides input on supplies and production. 
• HR:  Assists with sales capacity planning and headcount forecasting based on attrition and staffing needs across every function that touches revenue such as contact centers, professional services, and retail stores.
• IT:  Assists sales forecasting by providing platforms, data, integration, and technical support.

Features to look for in sales forecasting software

Best-in-class sales forecasting software should be able to immediately improve the accuracy of your forecasts and make the forecasting process more efficient.

• Execute sales forecast simulations and outcomes.  Make changes to drivers and execute sales forecast simulations to project future impact on sales performance. 
• Analyze trends, changes, and seasonality of the sales forecast over time.  Develop time-based dashboards and key performance indicators (KPIs), such as velocity calculations, trending analytics, and seasonality fluctuations. 
• Model and analyze “what-if” scenarios . Create “what-if” scenarios and modeling to analyze the impact to the sales forecast if a specific business, economic, or competitive situation were to occur.
• Build sales forecasting calculations with familiar formulas . Apply an easy-to-use formula builder to configure sales forecast benchmarks using familiar formulas and syntax. 
• Snapshot Salesforce CRM accounts and opportunities to compare period-over-period . Compare week-over-week, month-over-month, and year-over-year changes to current periods. 
• Compare forecasts based on multiple modeling techniques.  Create sales forecasts based on qualitative, time series analysis and projection, and casual modeling techniques while determining the degree of uncertainty. 
• Forecast across geographies, products, and accounts.  Develop sales forecasts by geographic locations, product lines, and accounts, or change any of these dimensions to analyze the sales forecast at any granularity of these hierarchies.
• Analyze performance with data visualization.  With built-in dashboards, reporting, and analytics with data visualization you can analyze sales forecast and sales performance metrics to make better decisions with actionable insights.

Why use Anaplan for sales forecasting?

The Anaplan platform is uniquely configured to improve sales forecasting . By putting all relevant employees — salespeople, sales leaders, ops teams, finance, supply chain, marketing, and executives — on the same platform, companies can do the following:

• Increase accountability and ensure the sales team reports sales pipeline activity more accurately.  Identify sales deals at risk, eliminate “sandbaggers,” and reduce overcommits. 
• Standardize sales forecasting and pipeline management.  Provide a single line of sight across the entire organization so everyone has a view into revenue projections, sales projections, and operational insight. 
• Create accurate and trusted sales forecasts.  Enable functional leaders to make better and more informed decisions by providing accurate and trusted sales forecasting to all business units, including sales, finance, operations, HR, and marketing.
• Access data-driven sales benchmarking and trend analysis.  Enable sales leaders to use historical and current sales performance as a benchmark to predict future sales results. Make changes to functional plans and implement these changes across all other business models.

By adopting a  Connected Planning  approach, bringing together people, data, and processes from across the enterprise, companies can produce an accurate sales forecast that connects teams throughout the company. 

Additional sales forecasting resources

Looking for more sales forecasting guidance. Check out these insightful resources:

• White paper: The finance leader’s guide to reliable sales forecasting
• Case study: DocuSign transforms sales forecasting with the Anaplan platform
• Webinar: Increase forecast accuracy with sales planning optimization

Explore our demo series to learn more about Anaplan for sales forecasting

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How to Create a Sales Forecast Business Plan

Sales forecasting is a powerful way to improve decision-making and make smarter choices as a business. But the reality is, many organisations don’t get it right.

Accurate sales forecasts rely on astute insights driven from robust, holistic data. If your business has struggled to accurately predict future sales revenue in the past, our guide could help you get it right in the future.

Ready to get started? Use the links below to navigate or read on for our full guide to accurate sales forecasting.

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What is a Sales Forecast?

Why is sales forecasting important, what factors can affect sales forecasting, how to create a sales forecast, tools to help with sales forecasting.

A sales forecast is an estimate of what a company will sell in a week, month, quarter or year. It’s used to predict future revenue, accounting for the number of units an individual, team or company is likely to sell over a set period.

Sales forecasting offers many benefits when leveraged as part of a broader business strategy. At all levels and across all functions within a business, forecasting can facilitate shrewd decision-making, whether that’s setting goals and budgets, prospecting for new leads, deciding on the best time to hire new staff, or effective stock management to help maximise cashflow.

Accurate sales forecasting is a projection of where a company will stand in the future. And that’s important, not only for business continuity and growth, but for cultivating credibility, trust and advocacy with key stakeholders – be it partners, investors, clients or customers.

Let’s take a look at some of the reasons why sales forecasting matters:

• Bolsters decision-making – accurate predictions about future revenue can facilitate improved decision-making across all business functions, from hiring managers tasked with recruiting new talent, to procurement teams discerning when and how much stock to source.
• Adds value to all business functions – sales forecasting defines the value brought by different departments across the business. It highlights how different functions and channels contribute to revenue generation, helping businesses manage their resources.
• Accurate sales and buying for reduced costs – a sales forecast simplifies inventory management, with accurate stock predictions reducing costs and freeing up valuable resources, like warehouse space.
• Allocation of sales and marketing budget – Forecasting helps account for peaks and troughs in sales, so you can assign marketing budgets and determine which products and services need attention.
• Guarantees timely recruitment and outsourcing to drive business growth – understanding the areas of your business that drive the most revenue can make for seamless recruitment. Reinvesting revenue in personnel is a seismic driver of business growth, and sales forecasting can help you decide where to make hires and when. Not only that, but it can help companies decide whether they should look at outsourcing or whether to bring outsourced activities back in-house, e.g., the use of courier companies versus investing in your own delivery fleet.
• Provides valuable revenue expectations to outside stakeholders, like investors – sales forecasting quantifies your revenue predictions, making it easier and less risky to attain outside support from investors and stakeholders.
• Allows for simple company benchmarking against competitors – where your business ranks against competitors is important, and sales forecasting highlights how your trajectory compares to your closest rivals.
• Offers a powerful means of motivating sales personnel – a sales forecast is the best way of benchmarking the performance of salespeople within your business. It’s also a great motivator, particularly for staff incentivised by the promise of commission.

Many internal and external factors can impact the accuracy of your sales forecasts. You’ll need to account for all sorts of influences when predicting sales activity, including:

• Economic uncertainty and conditions
• Competitor changes
• Market trends and seasonality
• Product changes and future innovations
• Internal pricing or policy changes
• Available marketing spend and budgets
• Staff levels (more or fewer sales personnel will affect figures, for example)
• Future business plans e.g., expansion or diversification plans

This isn’t an exhaustive list of factors that can affect sales forecasting, but it does provide a steer for the types of influences that you’ll need to factor into your predictions.

Sales forecasting isn’t rocket science, but it does require a methodical approach to guarantee accuracy. Here, we’ll demonstrate how to make accurate sales predictions in five easy-to-follow steps.

Step 1: Consider Sales History

The first step to accurate sales forecasting is to look not to the future, but the past. By examining sales data over the past 12 months, you’ll glean insights that you can use as the basis of your future sales predictions, noting things like volumes, trends, and seasonality changes that caused peaks and troughs in demand.

When exploring historic sales data, be mindful of your ‘sales run rate’ – the number of projected sales for a particular period. For example, sales data may reveal a large disparity between quarterly sales figures, affecting the overall run rate; you’ll need to factor this into your forecasts for the future.

Step 2: Anticipate Changes and External Influences

While historic sales data provides a clear view of when and where sales typically happen over a year, it doesn’t guarantee the same sales figures for the future. Depending on a plethora of external and internal influences, next year’s sales could be up or down – so how do you accurately predict future revenue?

