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How to Improve Your Sales Forecasting

Author: Greg Boles


Author: Greg Boles, COO Future Proof Advisors

It’s that time of year! Annual planning is well underway and your annual sales budget is locked in. But how can you ensure that you not only meet but exceed your budget goals?

Below are three future-proof tips that will not only help with your sales forecasting but will help you proactively plan to support growth this year.

(Note: these simple and proven tips are best for service-based companies, but the concepts can certainly apply to other types of businesses).

Step 1: Forecast by Client for the Upcoming Year (Most companies do this already)

Start by categorizing your forecasts in three ranges: low, mid, and high. Each range refers to the impact of the opportunity on your business with low being the smallest sales forecast, and thus smallest impact on growth, and high suggesting the most growth and largest total sales, but lower probability of success.

  • Low = 90-100% probability of success.
    • It is typically the bottom level of a forecast. Though the probability is high, the impact on the business’s bottom line is low.
  • Mid = 70-89% probability of success.
    • This is a likely range for sales goals and base budget.
  • High = 30%-69% probability of success.
    • Though the probability is low, the impact on the business’s bottom line is high.
    • This is most important for identifying opportunities and NOT for sales goals.
    • This requires a live conversation and not just submitting a sales spreadsheet.
    • The key is identifying common services/trends across clients to see where material growth can be found.
    • The biggest mistake that can be made when forecasting by client is mixing sales goals and opportunities. They are different and should be treated as such.
    • Remember to make your forecast very “forgiving” and foster real conversations about the triggers that will lead to low-mid-high ranges.

Step 2: Forecast by Service

Ask your sales or account staff to forecast your mid-range by service. It will help to show the following:

  • What clients are likely to need or want in the short run
  • What your sales team is comfortable selling
  • Better GM forecasting
  • Better guidance at the mix of labor required
  • Blind spots or untapped opportunities by client and service

Step 3: Match Your Forecast to the Labor Needed

For labor-based businesses, even eComm firms, once you have a mid-forecast by client and service, you can reasonably estimate the labor you need to support the forecast. How: Use a target gross margin (GM) or known GM by service or client as a guide to estimate the cost of goods sold (COGS) percentage of revenue. That determines the labor amount per service or client. Next, compare the forecasted labor mix “demand” to the current staffing and freelance roster. It will help the entire management team (Biz Dev, Account Mgmt, Recruiting, HR, Ops, etc.) understand a range of how labor needs to flex or change.

Remember that all forecasts are just that – educated guesses about the future. However, with these three simple steps, you can increase your chances of driving growth by identifying the material upside, identifying where the growth may come from, and helping HR/Ops understand how and what is needed in terms of staffing support.

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