6 Sales Forecasting Methods To Predict Your Sales For 2023

2023 is just around the corner, so what better time to start your sales forecasts for next year if not now?

Well, let’s start off by addressing the elephant in the room – What is sales forecasting?

This is how one company defined sales forecasting – “Sales forecasting is the method of predicting how well your business will do—in terms of revenue or potential deals closed—based on your sales team’s performance.”

Like how weather forecasts help you prepare for the next couple of days, sales forecasting can help you prepare for the next couple of years or months. Forecasting can help improve resource allocation, recruitment, and reduce inventory and sales costs. Forecasting can also give you a rough idea of how to proceed with your business.

There are three main techniques of forecasting, they are –

1)  Causal Model –

Causal models are forecasting models that depend on past inputs, i.e., historical data. If you are in the market for more than half a decade, then you can consider using this technique. The causal model should be used if you require complex sales-forecasting models. The approach can also integrate time series analysis data.

2)  Time Series Analysis

The Time-Series analysis derives the present performance rate and rate change from prior data on the product’s performance.

Forecasting is done based on the acceleration or slowdown of present rates. A time-series approach is a collection of raw data points that are organised chronologically.

3)  Qualitative Analysis

When there is a scarcity of data, qualitative sales forecasting methods are applied. The strategies use human judgement and grading schemes to convert qualitative data into quantitative estimations. The method’s goal is to bring together all the judgments and information about the components being assessed in a logical and systematic manner.

Now that you know the techniques used, here are some sales forecasting methods to take into 2023 –

1. Sales Cycle Length Forecasting

This type of forecasting is based on how long our sales reps take to close out deals. Again, this forecasting method uses historical data to identify the average sales cycle length and ranks the leads according to how long it may take to obtain revenue.

A great way to keep accurate track of your lead’s history and manage them is by using CRM software. They help you collect accurate information, giving you better quality historical data for more accurate forecasts.

Forecasting utilizing this approach is objective since it does not rely on the emotions of your sales representatives. It is also helpful since it can be used on several sales cycle sources, making it an ideal match for businesses that want to track when clients join their sales funnel.

2. Sales Funnel or Sales Pipeline Forecasting

Sales funnel or sales pipeline forecasting identifies expected rates of closures for each stage in your sales funnel and shows how profitable it might be. This approach estimates how much potential income is presently in the pipeline by examining each lead.

As this method requires a lot of historical data, it might be better suited for more established and seasoned companies.

3. Historical Data Forecasting

Observe the past to predict the future. Historical data forecasting compares the present-day lead count to previous years and predicts sales based on the rise/fall in sales. It does so by extrapolating a graph with slopes average of those in the previous years. This is a completely bottom-up approach to forecasting sales.

One disadvantage of historical forecasting is that it doesn’t do well with a market that has dynamic changes, like a new product release of your competitors decreasing your business’s sales.

4. Opportunity forecasting

This forecasting method estimates how likely a lead is to be converted in each stage of the process, based on demographic and behavioural data. To make this approach work, you must have well-defined criteria for creating opportunities. You must also create an opportunity scoring system or employ a tool to automate the process, which may be expensive and time-consuming.

5. Delphi Method

The Delphi method uses feedback via questionnaires and surveys to forecast future sales. From this method, you can find out how often and how long an event might occur. Using a panel of experts, a decision for the forecast is made.

This qualitative method may not be the best as varied opinions might lead to confusion in the forecast even though the experts understand your product and the market trend.

6. Multivariable analysis

A multivariable approach combines various forecasting methodologies to provide a company-specific strategy. The multivariable analysis goes a step further from other forecasting methods by forecasting salesperson performance based on previously reported parameters.

This complex analytics model considers transaction size, individual performance, sales cycle duration, win rates, and nearly every parameter. It is a fantastic choice if you want the most complex and precise forecasting approach.

However, you should note that you need to be able to track and store multiple variables to get accurate results, which can be quite tough for businesses.

Now that you know about these 6 forecasting methods, here is a list, summarising each one. You can use it to improve your business in 2023.