Sales forecasting and getting an accurate sales forecast is critical to any successful demand plan. Unfortunately, seeing into the future is rarely straightforward, and you need several tools to come up with a data-backed, well-informed prediction. Read on for 5 key forecasting methods that all demand planners should have in their toolbox.
1. Calculating your historical growth rate
Past sales data is a great starting point for predicting possible future sales. If you’re looking for a quick, back-of-the-napkin method to get a rough forecast, one of the most well known is the straight-line method. Using this, you can look at what your sales were and what your growth rate was during a certain period of time and map that over to a future time period of equal length.
But even though this is a quick way to get a baseline prediction, keep in mind the drawbacks; namely, it doesn’t take into account the nuances of your industry.
2. Determining a moving average of your past sales
Take your forecasting based on historical data one step further by examining your average sales across a moving time frame (usually 3-5 months). While you will encounter many of the same drawbacks as you would when using the straight-line method, this will help you monitor low and high periods of demand over time and enable you to prepare your demand plan accordingly.
3. Examining your sales pipeline
This forecasting method looks at the data you’ve gathered about the potential customers currently in your sales pipeline and calculates the probability of the sale closing successfully. It looks at a variety of factors, including how the potential customer was initially contacted, how far they are along in the process, whether they’re a repeat customer, the value of the opportunity, your sales representative’s success rate, and more.
4. Looking at test markets
Test groups, which should be strategically chosen based on their market segmentation, give you real-world, real-time information to use when forecasting future demand. While this is based on qualitative data, it can be an incredibly useful forecasting method, especially when introducing a new product or new features that are supposed to enhance an existing product.
5. Incorporating engagement data
While this kind of forecasting is relatively new, it’s an extremely valuable method to keep an eye on. Customers engage with a brand in a variety of ways even before they formally enter into your sales pipeline. Data, such as Google searches, the number of “likes” on social media, or the number of unique visits to your website, can also be tracked and calculated to determine an overall future trend.
These are just five methods, but there are countless others. Knowing when to use which method is key. Fortunately, you have one more tool at your disposal that can help. We designed our Atlas Planning Suite to help you with your calculations regardless of which method you use. It can even provide recommendations based on the data you have.