Sales forecasting: The complete guide to predicting future sales

Proper forecasting is essential for any sales organization. It’s a process that enables data-driven business decisions, helps revenue leaders identify new opportunities, and provides a clear picture of projected revenue. Even so, building accurate sales forecasts is complex if you don’t know where to start or if you’re not leveraging the types of tools that yield precise results.

In an August 2021 commissioned study by Forrester on behalf of Outreach, almost one-third of B2B sales leaders said their forecasts were derived by selecting key deals and adding qualitative analysis to arrive at their final number. 

However, this static and unscientific approach to forecasting makes it impossible to drive predictable business growth. If you’re not accurately and consistently forecasting your sales, you could miss out on critical insights that impact budget, hiring, scalability, and — ultimately — cash flow.

Here, we’ll take a deep dive into what a sales forecast is, how forecasting can benefit your organization, and how Outreach helps revenue teams bring science to the traditional approach to sales forecasting. 

What is a sales forecast?

A sales forecast is a data-driven prediction of future revenue over a specified period. It leverages historical sales data, market trends, and pipeline information to estimate the impact on your top sales KPIs. Accurate forecasts depend on high-quality, clean data inputs and sophisticated analytical methods, often facilitated by advanced forecasting software.

When used effectively, sales forecasts do more than just project numbers — they provide a strategic compass for the entire organization. They help teams align resource allocation, set realistic targets, and make informed inventory, staffing, and budget allocation decisions. However, it's crucial to distinguish forecasts from sales goals; while goals represent aspirational targets, forecasts aim to predict actual outcomes based on current data and trends.

The precision of a forecast is affected by volume and quality of available data, the sophistication of your analytical tools, and the unique characteristics of your business. As organizations grow and accumulate more comprehensive sales data, their forecasting accuracy typically improves. This is why many businesses are investing in robust revenue intelligence software to enhance their forecasting capabilities and gain a competitive edge.

Why is a sales forecast important?

If you already have clearly defined goals, a strong sales process, and a healthy pipeline, you might wonder if creating accurate forecasts is worth the effort. In short, yes, confident sales forecasting is an absolutely critical component of a company's growth. Let's explore why:

Impact on business growth

A robust sales forecast is the cornerstone of sustainable business growth. By providing a clear picture of expected revenue, it enables companies to make informed decisions about expansion, hiring, and investment. For instance, if a forecast indicates a significant uptick in demand for a particular product line, a company can proactively scale up production and staffing to meet that demand. Conversely, if a forecast suggests a potential slowdown, businesses can adjust their strategies to mitigate risks and explore new opportunities. This proactive approach, driven by data-backed forecasts, allows companies to navigate market fluctuations more effectively and maintain steady growth trajectories.

Strategic planning and resource management

Sales forecasts are invaluable tools for strategic planning and resource optimization. They provide a roadmap for aligning various departments – from sales and marketing to operations and finance – towards common objectives. For example, if a forecast predicts a 20% increase in sales for a specific region, the company can strategically allocate more marketing budget to that area, hire additional sales representatives, and ensure adequate inventory levels. This alignment ensures that resources are deployed where they'll have the most significant impact, maximizing efficiency and return on investment. Moreover, accurate forecasts help prevent overstaffing or understaffing, leading to more balanced workloads and improved employee satisfaction.

Financial management and risk reduction

In the realm of financial management, sales forecasts play a crucial role in budgeting, cash flow management, and risk mitigation. By providing a clear picture of expected revenue, forecasts enable finance teams to create more accurate budgets and make informed decisions about expenditures and investments. For instance, if a forecast indicates a potential dip in sales during a particular quarter, the company can proactively adjust its spending or secure additional financing to bridge the gap. This foresight helps maintain financial stability and reduces the risk of cash flow crunches. Additionally, accurate forecasts can enhance a company's credibility with investors and lenders, potentially leading to better financing terms and increased investor confidence.

Customer satisfaction and market insights

Beyond internal benefits, sales forecasts offer valuable insights into market trends and customer behavior. By analyzing forecast data, companies can identify emerging patterns in customer preferences, seasonal fluctuations, and product performance. This information can drive improvements in product development, customer service, and marketing strategies. 

For example, if a forecast reveals growing demand for eco-friendly products, a company can pivot its R&D efforts to meet this trend. Similarly, recognizing seasonal peaks in demand can help businesses prepare their customer support teams, ensuring high levels of customer satisfaction during busy periods. These market-driven insights enable companies to stay ahead of the curve, adapt to changing customer needs, and maintain a competitive edge in their industry.