Start by taking each influence in turn and assess how such a force would have impacted last year’s sales figures. For example, do you plan to increase prices over the next 12 months? If so, how might this affect sales in relation to previous figures?

Here are some of the factors you should consider when predicting future sales performance:

• Pricing changes – will your prices change? How might this affect custom?
• Customer changes and trends – are consumer trends turning in your favour, or going the other way? Market awareness is crucial for accurate sales forecasting.
• Promotions – do you have any sales or promotions lined up to increase demand? How might these affect sales targets?
• Product alterations – are you improving your products and services?
• Sales channels – do you plan to expand into additional sales channels in the near future or acquire new branches?

Step 3: Lean on the Right Systems for Accurate Data Capture and Analysis

Sales forecasting becomes much simpler and more accurate when the right tools are used to capture and analyse data. Integrated ERP software, for example, collates sales data from every channel of your business – including trade counter or EPOS sales, telesales, sales rep orders, ecommerce etc. – so you can make data-backed predictions with confidence.

A great example of the types of tools you can use for accurate sales forecasting is predictive stock management. Automating the forecasting process, it presents the user with a forecast prediction aligned to their stock preferences, e.g., how much buffer stock you want to carry, as well as stock lead times.

Presented with this data, the procurement team can then use their insight and knowledge to tweak this forecast where necessary. It’s a great example of the marriage of automation to reduce manual work, whilst still allowing people to have input on the end result.

Elsewhere, utilising customised dashboards or control desks, instead of static reports, to differentiate pipeline value by rep, branch, prospect customer etc., can give businesses dynamic information to adjust their forecasts and be agile around expectations and demand.

What’s more, clever use of the CRM in conjunction with opportunity probability management enables you to allocate an estimated percentage chance that you think you will win a sales deal. By giving each sales opportunity/quotation a probability, you can produce a sales weighting forecast that will give you a fairly accurate idea of what your sales will be.

This will give you a better chance of forecasting the revenue and stock position of months and years ahead.

Step 4: Align Sales Predictions with Your Business Strategy

Many businesses have a five-year plan, a strategy that looks to drive business growth and profitability. But remember, such a plan will impact sales in one way or another, so it’s important that you align your sales forecasts with your short and long-term business objectives.

Say, for example, your business plan sets out a period of growth in the form of new hires or the creation of a whole new department. How will this affect sales? And to what extent should it be factored into your revenue forecasts?

Aligning your business strategy and sales forecasts is a crucial step. It helps prioritise business activity, ensuring that the right decisions are made to drive the business forward.

Step 5: Set Out Your Sales Forecasts in the Right Way

Charts, graphs and annotations can all be used to set out your sales forecasts for the year ahead. These should be included in your business plan, providing an accessible means of sharing forecasts with key stakeholders, personnel and investors.

As well as charting forecasts in number terms, you should set out your sales strategy, including how you arrived at the quoted figures. This not only quantifies your reasoning, but serves as a reminder of the market position at the time of writing – something that could prove useful if you need to refer back to where the figures came from at a later date.

Sales forecasting can be a laborious process, particularly if you want to guarantee accuracy. There are, however, a range of tools and software which can be leveraged to automate some elements of the process, removing some of the legwork associated with sales forecasting.

At Intact, we’re well aware of the importance of sales forecasting – and the arduous nature of it. That’s why we offer specialist expertise and solutions to help automate and simplify the process, from ERP software and predictive stock management to data analytics tools designed to improve data-driven decision-making.

We hope this guide helps you take stock of sales forecasting. If you’d like to optimise this area of your business, the Intact team can help. For more information or to speak to a member of our specialist team, visit the homepage . Alternatively, for more help and advice on ways to manage your inventory, take a look at our free guide to effective stock management .

Fiona McGuinness

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The Complete Guide to Building a Sales Forecast

Set your company up for predictable revenue growth with the right forecasting processes and tools.

Paul Bookstaber

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Building a sales forecast is both an art and a science. Accurate sales forecasts keep your leaders happy and your business healthy. In this guide, we’ll explain everything you need to know about sales forecasting — so you can get a clear picture of your company’s projected sales and keep everyone’s expectations on track.

We’ve organised this reference guide by the top questions sales teams have about the sales forecasting process, based on our internal conversations and more than 20 years of experience developing  sales solutions .

Hit your forecast with real-time pipeline insights

What could you do with relevant insights at your fingertips? Sell smarter, take action, and hit your forecasts. That’s how Sales Analytics works.

What you’ll learn:

What is a sales forecast, why is sales forecasting important, who is responsible for sales forecasts, who uses sales forecasts, what are the objectives of sales forecasting, how do i design a sales forecasting plan.

• What happens to sales forecasting in unpredictable times?

How accurate are sales forecasts?

What tools do you use to forecast sales revenue and how do crm systems forecast revenue, how is forecasting better with crm vs. other methods.

If you’re a sales leader who’s already well-versed in the who and what of sales forecasts, skip to the sections on  designing a sales forecasting plan  and  tools to improve sales forecasts  for more relevant knowledge. Sales forecasting can become especially tough when we face an unexpected turn of events, so head to the section on  what happens to sales forecasts in unpredictable times  for more on that.

A sales forecast is an expression of expected sales revenue. A sales forecast estimates how much your company plans to sell within a certain time period (like a quarter or year). The best sales forecasts do this with a high degree of accuracy, and they’re only as accurate as the data that fuels them.

A strong data culture is at the heart of an accurate sales forecast. This means all sales data is available to everyone at the company, and all teams do their part in keeping it updated, leaning on AI and automation to help. More on that in the section on  tools used to forecast sales revenue .

All sales forecasts answer two key questions:

• How much:  Each sales opportunity has its own projected amount it’ll bring into the business. Whether that’s €500 or €5 million, sales teams have to come up with one number representing that new business. To create the number, they take everything they know about the prospect into account.
• When:  Sales forecasts pinpoint a month, quarter, or year when the sales team expects the revenue to hit.

Coming up with those two sales projections is no easy feat. So sales teams factor in the important ingredients of who, what, where, why, and how to make their forecasts:

• Who:  Sales teams are responsible for sales forecasting.
• What:  Forecasts should be based on the exact solutions you plan to sell. In turn, that should be based on problems your prospects have voiced, which  your company can uniquely solve .
• Where:  Where is the buying decision made, and where will the actual products be used? Sales teams see better accuracy when they get closer (at least for a visit) to the centre of the action.
• Why:  Why is the prospect or existing customer considering new services from your company in the first place? Is there a compelling event making them consider it now? Without a forcing function and a clear why, the deal may stall inevitably.
• How:  How does this prospect tend to make purchasing decisions? If you’re not accounting for how they do it now and how they’ve done it in the past in your forecast, it may be fuzzy math.

Forecasting lets leaders set realistic sales targets, create attainable and motivating quotas for sales reps, and gauge expected revenue, aiding in budgeting and spending decisions for the whole company. If forecasts are inaccurate, businesses may overspend (putting themselves in a risky spot), and set unreachable quotas (which is demoralising for reps).

To understand why sales forecasting is so important to business health, think about two example scenarios: one with a car manufacturer and another with an e-commerce shop.

In the case of a car manufacturer, cars take a long time to build. The manufacturer has a complex supply chain to ensure every car part is available exactly when they need to build cars, so the number of cars available to purchase will meet demand.

