Forecasting Sales

Sales leaders are naturally optimistic about their customer prospects. But however well placed that optimism, I have found establishing a sales forecasting routine in teams not used to this important task a mentoring challenge.

In component supply industries OEMs provide regular monthly and weekly updates of expected forward demand usually via automated EDI file exchanges. Suppliers are able to use this data to accurately forecast daily sales but more importantly to plan their operations including the scheduling of labour, material and sub component inputs.

In your industry the forecasting of sales may be less exact but it is no less important – the company needs to prepare forecasts.

My starting point in b2b industries is to look at the major customer account sales history. If you can forecast with a degree of confidence the 20% of customers who make up 80% of revenue, then the foundation of the sales forecast is on solid ground.

Most major customers are by their nature recurring and order on a regular pattern. Looking at the rolling 12 month history (moving annual total) can be a good guide to the next month’s sales. Of course individual monthly sales may be affected by seasonality or other factors, for example ramping up for a new product launch, and the Sales leader should take such factors into account when building up a forecast.

Once the major accounts have been forecast, then follow a similar process for the 80% of customers which account for 20% of revenue but treat them as one account for forecasting purposes. Again the Sales leader should take into account seasonality or other known factors.

Ideally the sales team member closest to the customer should make the forecast. Once established as a regular monthly activity, the process will refine itself as the team learns by comparing their forecasts with the actual outcomes.

This is not a back office task. Sales leaders and their teams who take forecasting seriously deliver better results.

So task your sales leader to make regular rolling quarterly forecasts. Once the forecasting routine is established your sales team will soon recognise that far from being a chore, validating the forecast can be a great opportunity for positive dialogue with their customers.

Being close to your customer means knowing what is going on in their business and, more importantly, how you can help them achieve their goals.