How to draft your company’s sales forecast in 10 steps.

by Alberto Aleo

November is one of those months when businesses and professionals start getting ready for the upcoming year. Among the most important tasks is undoubtedly the definition of sales objectives, better known as the sales forecast. As we clarified in a previous article on sales forecasting, there are various ways of approaching the task. In this new article, however, we want to suggest one method, comprising 10 vital steps, which will allow you to be more accurate and credible in setting your objectives in this period characterized by market turbulence and uncertainty. So, join us in this list of tips…

From Sales Forecast to Objective.

Here’s a typical scene. A sales director asks their salesperson how much they expect to sell next year, and the salesperson says, “How would I know? I don’t have a crystal ball!” First of all, let’s immediately bust the myth that the sales forecast is a prediction that requires mystical foresight.

The sales forecast must be based on careful analysis of the market, the clients, and our ability to make use of potential opportunities.

Photo Adobe

Once that is done, depending on what has emerged, we need to choose the target we want to set for the upcoming year.

This is the true nature of the sales forecasting: to set a goal not just divining the future!

So, let’s have a look at how we can merge the various phases and draft it.

1. Get hold of a file containing the revenue data for every client you manage, preferably over the period of two consecutive years. Next to each figure, you can include the yearly changes and each client’s contribution to the total revenue, in percentage.
2. Now, remove all clients who, for various reasons, can be considered inactive. This could be due to a low level of revenue, delayed payments, or other reasons that make them less relevant.
3. Perform an 80/20 analysis to understand which clients mainly contribute to your current turnover and identify the main upcoming sales challenges. If you are too focused on a few clients, you’ll need to dedicate more of your time to minor or new clients. If you are very fragmented, you should instead focus on the top tier of your client portfolio.
4. Starting with your most important clients, analyze the changes from the previous year and think of the reasons behind them. Try to understand if they are negative or positive trends that are likely to reoccur, which means they should be included in the sales forecast, or if they are merely exceptional events.
5. For each client, analyze their growth potential through the profiling principles explained in one of our articles to determine if the client is likely to grow.
6. After calculating their potential, compare it to the generated revenue. This will result in four types of clients: those with low potential and low revenue, those with high potential and high revenue, those with high potential but low revenue, and those who generate significant revenue but have no further potential.
7. Based on the results from points 3 and 6, convert your findings into a figure which will be your objective for that client. This will encourage you to grow smaller clients with good potential, especially if you focus on a smaller number of clients. If you’re fragmented, you’ll instead end up focusing on clients who already generate significant revenue but still have untapped growth potential.
8. Time to crunch the numbers and combine all the defined objectives. What’s the total? Is it enough to cover the company’s required revenue? If not, you’ll need to add new names to your portfolio by selecting potential clients you can approach using the tips we’ve provided here.
   Photo UnSplash
9. On the other hand, if the total figure is enough, move on to action planning. You will need to determine which strategies to adopt, especially where you foresee higher growth margins. Will you need to pay a visit to certain clients more often or use cross-selling and up-selling strategies? Whatever you decide, don’t forget to define this aspect as well.
10. Finally, distribute sub-revenue targets over the course of the year: by month, quarter, or semester. These will define the checkpoints that will show whether you are actually achieving your objectives. It’s better to make corrections during the year rather than finding out at the end that you won’t achieve your goal.

Note: We’ve designed these steps for a salesperson who manages their own clients, but it shouldn’t be hard to adapt them if you manage sales areas, dealerships, or other distribution channels.

From Sales Forecast to Sales Planning.

At this point, it’s clear that the word “sales forecast” carries many meanings which also represent the many steps involved in defining it. It might be better to just replace the term with “sales planning“, which better represents the true purpose of this strategic tool, i.e., not only to define expected results in coming years, but to do so by following a clearly defined process that starts with analysis and leads to action planning.

When drafting the sales forecast, imagine you are coaching a marathon team. You know that your team will face a race lasting a whole year, and that only at the end of it, they will discover the results of their actions. If you don’t set a clear final target, you won’t be able to come up with the right training. You won’t know if they should pick up the pace or slow down to save energy. In order to set the right goal, you should observe the team, their historical results, their potential, but also the course, the stages they will sail through, and the challenging ones. Now, apply this concept to sales and start looking at your clients as the team that will lead you to victory!

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