When you buy something online, whether that’s from a large marketplace or a small boutique, you get a delivery estimate. If your delivery comes a day or a week after it’s promised, that’ll affect your satisfaction with the company — and decrease your willingness to want to do business with them again.

Sales forecasting is similar in both cases. Sales forecasts help the entire business plan resources to ship products, pay for marketing, hire employees, and beyond. Accurate sales forecasting yields a well-oiled machine that meets customer demand, both today and in the future. And internally on sales teams, sales revenue that delivers in its estimated time period keeps leaders and collaborators happy, just like a shipment that arrives on time.

If forecasts are off, the company faces challenges that affect everything from pricing to product delivery to the end user. Meanwhile, if forecasts are on point and  sales quotas  are met, the company can make better investments, perhaps hiring 20 new developers instead of 10, or building a much-needed new sales office in a prime new territory.

Each organisation has its own sales forecast owners. These are some of the teams who are usually responsible:

• Product leaders:  They put a stake in the ground for what products will be available to sell when.
• Sales leaders:  They promise the numbers that their teams will deliver. Depending on the seniority of the leader, how they forecast varies. For example, first-line managers forecast collections of opportunities, where third-line managers consider a wide set of numbers and traditional close rates to come up with an overall forecast.
• Sales reps:  They report their own numbers to their managers.

No matter how a company calculates its sales forecasts, the process should be transparent. And at the end of the day, sales leadership has to be responsible to call a number. Whether met, exceeded, or missed, the forecast responsibility falls on them.

Sales forecasts touch virtually all departments in a business. For example, the finance department uses sales forecasts to decide how to make annual and quarterly investments. Product leaders use them to plan demand for new products. And the HR department uses forecasts to align recruiting needs to where the business is going.

At some level, sales forecasting affects everyone in the company.

The main objective of sales forecasting is to paint an accurate picture of expected sales. Leaders are looking to these numbers when they’re building out their operational roadmap and budget. If they’re confident in the projected growth, they can get to planning.

They could decide to staff more customer service touchpoints, fund more external marketing events, or invest more in the community. They could get ahead of purchasing new equipment or upgrades that get more expensive the longer they wait. Without a sales forecast, leaders are making critical spending decisions in the dark. If sales don’t go as planned, it could lead to cutting workforce, reducing support, or halting product development.

Sales forecasting is a muscle, not an item to check off your to-do list. While you should absolutely design a framework for your sales forecasting plan each year, you should also change up your strategies from time to time so new muscles develop.

Craft a sales forecasting plan with your team by focusing on three primary activities:

• Calculating number and time period:  Your plan should explain how you’ll calculate the estimated monetary amount and what the timeframes will be. See the section on  how a CRM can help with forecasting  later in this guide for more on the sales forecasting tools you can use to do this.
• Reviewing and revising:  You should also plan to review the forecast at key milestones and revise it if necessary. Most sales leaders track progress against their forecast daily! But you’ll also want to schedule designated check-ins throughout the quarter. Make sure you’re reviewing the latest numbers with  sales automation tools  that sync your CRM’s forecast data.
• Breaking the patterns:  Even the best sales organisations need to shake up their  sales process  once in a while. Breaking your patterns can help you find new ways of crafting even more accurate forecasts. Try skip-level forecasting, ask different questions, have executive sponsorship reviews, and take different angles on the data.

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What happens to sales forecasts in unpredictable times?

Unpredictable events have an enormous impact on your sales forecast. Extreme weather or economic crises all dramatically change your forecast. What you thought you knew about expected revenue growth can be suddenly flipped on its head.

As soon as an extraordinary event hits, sales and finance leaders at your company will quickly want to know:

• How’s our  sales pipeline  looking today?
• What are the best- and worst-case scenarios?
• How has the forecast changed from a week or a month ago?

Your forecast implicates resourcing, headcount, and more (see the section on  sales forecasting objectives ). So although things may be changing quickly, you don’t want to give up on your forecast.

Rather than attempt to recalculate your forecast based on dubious estimates or conjecture, your best bet is to  rely on a CRM solution  to get an accurate view of deal status and pipeline in real time.

During a crisis, reps need to feed their CRM with data as events unfold so leaders have clear visibility into the rapidly evolving pipe. That data enables those leaders to support their reps with corporate-level decisions about where they should be focusing their time — and craft the new forecasts. Your forecast is only as good as the data coming into it from your sales teams.

In uncertain times, quick access to sales data and the ability to pivot  sales territory  and resource deployment accordingly can make the difference between business continuity and dissolution. There’s no silver bullet to forecast perfectly in a crisis or unforeseen scenario. But vigilantly updating what’s in the pipeline and analysing sales data more frequently than usual will help you see trends and retool your forecast accordingly.

Empathy and care are always fundamental, but this is especially true in these situations. Empathising with your customers’ challenges and caring for your own sales reps should come before anything else. Build trust with internal and external partners. That trust will help you grow again in the future. Learn more about  maintaining customer relationships as a sales leader .

Only 45% of sales leaders are confident in their organisation’s sales forecasts,  according to Gartner . While it’s natural for sales reps to bring in some intuition to their sales forecasts, that’s where room for error can creep in.

This brings us back to embracing a  strong data culture . To get a more accurate forecast, everyone in the sales cycle — from reps to managers to execs — should have a stake in making sure those numbers reflect the latest reality. Reps can keep all prospect info up to date, managers can track pipeline progress, and leaders can review how all teams are tracking toward those forecast numbers, with AI playing backup to spot any inaccuracies or chances to adjust along the way.

A  CRM  gives sales leaders a real-time view into their entire team’s forecast. The tool forecasts revenue by giving you:

• An accurate view of your entire business.  Comprehensive forecasts in a CRM come with a complete view of your pipeline.
• Tracking of your top performers.  See which reps are on track to beat their targets with up-to-the-minute leaderboards.
• Forecasting for complex sales teams.  Overlay splits allow you to credit the right amounts to sales overlays, by revenue, contract value, and more.

A forecast is based on the gross roll-up of a set of opportunities. You can think of a forecast as a rollup of currency or quantity against a set of dimensions: owner, time, forecast categories, product family, and territory. You can collaborate on forecasts with all the necessary people to see how opportunities are stacking up. Drill down into opportunities by sales leader, operating unit, manager, and individuals.

We also love a CRM with  reports and dashboards . These highlight where the business challenges are, in plain and simple terms. It could be that four of five selling teams are at the right growth rate, and we just need to focus on another one. It could be that a certain product is challenged. The data opens up new doors to grow sales and see what could be working more effectively.

Another thing that’s great about a CRM is the guidance from AI. An  AI for sales  tool offers a neutral perspective on what’s actually happening in sales. For example, AI might note that an opportunity has been pushed out three quarters in a row — a finding that would’ve taken an individual reviewing the data longer to discover. Think of AI as your personal data scientist , taking your forecasting and entire sales operations to a new level.

Predictive AI tools take a look at historical sales data to give you a glimpse of what you might expect in the future. The AI will analyse factors like win rate or number of customer meetings. It takes some of the guesswork out of sales forecasting and helps you get to more accurate numbers. Try to analyse sales data for at least 12 months. Otherwise, there may not be enough data to get accurate sales predictions.

Sales forecasting is significantly more accurate when using a CRM instead of a spreadsheet. When a company is just starting out, sales teams usually rely on spreadsheets or back-of-the-napkin ways to calculate their sales forecasts. This may work for a while, but eventually, you’ll find this doesn’t scale.

