How much easier would life be if we all had a crystal ball that let us peer into the future? We could use this knowledge to avoid making costly mistakes and take advantage of opportunities we might have otherwise missed. It would be like repeatedly mashing a giant easy button for everything.
Unfortunately, crystal balls with the power to peer into the future don’t seem to exist, but we can divine the future of our business by using sales forecasting.
One of the best ways to project how the future of your business might unfold is through pipeline forecasting. Not sure what that is, or what it entails?
When you have a small number of potential customers in your pipeline, managing how they move through the process is relatively simple – but as your sales pipeline grows it’s vital to stay on top of things to prevent potential clogs.
Managing the pipeline isn’t just knowing who’s on the journey and where they’re located in the process, though – it’s also understanding what’s keeping them stuck at a specific point of the process, how to move them to the next stage more effectively, and gain insight into how to improve the experience for your prospects and sales team alike.
Sales pipeline management is vital not only in terms of generating revenue, but because a well-managed pipeline provides a wealth of information.
Utilizing pipeline management software can help you understand how many customers are in your pipeline, who you should focus on because they’re the most likely to buy, provide insights to get customers who are “stuck” moving again, and help you choose the right content to turn prospects into repeat customers.
That’s some pretty valuable information, right?
SEE ALSO: Sales Pipeline Management
What is Sales Forecasting?
Next, let’s take a moment to discuss sales forecasting.
A sales forecast is essentially a prediction of how many sales you’ll generate in a given timeframe. It uses data to determine what these numbers should be, but like all things that rely on looking into the future, it’s not set in stone.
Sales forecasts can be thrown into disarray by both unforeseen internal and external events. The Covid-19 outbreak is a great example of an unforeseen external factor. Companies have been caught off guard by the changes the pandemic has mandated and it seems unlikely that even the best sales forecasts ever saw the outbreak coming.
And yet, while forecasts are still predictions, it’s often possible to draw accurate conclusions based on data. There’s always a margin of error in any forecast, but with software solutions, it’s possible to crunch huge amounts of data and distill them down to projections that are significantly more accurate than simply looking at last year’s numbers and adding five percent.
SEE ALSO: What is Sales Forecasting
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Pipeline Management vs. Forecasting: What’s the Difference and Why Does it Matter?
Now that we know what pipeline management and forecasting are, let’s talk about the differences and how these things can work together to help you create an accurate snapshot of your company’s future.
First, let’s focus on the differences.
In the simplest terms, forecasting predicts performance by looking at data and making projections and drawing conclusions.
Forecasting has no impact on actual sales though – it’s just a prediction or educated guess as to what might happen based on a wide range of variables.
Pipeline management, on the other hand, can dramatically impact sales numbers by examining the overall health of your pipeline, quantifying the value of the leads in your pipeline, and showing you opportunities and how to successfully seize them.
As you can see here, one of these things is more valuable than the other.
Forecasting is great for determining goals and quotas and ensuring you have the right resources on hand to capitalize on opportunities.
But pipeline management has a far greater impact on your actual business. If you’re spending more time forecasting than managing your sales pipeline, you’re missing opportunities in the here and now – not some mythical future.
This isn’t to say that you shouldn’t forecast. Everyone needs a roadmap for the journey ahead – but too often sales managers get caught up in what might be instead of focusing on what is. Pipeline management can help you now.
Beyond that, pipeline management can help your actual forecasts too. As mentioned earlier, the sheer volume of data you can pull from your pipeline can give you incredibly accurate forecasts for what lies in the future. In a perfect world, you’re using these two tools in tandem to make the most informed decisions possible.
Getting Started with Pipeline Forecasting
At this point, you may be ready to dive in and start using your pipeline to forecast your upcoming quarter or year. If you are, fantastic – here are the basic steps you’ll need to complete to get everything up and running.
Before we begin, it’s worth noting that you can do a lot of the forecasting manually – but if you want deeper insights and less work, a sales enablement or CRM platform utilizing machine learning and complex Artificial Intelligence can give you super detailed forecasts and free up your time for actually implementing the strategies required to hit your goals.
Track Your Pipeline
The first step on the road to successful sales pipeline forecasting involves tracking your pipeline. This treasure trove of useful data is worthless if you’re not actually tracking the information it’s giving you.
Make sure your team is on the same page about what’s being tracked, what your typical sales cycle is, and how this ties to your buyer’s journey. Just make sure it’s not overly complicated – keeping it simple is important so that everyone buys in.
One key thing to be aware of here is deal slippage – where a deal closes later than forecast. There’s a tendency to want to be optimistic about deal close dates when forecasting, but it’s better to err on the conservative side. Be realistic and push those potential close dates further out so they don’t impact your forecast negatively if they fail to close as soon as you’d hoped.
Decide Between Sales Booking and Accounting Revenue
We could write an entire article on this topic, because there’s a lot to weigh and discuss, but for the purposes of this article, that’s not necessary.
What is necessary is deciding between these two options when it comes to tracking.
Sales bookings are opportunities in your pipeline that you hope to close by some projected date. Accounting revenue is the actual income from these deals.
Most CRMs look at bookings – but if you want accounting revenue, you’ll often need an additional tool to track that information.
Again, this is all way deeper than we need to dive in this article – just knowing the difference is the key here. There’s no right or wrong choice, and sometimes your audience will dictate which method you choose.
Just understand that there are two different ways to forecast revenue.
SEE ALSO: Sales Forecasting Examples
Figure out Stage Probability Ratings
This is basically a fancy way of saying figure out how likely deals are to fail based on where they are in your pipeline.
Doing this can be challenging, only because you need data to make this work. If you’ve been tracking your pipeline over time, you can simply examine old data and draw your conclusions from that.
If you haven’t been tracking your pipeline, you may need to do so for a few months and then use that data to get started.
The goal here is to understand how likely a deal is to either succeed or fail at any given stage in the pipeline. Knowing this can allow you to examine the leads in your pipeline and make projections based off of those statistics.
You can save yourself a lot of work by utilizing sales AI software with robust analytics tools here. These programs can give you detailed breakdowns of your stats at each stage of the pipeline and save you a lot of time.
Run Your First Forecast
Guess what? You’re ready to run your first forecast.
By using either the sales booking or accounting revenue, you then just apply the weighted probability ratings to each deal in the pipeline. The rest is math magic.
You’ll come out of this exercise with a full breakdown of what deals should close, which ones most likely won’t, and a forecast for the future.
Now that your system is in place, you can keep forecasting regularly to make sure you’re on track and avoid any unpleasant surprises.
How often should you do a new forecast? Once a month is a solid baseline, but if you can do twice a month or even once a week you’re likely to spot trends sooner and be better prepared to adjust.
Odds are you’ll find that forecasting regularly is pretty simple once you have a system in place and software to streamline the process.
Sales forecasting is never going to be an exact science, but that doesn’t mean it can’t provide value and insight for your business.
There are a multitude of ways to make projections, but the sales pipeline forecast is one of the most accurate. The amount of information your pipeline provides can give you incredibly detailed insights into not only where your sales are currently, but can create a snapshot of the future as well.
Setting up and maintaining a sales pipeline just makes sense. If you’re not utilizing a pipeline and keeping it up to date regularly, you’re not getting a full picture when it comes to your sales team’s performance. With pipeline forecasting, you’ll be prepared for what lies ahead….good or bad.
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