Who is responsible for sales forecasting?

The responsibility for sales forecasting often varies across organizations, reflecting their unique structures and needs. Let's break down the key players involved and how forecasts impact different departments:

Sales representatives

In many organizations, sales reps are the front line of forecasting:

• They commit to deals they believe are likely to close
• Provide first-hand insights into customer interactions and pipeline health
• Their input forms the foundation of bottom-up forecasting models

Sales leaders and revenue operations managers

These roles often take a more holistic approach to forecasting:

• Aggregate and analyze data from multiple sources
• Apply objective methodologies (like BANT sales and MEDDPICC) to categorize and project sales performance
• Responsible for ensuring forecast accuracy and alignment with broader business goals

Sales managers

For sales managers, forecasts are an invaluable tool:

• Help track the progress of individual reps and overall team performance
• Identify at-risk deals and focus efforts on high-priority opportunities
• Provide visibility into pipeline health and potential areas for rep coaching

Other decision makers and stakeholders

While not always directly involved in creating forecasts, leaders from other teams like operations, product, marketing, and finance often:

• Use forecasts to make strategic decisions about organizational growth
• Determine resource allocation and timelines for achieving business objectives
• Rely on both short-term and long-term forecasts to identify scaling opportunities

Why getting sales forecasting right is easier said than done

That means getting it right (and doing so consistently) is a critical part of a business’s growth. In fact, sales organizations that utilize a formal, structured forecasting process increase their win rates of forecasted deals by 25% versus those that take a less formal approach.

But accurate sales forecasting is an art and science — and many organizations don’t have the necessary skills. These limitations are a result of some unfortunately common challenges among businesses, including:

• A lack of accurate, up-to-date data in their CRM
• An inability to identify and monitor key deal signals
• A lack of visibility into the numbers/math that drive their forecasts
• Manual, error-prone data entry processes

While most teams are not yet leveraging AI to help with forecasting, those who do see promising results: 41% report a major improvement in forecast accuracy, while 43% report a moderate improvement. Remember, the best sellers aren’t being replaced by AI, but they are already using it to their advantage.

Sales forecasting methods

Leveraging the proper tools can certainly help ensure forecasting accuracy, but you must also consider which method is right for your business. Forecasting isn't a one-size-fits-all process: it's a balancing act that requires a thorough understanding of context, relevance, and available data.

Before diving into specific methods, it's crucial to consider factors such as:

• The availability of historical data
• The forecast's time horizon (short-term vs. long-term)
• The realistic timeline for developing the forecast
• Required accuracy level
• The forecast's primary purpose

Once you've nailed down these considerations, you can more easily determine the forecasting method that best suits your needs. Let's explore both quantitative and qualitative approaches:

Quantitative forecasting methods

Quantitative methods rely on numerical data and statistical techniques to predict future sales. These methods are particularly effective when you have substantial historical data and operate in relatively stable market conditions.

1. Historical forecasting: This method uses past sales data to project future performance. It's simple to implement and works well for businesses with consistent sales patterns. For example, a company might use the average growth rate from the past three years to forecast next year's sales.
2. Pipeline forecasting: This approach analyzes the current sales pipeline, considering factors like deal size, stage, and probability of closing. It's beneficial for B2B companies with longer sales cycles. A sales team might categorize deals as "likely" (80% probability), "possible" (50% probability), and "long shot" (20% probability) to create a weighted forecast.
3. Opportunity stage forecasting: This method assigns different probabilities to each stage of the sales process. For instance, a lead might have a 10% chance of closing, while a proposal stage opportunity might have a 60% chance. By multiplying these probabilities by the potential deal values, you can create a more nuanced forecast.
4. Time series analysis: This advanced method identifies trends, seasonality, and cyclical patterns in historical data to predict future sales. It's particularly useful for businesses with clear seasonal fluctuations, such as retail or tourism.

Qualitative forecasting methods

Qualitative methods rely on expert judgment, market research, and intuition. These approaches are valuable when historical data is limited or when entering new markets or launching new products.