The reality is, selling is more complex than ever. It involves everything from how demand generation campaigns are performing to how your phone calls to prospects are landing. The more you want to sell, the more you’ll want to  rely on a CRM .

See how Salesforce manages forecasts with confidence

The secret to an accurate forecast? Reliable, well-maintained pipelines. See how we manage both efficiently (with the help of the right technology), and use our best practices in your business.

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Paul Bookstaber is a writer at Salesforce. He has a decade of experience in content marketing in B2B tech. Before that, he published a magazine and ran a tabloid blog. Today, he splits his time between Florida and the Mountain West, and loves to hike, ski, and watch Bravo. He is in a polyamorous ... Read More relationship with Luke and Roger, who are cats.

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How to calculate a sales forecast for a new business

Table of Contents

Definition of a sales forecast

The uses of a sales forecast, how to calculate sales forecast for a new business, calculate a sales forecast using the accounts of your competition , calculate a sales forecast using a target market, manage your finances with countingup.

When you’re running a business, you should always keep one eye on the future. If you don’t have a rough idea of what the next week, month, or year might bring, you’ll be at a disadvantage when making business decisions. This means that calculating a sales forecast is essential, especially when you’re just starting a business or beginning to write a business plan . 

Sales forecasting can be tough if you don’t have much business experience, but we’re here to help. This article will cover a range of different topics related to sales forecasting, including:

Creating a sales forecast is the first step in managing your company’s cash flow . Your cash flow is the movement of money in and out of your business. By forecasting your sales, you’ll be able to predict your gro s s profit and net profit , which means you can start anticipating what money you’ll have to spend on running your business for the next month. 

Put simply, a sales forecast is a prediction of how much you’re going to sell in the coming month. This forecast doesn’t need to be a guess — it’s possible to calculate a fairly accurate forecast with some thorough research. The focus of your research will differ depending on which sales forecast method you pick.

Firstly, your sales forecast is important because it helps you set sales goals . Measuring the success of your business is a vital part of deciding its future, and setting sales goals is one of the simplest ways to measure success. 

If you have an accurate sales forecast, you’ll be able to set realistic sales goals. You’ll want your goals to be realistic, as this will give the clearest picture of how well your company is doing and if significant changes are needed.

Similarly, sales forecasts can also help create an accurate budget for your business. As a sales forecast is essential for predicting the money your business will make, it also plays an important part in working out how much money you’ll have to spend. 

Finally, sales forecasts help with finding investors for your business . If you’re looking for financial support to start your business, any investor you approach will likely be interested in the amount of money you expect the business to make. If you’ve created a sales forecast, you’ll be able to provide this information.

Large, well-established businesses rely on the sales figures of previous months to calculate their sales forecasts for the future. While having previous sales figures helps create more accurate forecasts, it’s not essential. There are a couple of methods new businesses can use to calculate their sales forecasts, even if they don’t have a sales history to look back at.

It’s always a good idea to research the competition when you’re setting up a new business. This is also true when calculating a sales forecast, but it depends on the type of businesses that make up your competition.

If any of your competitors are registered with the government as limited companies , they will have to make their accounts publicly available. These accounts will contain things like their monthly expenses, total profits, and (most importantly) the money they’ve made from sales. 

Using this last figure, you can work out how much your competitors are making from sales each month, and get a reasonable estimate of your own sales. You can find these accounts by searching for your competitor’s business on Companies House .

Please note that this method isn’t effective if your competitors are sole traders , as this means they won’t need to publish their accounts publicly. In this instance, you should use the forecasting method below. 

This method is known as ‘bottom-up’ forecasting, as you start at the bottom — your potential market of customers — and then work up to a forecast — the percentage of those customers that make a purchase.

The first step of this method is identifying your target market . This is the section of the population that you think will be interested in your product. With a little market research — things like sending out surveys, or posting polls on social media — you can work out how many people are in your target market. 

Once you have the size of your target market, you need to make realistic estimates of how many people will make a purchase. For example, if 1000 people in the local area are potential customers, you should expect 10% to visit your store or website, and 1% to actually make a purchase.

This method of calculating a sales forecast is good because it’s very adaptable. If you get many more or far fewer sales than you originally calculated, then you can adjust your figures accordingly and record the new forecast. 

It’s also a good idea to categorise this sort of sales forecast. Instead of estimating your overall sales, estimate the sales of each type of product you sell. That way, you can use the forecast to work out how many of each product to make or order each month. 

Creating a sales forecast is a great start, but it’s only the first part of managing your sales revenue. Once you start making sales and money starts coming in, you’ll need to track that cash so you can work out where to spend it. If you think you might have trouble with this, try using a financial software tool like Countingup.

Countingup is the business current account with built-in accounting software that allows you to manage all your financial data in one place. With features like automatic expense categorisation, invoicing on the go, receipt capture tools, tax estimates, and cash flow insights, you can confidently keep on top of your business finances wherever you are. 

You can also share your bookkeeping with your accountant instantly without worrying about duplication errors, data lags or inaccuracies. Seamless, simple, and straightforward!  Find out more here .

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Aug. 30, 2024

Building your company’s first forecast model and why it’s important [w/ template]

Dan Kang, VP of finance

Whether you’re a founder or an early-stage finance lead, you’ll probably reach a point where you’ll want — or need — to build a forecast model. Maybe it’s because you’re fundraising and investors are asking for projections. After funding, your investors and board will likely ask what your intentions are for their invested cash. You might have partners or vendors who want to understand your business’s viability through projections. Or, perhaps, you just feel like you’re running blind without some way to see how today’s decisions impact the future state of your business, especially in relation to cash burn. A forecast model can help you align on clear business goals and understand why those goals matter.

What is a forecast model?

A forecast model is a structured approach to understanding your company’s possible future financial performance based on various assumptions and business drivers. It’s more than just a spreadsheet; it’s a dynamic tool that pieces together every aspect of your business — how you acquire and retain customers, generate revenue, allocate resources, and manage cash flow. It helps you understand the full scope of your company, ensuring that decisions are made with the broader business context in mind.

A good forecast model should start with breaking down how you win new customers, retain them, drive revenue from them, support them, build new products, resources needed to run the business, all the way through to what your cash flows and runway look like. Additionally for the finance lead, you’ll also want to understand what all of this means for your financial statements.

Why is a forecast model important?

When you’re busy building your product, figuring out product-market fit, and dealing with hiring decisions, a forecast model — especially at an early stage — can seem like a waste of time. After all, things change quickly, and it can feel counterproductive to invest too much time into a bunch of forward-looking projections. But while it might not feel like a top priority, a forecast model can be an extremely clarifying tool when done right. Here are a few of the ways it can benefit your business:

It enables better cash management

One of the primary benefits of a forecast model is its ability to help you manage your finances effectively, particularly in terms of cash flow and runway. A forecast model allows you to project your income and expenses over time, giving you a clear picture of your cash flow. This projection helps you identify potential cash shortfalls well in advance, enabling you to take proactive measures to address them.

By regularly updating your forecast with actual data, you can also keep track of how your runway is evolving and make informed decisions about when to raise additional funding or cut costs to extend your operational timeline. This is especially crucial if your startup is still in its earlier stages, since this is the time when cash burn rates can fluctuate significantly as you scale your operations.

