5 Revenue-Driving Sales Forecast Categories to Focus On
How to Clearly Define Forecast Categories That Reliably Indicate Revenue
Granted, sales environments are complex, and sales forecasting is hard to do accurately. But there are things that can be done to lay a solid foundation.
For one, if you are a sales leader, you can identify what forecast categories will yield reliable revenue indicators, giving your organization confidence that any specific opportunity will close.
Once you do, you should make sure that your sales team knows them by heart, enabling them to focus on the solution and not just the problem.
What Is a Forecast Category?
A sales forecast category is a way to classify a sales opportunity based on how confident the sales rep is in closing the deal in a given time frame.
It helps sales reps organize the sales pipeline and estimate how much revenue the company can expect within a given time period.
What is the Difference Between Sales Forecast Category and Sales Stages?
Note that the forecast category classification is different from sales stages. Forecast categories represent how likely it is for a particular deal to close in the current time.
You can use this metric to estimate future revenue.
On the other hand, the sales stage is the phase that sales opportunities go through before a transaction is finalized.
It describes which part of the sales process an opportunity is at a given time, which ranges from first contact all the way to closing the deal.
Each deal can have a forecast category and an opportunity stage, and the former can be changed depending on how the probability of closing evolves (without changing the sales stage).
Why You Should Focus on the Right Forecast Categories
Focusing on the right revenue forecasting models helps you get more accurate projections. More accurate projections allow you to identify potential problems while there is still time for you to make the necessary adjustments.
In effect, you can prevent these issues from happening in the first place.
Say you’re 30% below your sales quota for the month or quarter. If you’re still in the early stages of that time frame, you have enough time to figure out what’s broken and do something about it.
On top of this, using the right forecast categories can also be a powerful tool to motivate your sales team. You can update your reps every week so they can see if they are still on track or lagging behind.
Also, it is normal for a sales rep to go all out once a deal has been placed in the Commit category, so you should report these deals using the appropriate forecast category.
On the flip side, there are forecast categories that you need to steer clear of. These are metrics that:
- Do not add value to your business.
- Distract you from your business goals.
- Waste precious resources.
To make your life easier, we will discuss the best forecast categories that you should focus on to drive growth for your organization.
5 Sales Forecast Categories You Should Pay Attention To
Below are five forecast categories that can help you create reliable sales projections more consistently.
These measures portray buyer intent and interest with high accuracy and are difficult for a sales rep to manipulate, which makes it a very good basis for key business decisions.
This type of sales opportunity means that the sales rep is very confident of a successful outcome. It means that there is a good chance that the opportunity will be closed within the relevant time frame and at the target value.
In this scenario, not only is there an existing plan to achieve the target, but it is credible and well-documented.
Barring any unpredictable or dramatic events that can suddenly change the situation, the deal will push through.
Another characteristic of deals under Commit is that you can expect 80% to 90% of them to get closed on time. The remainder will still get closed after a short delay and shouldn’t result in a loss of revenue.
A good way to determine if a deal should be classified under this category is to ask the following questions:
- Is there a defined timeline to start the purchasing process?
- Is there an existing plan that involves you and your potential customer?
- Is the potential client aware of the purchasing process?
- Does the prospect company stand to benefit from making a purchase?
- Do you have a primary contact with the power to make business decisions in the prospect company?
In summary, a Commit is a prospect that has:
- A compelling reason to close the deal within the quarter.
- The budget to make it happen
- The authority to pull the trigger.
2. Best Case
Best Case opportunities are fully qualified — complete with a contract and closing plan. Success is by no means guaranteed yet, and there is still work to be done for the opportunity to advance.
Still, there is every reason for the organization to expect revenue from them, especially if most of the closure plans are implemented properly. Overall, about a third to half of Best Case opportunities get closed.
While Commit is applicable to individual opportunities, Best Case is used for overall revenue forecasts. It can be an aggregated forecast of one rep or the whole organization.
Among all the overall revenue forecast categories, it is the most optimistic (besides Commit) in terms of revenue generation.
Probable is an individual forecast category useful in making separate assessments. It describes an opportunity where the sales rep is confident that the deal will be closed within the current time frame.
In addition, there are viable and well-documented plans designed to maximize the chances of success.
The outcome of the deal does not depend on extraordinary circumstances or events.
As such, you can expect most of the Probable opportunities to get closed within the current quarter and for a value that is no less than predicted.
Possible is a category where the sales opportunity has an outside chance of getting closed at the current quarter and expected value. Given that its probability of success is slim, it is sometimes referred to as Upside or Longshot.
Deals in the Possible category are usually still in the conversation stage. The lead may be qualified, but the rep is missing key information like budget, desired timeline, or perhaps access to the key decision maker.
Sales opportunities in this category often do not move forward, but some do. They can be a good backup plan in case a Commit or Probable deal falls through for some reason.
The Pipeline describes sales opportunities that are still in the initial stages of the purchasing process. Typically, sales reps are still working actively to advance them in the sales cycle.
There is progress as the deals in this category are moving along, but there is a limited possibility that they will be closed within the time period.
Generally, only one out of every four of them will be converted into a sale within the quarter and sales reps need to develop them further.
While the Commit, Best Case, Probable, and Possible categories are applicable to opportunities in the later stages of the sales cycle that can be closed in the current or at most the next quarter, the Pipeline category is not appropriate for opportunities in the current quarter.
Also, it is normal to experience changes in the accuracy of the assessments as the quarter plays out. This fact holds true for both the individual opportunity level and overall forecast categories.
As you study your historical projections quarter-by-quarter against actual sales, you’ll be better equipped to create forecasts that more accurately reflect reality.
Driving Growth Through Accurate Forecasting
If done right, sales forecasting can help you plan and drive growth for your business. However, a poorly executed forecast process can send you on a wild goose chase, pushing you to miss out on key opportunities and even draining your resources.
Optimize your chances of achieving your business goals by focusing on the right forecast categories, defining your sales terminologies, and making sure that all stakeholders are on the same page from Day 1.
Accent Technologies is the first and only SaaS company to bring together Sales AI and Content Management in a true Revenue Enablement Platform. We provide both sales and marketing with better visibility into the performance of their teams.
This drives revenue through intelligent recommendations for complex sales scenarios and provides the data for rich analytics that power better coaching, forecasting, and long-term customer support. Learn more about our solutions or request a live demo to see it in action.
By Accent Technologies
19th July 2022
Sales Forecasting the Accent Way
Accent’s Sales AI will ensure you gather and visualize the data you need to effectively score your buyer engagement, your seller performance, and your pipeline’s movement forward.
With this, you can better manage your team and protect your forecast from inaccuracies.
Learn how to elevate your forecasts from a “feeling” to a well-informed, data-supported projection. Contact us today or request a demo to speak with one of our Solutions Consultants.