1. Expert opinion method: This involves gathering insights from experienced sales managers, industry experts, or executives to form a forecast. It's particularly useful when launching new products or entering unfamiliar markets. For example, a tech startup might consult industry veterans to estimate adoption rates for their innovative solution.
2. Delphi method: This structured, iterative approach involves a panel of experts who anonymously provide forecasts and rationales. The process continues with refined estimates until a consensus is reached. It's effective for long-term forecasts in rapidly changing industries.
3. Market research: This method uses surveys, focus groups, and customer interviews to gauge market demand and predict sales. It's crucial when launching new products or entering new geographic markets. For instance, a food company might conduct taste tests and surveys before predicting sales for a new snack line.
4. Scenario planning: This approach involves creating multiple forecast scenarios (best-case, worst-case, and most likely) based on different assumptions about market conditions. It's precious in uncertain or volatile markets. For example, a renewable energy company might create different forecasts based on various potential policy changes.

By combining both quantitative and qualitative methods, businesses can create more robust and accurate sales forecasts. The key is to choose strategies that align with your available data, market conditions, and specific forecasting needs. Regular review and adjustment of your forecasting approach ensure that it remains relevant and practical as your business evolves.

How to create a sales forecast

Equipped with the specific elements needed for an accurate prediction, you’re now finally ready to build your sales forecast. Keep in mind that the following forecasting steps are just a starting point, as they reflect a simplified approach to the process. Of course, enterprise-level organizations require a more intricate approach that takes into account other market complexities.

If you’re a beginner, here are some basic steps to get you started with building a forecast:

Document your sales process

A well-documented sales process forms the foundation of accurate forecasting:

• Map out each stage of your sales cycle, from lead generation to closing
• Define clear criteria for moving deals between stages
• Establish standardized definitions for key terms (e.g., qualified lead, opportunity)
• Regularly review and update your process documentation to reflect evolving best practices

✅ Tip: Create a visual flowchart of your sales process and share it with your entire team to ensure consistency in deal tracking and reporting.

Gather historical sales data and competitor insights

Robust data collection is crucial for informed forecasting:

• Collect at least 12-24 months of historical sales data, if available
• Break down data by product lines, customer segments, and sales channels
• Analyze seasonal patterns and year-over-year growth rates
• Research competitor performance and market share to contextualize your data

✅ Tip: Use CRM reports and data visualization tools to identify trends and patterns in your historical data. This can help you spot potential opportunities or challenges in future forecasts.

Consider alternative scenarios and market trends

Prepare for uncertainties by considering multiple scenarios:

• Develop best-case, worst-case, and most likely scenarios for your forecast
• Factor in known market trends, such as industry growth rates or technological shifts
• Consider potential disruptors, like new competitors or regulatory changes
• Regularly update your scenarios as new information becomes available

✅ Tip: Collaborate with other departments (e.g., marketing, product development) to gain diverse perspectives on potential market changes and their impact on sales.

Select the appropriate forecasting method

Choose a forecasting method that aligns with your business needs and available data:

• For businesses with substantial historical data, consider quantitative methods like time series analysis or regression models
• If you're entering new markets or launching new products, qualitative methods like expert opinions or market research may be more appropriate
• For many businesses, a combination of methods yields the most accurate results

✅ Tip: Start with a simple method and gradually increase complexity as you gain more experience and data. Regularly assess the accuracy of your chosen method and be prepared to adjust as needed.

Consider sales forecasting tools and software

Leveraging the right technology can significantly enhance the accuracy and efficiency of your forecasting process. The best sales forecasting software offers advanced features that go beyond simple data analysis, providing actionable insights and real-time updates.

Outreach's Sales Forecasting Software offers a comprehensive solution for businesses looking to streamline their forecasting process. It integrates seamlessly with your existing CRM data, applies AI to analyze historical performance, and provides real-time updates to your forecast based on the latest pipeline activity. With Outreach, you can:

• Generate accurate, data-driven forecasts at the rep, team, and organization level
• Easily adjust forecasts based on different scenarios and assumptions
• Gain insights into pipeline health and identify at-risk deals
• Collaborate more effectively across your sales organization with shared, real-time forecast data

✅ Tip: When evaluating forecasting tools, prioritize those that offer easy integration with your existing systems, provide clear visualizations of forecast data, and allow for collaborative input from various stakeholders.

Factors influencing a sales forecast

Sales forecasting isn't a crystal ball - it's a dynamic process influenced by various factors. Understanding these can dramatically improve your forecast accuracy.