It’s a useful resource for stakeholders and vendors

A well-prepared forecast model isn't just for internal use — it's also a great way to communicate with investors, board members, and other stakeholders. It shows that you’ve got a clear, data-driven plan for growth, which can boost investor confidence and keep your board updated on how you're tracking against your goals. Plus, it helps you prove your business's viability to partners and vendors, building trust and strong relationships. By giving everyone a transparent look at your company's future, a forecast model helps align everyone with your strategic objectives and supports your startup's success.

It helps with prioritization

Oftentimes in startups, you’ll be making a series of decisions at the micro-level without understanding what the downstream or tangential impacts are. You may decide to invest more in marketing because early tests are working well, hire AEs because your pipeline is building up, hire more engineers to build out your product roadmap sooner, or purchase software that’ll make your operations more scalable. All of these decisions may be the right call when made in isolation but it’s easy to miss how they compound when you have limited cash and resources to deploy. This can leave you short-changed for things that may have been higher priority investment areas, so a forecast model can help you think about your investments in the larger context of your whole business, ensuring smarter decisions for long-term success.

It helps you establish important baselines

A well-built forecast model helps you think about the key drivers of your business and the metrics you need to move in order to achieve the outcomes you want. It gives you a much clearer sense for what “good” looks like, and what goals you should be targeting. For example, if you’re operating in a novel software space, having a sense for what a good retention rate looks like might be tough without readily available benchmarks. But looking at how customer churn rates impact your revenue growth can provide clarity of how good they need to be for you to drive growth of certain levels.

What should you consider when building your financial model?

To make sure that you’re building out your financial model with all of the right things in mind, it’s important to consider a few key pointers:

Make sure you understand the drivers of your business

A good forecast model is grounded in a deep understanding of what drives your business. This means knowing how you acquire new customers, retain them, and generate revenue. It’s not just about crunching numbers — it’s about understanding the underlying realities those numbers represent.

Remember that the right level of granularity matters

Striking the right balance in the level of detail is crucial. Too much granularity, especially in the early stages, can be a waste of time as your business may change rapidly. However, as you grow, you’ll need to segment and cohort your forecasts to capture important trends that could impact your scalability.

Consider strategic vs. technical accuracy

While it’s important for your forecast to be technically accurate, it’s even more crucial that it helps you answer key strategic questions. A model that’s technically correct but fails to provide strategic insights is of little use.

Do some scenario planning

Forecasting is an exercise of contemplating the multiverse of possible paths forward and results (think Dr. Strange in Infinity Wars ). You want to contemplate the range of possible outcomes versus thinking of forecasting as having a single path for the future or trying to predict a single outcome. By considering a range of scenarios, you’ll be better prepared to navigate uncertainties and make informed decisions.

Here are a two examples that illustrate how having different scenarios can play different roles, depending on the situation:

• For fundraising, you may want to show a forecast that illustrates how you think about attacking your market and winning. The goal isn’t to simply show very large numbers, but to also show how you think about getting there from where you are today, regardless if you’re starting at pre-revenue or at $100M looking to hit your next milestone.
• For operating, you’ll want a more conservative set of numbers so that if your top-line revenue estimates don’t pan out exactly as planned, you’re not over-committed on headcount or expenses. You should regularly assess your confidence level for certain outcomes and make sure you’re appropriately investing in the right areas that’ll be most impactful for your business and increase that confidence level.

Mistakes to avoid when building your financial model

Just as there are important things to keep in mind that can guide your financial modeling, there are also a few mistakes you should be careful to watch out for. Here are a few of the don’ts to go along with the do’s:

Treating it like a spreadsheet exercise

A forecast model is more than just a collection of numbers in a spreadsheet. Each figure should reflect a real-life decision or operational factor. For example, the line item for R&D isn’t just about how much you’re spending on research and development; it’s about understanding whether you’re thoughtfully scaling up the engineering organization over time and allocating resources across product and other areas appropriately.

Predicting the future instead of setting goals

Your forecast should be a tool for setting and tracking goals, not a crystal ball for predicting the future. For example, rather than trying to guess your revenue in six months, use your forecast to set customer acquisition and retention targets that will help you achieve your desired revenue outcome.

Relying too much on “modeling math”

While mathematical models can be useful, they should not replace common sense. When forecasting expenses, for example, don’t just rely on percentage-based models, particularly at the early stage; think about what drives those expenses and how they align with your strategic priorities. This involves understanding who are the vendors used, why you use them, and how those costs scale. Assumptions like rolling averages and such certainly have a place in the model but be thoughtful about what the real-life implication of these types of assumptions may be.

Overcomplicating early models

In the early stages, avoid getting bogged down in unnecessary complexity. Focus on the big picture and build out more detailed models as your business grows.

Missing the strategic lens

A technically correct model that doesn’t help you answer key strategic questions is not impactful. Always ensure that your forecast is aligned with your broader business strategy.

[TEMPLATE] Building your model and tips to consider

Every business is different, which inherently means that every forecast model will look different. There are a few high-level categories within the model that will be relevant regardless of industry (e.g., customers, revenue, expenses), but the way those are broken out — as well as what additional information goes into the forecast — will vary company by company.

To help get you going, we’ve built a starter forecast model that you can leverage as a template. Our forecast model template is not intended to be taken as recommendations for how to operate. The model is populated with dummy data so you founders and finance leads can see how the full model works mechanically. It is by no means what an expected path looks like or how driver inputs should be assumed. 1 Access our template here .

While a decent portion of the model is designed to be business-agnostic, it’s designed to serve as an example of a fully functioning forecast model for a fictional software company. The idea is to use this as a foundation or set of building blocks for what your own company’s model will look like — you just have to make it your own.

Below, we outline a few of the core forecast model components that you’ll see in our template — we break down what they are, as well as how to update each element in the context of our provided template. The reference numbers in each section heading correspond with column B in the provided forecast model template for easy navigation. Keep in mind that in an effort to balance simplicity with usefulness, we’ve kept this list to the basics. There are plenty of other forecast components we haven't included, but you can always update to suit your needs. If you're a founder, the level of complexity in this model will probably feel stretchy already. If you're a finance lead, I'm sure you see lots of missing areas to include or expand upon.

Lastly before we jump into the forecast model, a note: forecast models don’t exist in a vacuum and should bridge both actual results and projections. This means that many of your model assumptions will depend on having solid actual numbers across both growth, customer, and financial data. Building the forecast model can also help you understand where data gaps exist today for your business. Work with your team and accountant if you have one to collaborate on the right data infrastructure to support this effort.

Here are the key sections and inputs you’ll see in this model. First, save a copy of the template, make sure you’re mindful of the access settings (or download as an Excel spreadsheet), and you should be good to edit and make your own.

Key metrics summary (Ref 3)

It’s always helpful to have a quick snapshot summary of your forecast up top so you can easily monitor how assumption changes drive different outcomes. When sharing your forecast with your investors, board, or internally, think about the right level of detail to surface. What’s shown in the template is meant to be illustrative; something that you can build upon for the most important metrics in your business.

New customers (Ref 4)

Think about how you’re acquiring new customers and what channels make sense for your target market. Channel mix and performance will look different if you’re selling to consumers vs. small businesses vs. enterprises. It will also look different based on the nature of your products. Keep assessing what’s working vs. not and test new channels and methods that make sense for your target customers. Customer acquisition costs typically get more expensive with scale and as competition increases so think through how you expect channels to scale and don’t depend on early data to always hold true. Also think about what you consider an “acquired customer.” If you have a lot of customer signups that don’t translate into active users, you probably want to measure “acquired customer” differently than a user account creation.

