How to Improve Sales Forecasting Accuracy- Top 6 Tips to Keep in Mind
Creating accurate predictions regarding sales can help companies become more confident that they are appropriately meeting the demands of their customers. By utilizing these projections, businesses can stock up on the necessary inventory and schedule the appropriate number of staff to reflect the expected traffic.
When businesses with forecasting errors as low as 1-2% can suffer substantial financial losses as a result of their errors, learning how to improve sales forecasting accuracy is critical to success within any industry.
Alternatively, improving the accuracy of forecasting reports can help companies close more deals, improve pipeline management, and reduce business risks by foreseeing challenges before they occur.
Tips on Improving Sales Forecasting Accuracy
Business forecasting is the process of predicting future sales and demand using careful calculations based on historical data. While an accurate forecast can be a helpful tool, inaccurate projections can leave business owners with more issues than they began with.
By producing inaccurate projections, businesses can be left with excess waste, redundant employees or shortages in important stock.
For increased accuracy in forecasting procedures, consider the following 6 tips-
1. Track multiple numbers
No matter the size of the business, managers, and owners need to track several numbers to capture the distinct perspectives across the company comprehensively.
In other words, consider combining as many forecasting methods as possible while taking into consideration variables such as historical data and seasonality to produce the most accurate forecast. It's also worth using both quantitative and qualitative methods to make sure no stone has been left unturned.
When looking to improve an existing forecast, the more information you can incorporate, the more accurate it will become.
Weighing the data from past sales against industry averages, while factoring in seasonal effects, external factors and internal changes will guarantee the forecast is flexible enough to adjust with the changing times.
2. Keep tabs on your forecasts
Numbers and statistics won't do much good if you let them lie fallow. Businesses should consider scheduling a regular time, such as every month or quarter when they can review the forecasts with managers.
It's crucial for sales leaders to develop a system in which they can manage, reevaluate, and make adjustments as conditions vary. Regular quality checks can make future forecasts even more accurate by comparing previous results with actual sales numbers and taking the appropriate steps to improve existing forecasting methods.
3. Simplify the process with software
Many business owners and managers erroneously think forecasting has to be an intricate activity involving complex calculations. However, most businesses don't need to enlist the services of expert statisticians to produce reliable results.
Today many businesses implement the use of software and apps to provide detailed forecasting reports in an instant. As a result, all they need is someone to occasionally track the progress of their data and projections while focusing on their personal routine work assignments.
Enlisting the help of automated forecasting software also leads to more accurate predictions as it eliminates the room for human errors during manual data entry and spreadsheet manipulation.
4. Define the sales cycle duration
Many businesses end up with inaccurate sales forecasts because they are unclear on how long their typical sales cycle is.
The sales cycle of a business is the time it takes from the beginning of the lead to the moment when the sale is closed. This length of time varies depending on the type of product or service, as well as the industry. Understanding this cycle and its length will allow business owners to gain a clearer picture of the buying funnel and adjust their marketing plans to be more effective.
A simple solution would be to avoid using overly ambitious sales cycle lengths in the forecasting model. This way, it will be easier to estimate the life cycle of products more realistically.
5. Avoid unrealistic figures
It's understandable that many business owners have high ambitions for their establishments. While many would prefer to maintain a positive outlook even in the face of adversity, it's crucial to understand a company's limits in terms of resources, capabilities, and follow-through records.
By inflating sales data, owners risk the possibility of overspending in the future due to unrealistically high demand predictions.
6. Get everyone involved
When forecasting isn't made into a teamwork process, some people will either discard the projections or adjust the data to suit their own personal bias. Therefore, it's vital to make the entire process as democratic as possible.
This ensures the opinions of all managers are taken into account and everyone can agree on realistic expectations. This practice can also build a sense of trust and a shared drive among the team members.
Why Accuracy Matters
Improving forecast accuracy will translate to better sales, which, in turn, leads to increased profits for the business. Managers can gain a better understanding of what works in their establishments versus what doesn't and make data-driven decisions accordingly. This also ensures limited bias and guesswork during important management decision processes.
The data provided by accurate forecasting reports will help in recognizing new opportunities to improve revenue and reputation. Therefore, it's only logical to spend the extra few minutes ensuring the sales forecasting processes are up to date and designed to be as accurate as possible.
- Guide to Choosing the Right Business Forecasting Strategy
- Business Forecasting Defined and What it Means for Your Revenue
- 7 Critical Mistakes in Sales Forecasting and Budget Preparation
- How Business Forecasting Software Can Save Companies Time and Money
- How to Improve Sales Forecasting Accuracy- Top 6 Tips to Keep in Mind
- What Is POS Data and How Can It Increase Forecasting Accuracy?
- Key Variables for Predicting the Most Accurate Cash Flow Forecast
- How to Increase Restaurant Sales Using Forecasting Software
- What Is Seasonality in Forecasting? Planning for Changes in Demand
- What is the Importance of Sales Forecasting in Financial Planning?