Internal factors

Your company's inner workings play a crucial role in sales forecasting. Sales team performance, product development timelines, and marketing initiatives all impact your projections. For instance, a new product launch or a shift in sales strategy can significantly alter your forecast. Keep a pulse on these internal rhythms and adjust your predictions accordingly.

External factors

The business landscape is constantly shifting. Economic fluctuations, emerging competitors, and changing customer needs can throw a wrench in even the most carefully crafted forecast. Stay vigilant about market trends and be prepared to pivot. Consider creating multiple forecast scenarios to account for potential external disruptions.

Common challenges in sales forecasting

Even seasoned sales leaders encounter hurdles when forecasting. Let's tackle some common pitfalls and how to overcome them.

Ensuring forecast accuracy

Accuracy is the holy grail of sales forecasting, but it's notoriously elusive. Combat this by leveraging historical data, implementing robust CRM practices, and regularly reviewing and adjusting your forecasts. Remember, a forecast is a living document — it should evolve as new information comes to light.

Minimizing subjectivity

Human bias can skew forecasts, leading to overly optimistic or pessimistic projections. Counter this by establishing clear, objective criteria for evaluating deals. Implement a standardized scoring system and encourage team input to balance individual perspectives. Data-driven forecasting tools can also help strip away subjective elements.

Handling inefficiencies

Clunky processes can hamper your forecasting efforts. Streamline your approach by automating data collection and analysis where possible. Regular training sessions can help your team understand and execute the forecasting process more efficiently. Don't be afraid to reassess and refine your methods — what worked last year may not be optimal now.

Best practices for sales forecasting

Regular updates and reviews

Don't set it and forget it. Your sales forecast should be a living document, evolving with your business landscape. Schedule weekly check-ins to gauge progress and monthly deep dives to recalibrate your projections. This habit keeps your team aligned and your forecasts sharp.

Collaboration across departments

Sales doesn't exist in a vacuum. Loop in marketing, product, and finance teams to enrich your forecasts. Marketing insights on upcoming campaigns, product roadmaps, and financial constraints all paint a fuller picture. This cross-functional approach turns your forecast from a guess into an informed projection.

Setting clear goals and responsibilities

A forecast without ownership is just a number on a page. Assign specific targets to team members and clearly outline who's responsible for what. This clarity breeds accountability and turns your forecast into a powerful motivational tool.

Sales forecasting examples: How to commit with confidence 

Let's look at a real-life example of how sales leaders can prepare their forecast in Outreach.

Forecasting within Outreach revolves around analyzing data from three key perspectives: total revenue, new logo and expansion, and churn and renewals. We start by looking at the total CARR number, which captures the combined performance of new logo, expansion, and renewal opportunities. This gives an overarching view of how the company is tracking for the quarter.

Once the total revenue forecast is established, Outreach dives deeper into specific areas. The new logo and expansion forecast highlights potential growth, showing gaps between expected and actual revenue, along with any upside if everything goes as planned. This breakdown provides insights into new business performance.

From there, leaders can review the renewal forecast, analyzing gross renewal rates, available revenue to renew, and potential churn or contraction. By examining these three areas together, sales leaders gain a comprehensive view of their business, ensuring they can forecast accurately and adjust as needed.

Tools and software for sales forecasting

Choosing the right tools can make or break your sales forecasting efforts. Let's explore the options available to help you make an informed decision.

CRM systems

Customer Relationship Management (CRM) systems are the backbone of modern sales operations. They don't just track customer interactions; they're goldmines of data for sales forecasting. By centralizing information on leads, opportunities, and past performance, CRMs provide a solid foundation for predicting future sales. Look for a CRM that offers customizable reporting and integrates seamlessly with your existing tools.

Sales forecasting software

Dedicated sales forecasting software takes prediction to the next level. These specialized tools use advanced algorithms to analyze historical data, market trends, and current pipeline information. The result? More accurate forecasts that account for a wider range of variables. Outreach's forecasting features, for instance, leverage sales AI to provide real-time insights and help sales teams adjust their strategies on the fly.

Business intelligence tools

Think of business intelligence (BI) tools as your sales department's crystal ball. They transform raw data into actionable insights, helping you spot trends and opportunities you might otherwise miss. BI tools can pull data from multiple sources, giving you a 360-degree view of your sales landscape. This comprehensive approach is crucial for creating forecasts that account for both internal and external factors.