Using the template: The template shows a very simple way you can break down your new customer acquisition channels and what drives them:

• Performance marketing (Ref 5) (e.g. social media ads) where there’s strong ability to track direct results (versus brand marketing where it’s much more difficult to track the return on spend) is typically thought of in terms of spend, customer acquisition cost (CAC), and new customers (before you head into much more complex territory here). The marketing spend buckets can be populated down in the Expenses section (Ref 10). Then input a CAC to calculate the forecasted number of new customers from performance marketing. CAC may be volatile in the early periods and will also depend on your product, target market, seasonality, advertising creatives/copy, and competition. If available, benchmarks can be helpful here. Play around with different levels of CAC to better understand what level of spend efficiency is needed to meet your growth goals.
• Sales (Ref 6) may be a bigger growth channel if your product is selling to larger businesses. The sales funnel can be built out in much greater detail but ultimately is driven by productivity of your sales organization and how many customers they win. The Sales AE Headcount will auto-populate based on the employees/future hires who are tagged to the Sales team in the “People” tab of this template. From there, you’ll want to input what you think the productivity (deals won per Sales person) could be over time, taking into account what sales cycles may look like for your market and ramp periods.
• Organic (Ref 7) is notoriously difficult to forecast and attribution can become misleading even with the best tools and complicated frameworks. Some businesses see a relatively stable base of organic activity while others see very seasonal or volatile trends. Use your judgment here for what makes sense but err on the conservative side — just because you plan to spend a lot on brand marketing, that doesn’t mean you’ll see an immediate return. The impact of those dollars may take a long time to be realized, if at all. (This isn’t to diminish the value of brand marketing — the function is hugely important for a number of reasons, even if the ROI isn’t always super clear cut from a numbers perspective.) The template is set up as a hardcode but could be changed to assume some correlation to total marketing spend or as a percentage of total new customers as possible options. Make sure you do backtest whether the assumption methodology holds true though as you gain more data with subsequent periods of actual data.

You may have other channels not reflected here (e.g. partnerships, affiliates) but can probably use similar simple logic to start.

Customer retention (Ref 8)

Acquiring new customers doesn’t matter if you lose them quickly and don’t build a longer-lasting relationship with them. Take time to understand how your customers stick with your company over time and test various definitions of retention that provide an accurate measure of customer relationship. If you’re a monthly subscription business, this may just be whether the customer paid or not in a given period. If your business model is volume-driven, maybe the definition should be based on a certain activity (repeat purchases, for example). A popular, simple way you’ll see to model out retention and churn is to apply a simple monthly churn metric for the entire customer base, but this doesn’t factor in any real understanding of individual customer cohorts, their behaviors, and how they trend over time. Depending on the size of each cohort, improving/declining quality, and survivorship bias for that product, a monthly churn rate can drastically misrepresent what’s happening at a deeper level. Retention rates can also be very clarifying on whether you truly have product-market fit, whether you’re acquiring the right type of customer through your acquisition channels, and other product strategy questions.

Using the template: The template provides a simple way to use an assumed cohort retention curve (Ref 9) to model out how the cohort behavior translates to overall customer growth.

• The cohorts here are established based on the month customers were acquired. A different cohort definition may make sense for your business (e.g. first time taking a specific action). Before jumping into this forecast, do the data work to determine what the right measure of retention is for your business.
• As you input actual data (blue font in Ref 10) over time, the retention rates will auto-calculate down below (Reg 11).
• For non-actual periods for a given cohort, based on how many months it’s been since the cohort start, the formulas will apply the month-over-month change rate for a given cohort month to the prior month’s retention rate. This survival rate is used rather than pulling in the retention rate directly from the assumed curve (Ref 9) to account for variability in each cohort’s behavior to avoid unrealistic changes in their curves. For future cohorts, the retention rates will be exactly the same as the assumed curve.

Revenue (Ref 12)

Think about what type of customer activity is the direct driver of revenue and make sure you’re capturing trends there appropriately. In a B2B software business, it might be as simple as the customer agreeing to pay a certain price over a certain period of time. In other businesses, it may be tied to specific customer actions or activity. Really spend time understanding customer behavior and trends you see there. Talk to your customers to better understand why they behave the way they do.

Using the template: The template treats this very simply based on simple averages, which may work fine in the earlier stages of a business if average revenue per user (ARPU) is fixed or relatively stable.

• For subscription revenue (Ref 13), input the assumed average monthly price across your subscriber base. If your company is further along, you’ll likely want to further cohort and segment this portion of your model to account for things like price increases over time, shifts in customer profiles, etc.
• For activity-driven revenue (Ref 14), input the assumed average activity volume and the average take rate if applicable for your product. Similarly, this will likely require further cohorting and segmenting with scale.

Expenses (Ref 15)

A traditional income statement (known also as a P&L statement , for “profit and losses”) breaks down expenses in terms of: cost of goods sold (COGS), research and development (R&D), general and administrative expenses (G&A), and sales and marketing (S&M). Those groupings are helpful and should be part of how you understand your business, but it may be preferable to break out expenses in a way that you can very tangibly understand what exactly you’re spending money on (e.g. salaries, professional services, software, hosting, etc.). The simple way to think about forecasting expenses is to think about your own personal finances and how you manage a budget. Table out what you plan to spend across different expense categories, who exactly you’re paying, how contracts with existing vendors work, and what money you’re setting aside for future spending needs.

Oftentimes folks will model these out using “modeling math,” like using “% of revenue” methods, for example. This makes sense when you’re analyzing companies and don’t have the actual control to influence the decisions. But in this situation, you do control the decisions, so set budgets that reflect your strategic priorities and hold your teams accountable to them. A lot changes in a startup even over the course of a quarter, but by having a clear number to start, you’ll understand how changes over time keep you on (or take you off) course, particularly in regards to cash burn. This can help you make the right trade-off decisions.

An important thing to keep in mind when it comes to expenses is that, for most startups, people-related expenses will be your largest area of spend — and this will need to factor into your forecast as well. Getting this wrong can lead to difficult spirals of layoffs, negative press, low employee morale, etc. From the early days, develop the muscle of prioritizing hires over the next few months and regularly assessing with your team where the needs are and why. Formalize these into hiring plans with market-informed assumptions on compensation so you’re not surprised by how quickly people related expenses build up.

Using the template: The template breaks out in the Expenses section a simple way to build out your budgets for each of the expense categories. If you have unique expenses not captured here, spend time thinking about which of your expenses are inputs vs. outputs. Inputs are the ones you have control over spending (e.g. marketing spend) whereas outputs are the ones that are the result of another item (e.g. payroll taxes driven by headcount and salaries paid).

• For software companies, hosting services may be the main cost here. For an ecommerce company, inventory will likely be the main cost. For services, the cost of the team delivering the service.
• Note that in a traditional GAAP income statement, personnel expenses related to customer support is typically included in COGS. This income statement is meant more for internal operating purposes vs. external reporting where GAAP treatment of financials can be more important depending on the audience.
• Understanding COGS is important to understand your business’s gross margins, and the first step in assessing scalability over time. High margins can mean more cash flow to help fund additional hiring or growth investments, while low margins mean you’ll need to focus on driving high volume to build a scalable business. (This isn’t necessarily a bad thing — it may be the nature of the industry you play in.)
• Marketing spend (Ref 17) can be inputted based on the investment decisions you’ve made. Remember, you typically have control over what you spend so build a marketing plan that thoughtfully considers the best way to allocate spend here. The performance marketing budget will drive new customer acquisition as mentioned above. Brand Marketing and Events & Conferences do not impact new customers and growth as modeled here — you may find that for your business there is a more defensible connection, and these should in fact be treated as drivers.
• The “People” tab will auto-populate the Salaries portion of the forecast model based on the Salary and Start Date information. The Start Month will auto-populate based on the Start Date and capture those roles in the Salaries portion. The headcount number in the Key Metrics Summary will also update based on the inputs here.
• If an employee is terminated, keep them in the list and enter the Termination Date. This will auto-populate the Termination Month and subtract the terminated role's salary from the Salaries portion of the model if upcoming.
• If your company has a sales motion, headcount noted as "Sales" in the Team column of the “People” tab will auto-populate the Sales AE Headcount row. (Note that the tag in the Team column will need to match this exactly, or you’ll need to update the related formula in the model to reflect the corresponding tag you wish to use for sales headcount in the “People” tab.)
• Remember, the roles in the template are made up roles populated for the sake of exhibiting how the forecast model works. This is not intended to be a recommendation on compensation levels, scaling, or sequencing of hires.
• Payroll tax, benefits, travel & meals expenses are outputs based on hiring and salaries. Input their assumptions to populate these expenses.
• Non-personnel expenses (Ref 19) can be a mix of inputs and outputs. Rent & office expenses are usually fixed based on a lease schedule, whereas professional services have a level of discretion to them like marketing spend. Software expenses can grow large if not monitored and, depending on your vendors, can scale directly with employees or indirectly with customers or other operations (for example, if you need to pay more for additional seats with particular tools).

Financial statements (Ref 20, 25, 28)

If you’re a founder this might feel intimidating, but it doesn’t have to be. Understand how the various items roll up into your P&L and how your balance sheet items and cash balance change over time. As an early-stage company, you may still be performing cash accounting and not GAAP accounting (aka accrual-based accounting ) and hence won’t have many balance sheet items. When you bring on an outsourced accountant, part-time CFO, or your first finance hire , make the investment to make the switch as a better way to understand the truths of your business. If you’re a founder, there may be balance sheet concepts that are new (e.g. net working capital) that may be valuable to manage your business and cash runway that may not be appreciated when only looking at your P&L. Tracking how your cash balance trends month over month in the forecasted period is really the best way to understand your cash runway. (Simply dividing your cash balance by last month’s change in cash balance or EBITDA doesn’t reflect how you expect your business to change over time.)

Using the template: The template provides a forecast for all three key financial statements (income statement, balance sheet, and cash flow statement). The financial statements are mostly automated and really a result of the work you did for the above sections but there are items that’ll need some ancillary assumptions to work. That said, you should still take time to really understand your company’s financial statement. They’ll ultimately be the measuring stick for how your business is doing beyond the early phases, cutting through the hype of vanity metrics.

• If you’re working with an accountant to properly capitalize fixed assets, you’ll likely have Depreciation & Amortization (Ref 21) to expense them over time. If your business is heavily capital-intensive (e.g. need to invest a lot of cash upfront for buildout of servers or buildings, for example), getting this right will be important to understand your cashflow dynamics. If you’re not working with an accountant for GAAP accounting or you’re not running a capital-intensive business, you mayyou’ll be fine ignoring this in the early days.
• Stock-based compensation is a real thing, even if non-cash and associated with giving employees equity awards. In the early days, you can ignore this, but it’s included in the template here for more mature companies that have started to record this.
• Interest expense and income are related to what you pay on any debt and yield on invested cash, respectively. Input the associated annual rates in the assumption rows (Ref 23) and these items will calculate based on the outstanding debt and treasury balances.
• Taxes, if profitable, can be calculated in the template using a simple effective tax rate assumption. Consult with a tax advisor to better understand your tax situation though as this may be too simplistic for your business. There’s a lot of complexity here around how expenses are treated for tax deduction purposes, which tax credits you may be eligible for, and the possible usage of prior net operating losses (NOLs) to offset tax liabilities.
• Working capital items (Accounts Receivable, Prepaid Expenses, Credit Cards, Accounts Payable, Accrued Expenses shown in the template) (Ref 26) can be easily forecasted based on ratios that tie those balances to the underlying activity that causes them.
• Fixed Assets (Ref 26) reflect long term assets that the company has purchased. Rather than treating these expenditures as expenses through the P&L, GAAP capitalizes them based on a capitalization policy (puts them on the balance sheet vs. income statement) and recognizes their expenses over their useful life. As noted above on Depreciation & Amortization, your business may be too early to spend meaningful time here. If you’re a finance lead, you’ll want to build a fixed asset schedule to properly forecast for these.
• Venture debt (may be other forms of debt too) (Ref 27) is populated based on the debt drawdowns (not available credit which isn’t reflected in a balance sheet) captured in the Cash Flow Statement. Equity (Ref 27) is populated based on equity proceeds captured also in the Cash Flow Statement.
• Make sure your balance sheet actually balances (Total Assets = Total Liabilities + Total Equity). If not, something is broken in the forecast model.
• If you’re not at the point of having a more detailed balance sheet per GAAP, don’t worry — you can still use this template easily. Just zero out the working capital items (Ref 26) and the Assumptions associated with them other than your credit card balance which you can track and record.
• Cash from Operating Activities: removes the impact of working capital changes (Ref 26) and non-cash expenses (Ref 21 and 22) to measure how much cash came from your business’s core operations. This section is fully auto-populated.
• Cash from Investing Activities: the term “investing” is from the company’s perspective where capital is used for long term assets (capital expenditures or capex) and ties into the Fixed Assets and Depreciation & Amortization lines discussed above (Ref 21).
• Cash from Financing Activities: this is where you reflect cash coming into the business from debt proceeds (convertible note, venture debt, working capital line, SMB loan, etc.) and equity proceeds from investors.
• Based on the above, your change in cash and ending cash balance is calculated for the forecast periods.

As you digest this and begin putting it into practice, remember to make the template forecast model your own. Again, there are lots of derivative metrics that you can add which have been excluded in the spirit of keeping this as simple as possible. Spreadsheets are always flexible so play around with things and remember to always ground the forecast in your business and how you think about the strategic priorities for the company.

For the non-finance folks who are adventuring into the world of financial forecasts and may not be at home in spreadsheets, don’t be intimidated. Just remind yourself that spreadsheets are much easier than writing engineering code or people management which you’re probably doing as a non-finance founder.

And most importantly, remember to use the forecast model as a living, breathing management tool for your company. Update it after each month with actuals, understand how you’re performing to the forecast and why, and use it to uplevel your own command of your business.

Market Analysis Business Plan

At first, you may think that a market analysis business plan is complex and formal. However, if you are already aware of the basics of its development and execution, then you can easily understand how easy it is to create this document.

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Market analysis can be done in an efficient manner as long as you have all the firsthand details that you need, the equipment and tools that can help you within the entire market analysis, and the knowledge about the proper integration of analysis processes and results to your business plan.

Do not feel dissuaded in creating a market analysis business plan just because you think it is a critical document that you cannot create on your own or from scratch. If you are already planning to execute the steps that will help you draft a marketing analysis for your business, there are actually guidelines that will allow you to be more prepared in developing the document.

Do not worry on how to find these guides and other help that you need as we got you covered. Make sure to download the examples of market analysis business plans available in this post for references.