Choosing the best tool for your business

Selecting the right forecasting tool isn't a one-size-fits-all proposition. Consider your business size, industry, and specific forecasting needs. Are you a small team looking for simplicity, or a large enterprise requiring deep analytics? Do you need industry-specific features? Outreach offers scalable solutions that grow with your business, combining the power of CRM, forecasting software, and BI tools in one platform. Whatever you choose, ensure it integrates well with your existing tech stack and provides the level of detail you need to make informed decisions.

The future of sales forecasting

The crystal ball is getting clearer. As technology evolves, so does our ability to peer into the sales future with unprecedented accuracy.

Advances in sales forecasting technology

Gone are the days of relying solely on gut feelings and basic spreadsheets. Today's forecasting tech leverages complex algorithms and vast datasets to provide insights that would have seemed like science fiction a decade ago. These advancements aren't just making forecasts more accurate; they're making the entire process faster and more intuitive for sales teams of all sizes.

AI and machine learning integration

AI and machine learning are the secret sauce in modern sales forecasting. These technologies can analyze patterns in your sales data that humans might overlook, adjusting predictions in real-time as new information comes in. For example, some AI-powered tools can now factor in subtle signals like changes in email response times or social media sentiment to refine forecasts. This level of nuance helps sales leaders stay ahead of the curve, rather than simply reacting to obvious trends.

Predictive analytics and real-time data

The days of monthly or quarterly forecasts are numbered. Predictive analytics and real-time data are ushering in an era of continuous forecasting. Imagine adjusting your sales strategy not based on last month's numbers, but on what's happening right now. This rapid feedback loop allows sales teams to be more agile, pivoting strategies quickly in response to market shifts or emerging opportunities.

The impact of big data

Big data isn't just a buzzword; it's a game-changer for sales forecasting. With the ability to process massive amounts of information from diverse sources – from social media trends to economic indicators – forecasts are becoming more comprehensive and nuanced. The challenge now isn't getting enough data, but knowing how to sift through it all to find the golden nuggets that will truly impact your sales outcomes. Tools that can effectively harness big data are giving businesses a significant competitive edge in predicting and shaping their sales future.

Level up your sales forecasting process with Outreach

Accurate sales forecasting isn't just a nice-to-have — it's a non-negotiable for today's revenue leaders. Yet, many still grapple with unreliable data, subjective opinions, and gut feelings when predicting their sales outcomes. 

Enter Outreach. More than just a sales engagement platform, Outreach is changing he way businesses approach sales forecasting. By connecting your numbers to real-time opportunity data, Outreach ensures your forecasts are:

1. Automated: Say goodbye to manual data entry and hello to efficiency.
2. Flexible: Adapt quickly to changing market conditions and sales dynamics.
3. Accurate: Leverage AI-driven insights to predict outcomes with unprecedented precision.

But Outreach doesn't stop at forecasting. A comprehensive suite of tools empowers your entire sales process, from the way sellers prospect and manage accounts to the way managers forecast and plan. By integrating these functions, Outreach provides a holistic view of your sales landscape, enabling you to not just predict the future, but shape it.

FAQs about sales forecasting

What is the difference between a sales forecast and a sales budget?

Imagine a sales forecast as your weather report, while a sales budget is your game plan. Forecasts predict future sales based on historical data, market trends, and current pipeline. They tell you what's likely to happen. Budgets, on the other hand, set financial targets for your sales team. They outline what you want to happen. While forecasts help you anticipate market shifts, budgets drive performance and resource allocation. Use both in tandem: let your forecast inform your budget, then use your budget to push beyond predictions.

How often should a sales forecast be updated?

In sales, standing still means falling behind. Update your forecast regularly to stay ahead. For most businesses, monthly reviews keep you agile without causing data fatigue. However, your ideal frequency depends on your sales cycle and market volatility. Fast-moving startups or companies in turbulent industries might benefit from weekly updates. Established firms in stable markets could get by with quarterly revisions. The key? Strike a balance between staying current and avoiding knee-jerk reactions to every market hiccup.

Can small businesses benefit from sales forecasting?

Absolutely. In fact, for small businesses, effective forecasting can be the difference between thriving and merely surviving. It's not just a big-company luxury – it's a vital tool for growth at any scale. Accurate forecasts help you manage cash flow, plan inventory, and allocate your limited resources where they'll have the most impact. They also boost your credibility with investors and lenders. Don't let your size hold you back. With the right tools and approach, even a one-person shop can forecast like a Fortune 500 company.