Market Analysis and Business Development Strategy Planning Example

Business Plan Template with Marketing Analysis Example

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What Makes a Market Analysis Business Plan an Important Part of Your General Business Plan?

It is already evident that customers play a vital role when it comes to the successes of the business. Hence, it is of utmost importance for you to continuously provide what they need and meet their expectations as well. However, this will not be possible if you do not know anything about them. This is where the benefits of planning, developing, and implementing a marketing analysis business plan come in. You may also see marketing plan examples .

A comparative market analysis , or any other kinds of market analysis business plan for this matter, is an essential process and document that will help you achieve efficiency and sustainability within the implementation of your marketing efforts, operational action plans, and business development strategies .

Listed below are a few of the reasons why it is recommended for you to include a market analysis business plan in your general business plan are as follows:

1. A market analysis business plan can help provide a thorough explanation of the market segmentation that you have considered as well as the focus that you allotted both for your current market and potential sales leads. With this, you can be more aware of the threats and opportunities that you can face in the future through a valuable market forecast. You may also like marketing strategy plan examples .

2. A market analysis business plan presents the needs, demands, and expectations of your target market. This helps a lot in terms of providing information that will guide you in the development of action plans that can meet the requirements for business sustainability and market relevance.

3. A market analysis business plan can showcase a more in-depth description of your audience. With the help of this document, you can specifically point out your target market, their locations, the things that are relevant and beneficial to their daily activities, and the factors that can affect their purchasing or buying decisions. You might be interested in define marketing plan and its purpose ?

4. A market analysis business plan can show not only the reaction of the market to your offers but also to those coming from the competitors. With this, you can analyze the difference of your products, services, and offers from that of your competition. This can help you a lot when there is a need to plot new market strategies, which can effectively get the attention and trust of your desired audience. You may also see business marketing plan examples .

Business Plan: Market Research and Analysis Example

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Supply Market Analyis and Business Plan Example

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How to Develop an Impressive Market Analysis Business Plan

Are you aware of what a market analysis – demand and supply is? Simply put, it presents the concept that there should be balance with regards the demands of the market and the supply that you provide them with. It is essential for you to know the market that you are catering to so you can successfully use your resources and present your offers. This can result to the improvement of your marketplace standing and operational efficiency.

Developing a market analysis business plan can be very helpful as this document can make it easier and faster for you to organize the call-to-actions that you need to execute and the tactics that you need to incorporate in your efforts and movements to achieve maximum results. You may also see strategic marketing plan examples .

Some of the guidelines that you can follow if you want to develop an impressive market analysis business plan include the following:

1. Know the market segments that you have a hold of and define the kinds or types of customers that are present in each segment. It is essential for you to know the groupings of your target customers so that you can point out the specific key factors that can affect their decisions when buying an item or acquiring services. You always have to be reminded that different market segments have different qualities and characteristics. You may also like apartment marketing plan examples .

Hence, there is a need for your market analysis business plan to provide particular strategies and tactics.

2. Be aware of the factors that can affect the implementation of your market analysis business plan. This includes the nature of the activities of your market segment, the description of the forces that can affect your competitive advantage, the communication and distribution channels that you will use, and the required simple action plans that you need to execute in a timely manner to achieve your goals and objectives.

3. Know the ways on how you can effectively get information of your market. Aside from surveys and questionnaires , there are still different tools and equipment that you can use to have a hand on the details that you need to analyze to come up with the strategies and general action plans that fit your business operations and marketing efforts.

Marketing Business Plan Example

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Market Analysis to Support Business Planning Example

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Business Plan: Market Research Report for Advanced Product Example

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Elements to Consider When Developing a Market Analysis Business Plan

Not all elements of a comparative market analysis are the same with that of a market analysis business plan. There are also differences when you compare the functions of each elements in both documents. Before you create a market analysis business plan, you have to make sure that you will make yourself knowledgeable of the things that you will work on so that you can achieve your desired final document.

Some of the most important elements that you need to consider if you have already decided to start the processes of developing a market analysis business plan are as follows:

1. Geographical and demographic conditions.

How many of your desired audience are within a particular market segment? Is the location of the marketplace convenient to your business and your operations? You have to know the number of people that you can reach through your marketing efforts as well as the areas in which specific activities are needed to be done. You may also see restaurant marketing plan examples .

In this manner, your market analysis business plan can present whether it is really reasonable to tap the particular market specified in the document.

2. Sales leads and potential customers.

Do not just focus on the current customers who provide you with their purchasing power. You always have to be innovative when creating a market analysis business plan as not all customers will forever be there to execute repeat business. Know how to analyze market segments that can be your next target. Doing this can give you a higher possibility of bigger sales and wider market reach. You may also like event marketing plan examples .

3. Market movement, purchasing power and buying habits.

The financial and sales aspect of the business should be prioritized when making a market analysis business plan. Analyzing a market whose activities does not align to the business offers will only waste your time, efforts, and resources. This is the reason why you first need to have an initial findings about your target or desired audience. With this, you can assess how they match your business operations and needs. You may also check out digital marketing plan examples .

4. Direct competition and their activities.

A market analysis business plan does not only rely on the evaluation and assessment of the consumers, customers, and/or clients. You also have to look into the activities of your direct competitors.

Doing this can help you become more aware on how their processes affect or impact their operations and brand. Hence, you can veer away from activities that can produce negative results and you can also give more focus on the strategies that can provide you with the most benefits. You might be interested in personal marketing plan examples .

Market Research and Analysis for a Business Plan Example

Transmedia Marketing Plan and Analysis for a Business Example

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Market Analysis and Business Plan Example

In Need of Tips for Creating a Market Analysis Business Plan?

Having the best products and/or services is not enough. If you cannot carry out the exact marketing message that you would like to disseminate in the marketplace, then you cannot expect the best returns from your audience. You may also see annual marketing plan examples .

More so, not knowing how you can connect to your audience or how you can incorporate the usage and benefits of your offers to their needs and activities will most likely lessen the potential successes of your business.

Developing a market analysis business plan is very important as it helps you focus on the environment rather than just internal functions and abilities. With this, you can thoroughly align and use your resources based on the expected results and reactions of your market. All the useful tips that can help you create an outstanding market analysis business plan are listed below. You may also like marketing strategy business plan examples .

1. You should have enough knowledge on how to do the market analysis for a business plan . Aside from the discussions and examples in this post, it will be best if you will still research and find resources that will help you understand the full concept of market analysis. The more you know about the development of this document, the easier it will be for you to put together necessary and relevant information.

2. Make sure that you will come up with a concise and well-defined industry description. You have to know the size and growth forecast of the marketplace where your business belongs. In this manner, you can point out the life cycle of market processes as well as the changes in trends that can affect the decision-making processes of your target audience. You may also check out importance of business plan .

3. Focus not only on your desired market size and the characteristics of your target market segment. You also have to look into the competition and other external factors that you cannot control. This can help you be prepared when facing threats and risks from elements that you do not have a hold of. You might be interested in simple marketing plan examples .

4. Present the market analysis business plan accordingly. Use clauses that can group all the discussion areas or parts that are intended to be together. Using proper headings and subheadings is also a great way to make the document more organized and presentable. If you need help in formatting the document, do not hesitate to use market analysis business plan template examples .

Do not skip the evaluation, review, and assessment of your market when making a business plan document. Knowing the quality standards that you incorporate in your operations and offers is one thing. Knowing how the market will react to your marketing message is another. For you to ensure that your practices and activities are relevant, you have to perform market analysis. Try developing your own market analysis business plan now.

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