Forecasting — The Salesperson’s “Not So Secret” Weapon
CRM Software is more important than ever, because forecasting sales is an essential task for every business. Coupled with a high level sales target the right CRM software gives you focus, drive and something to get your sales teams motivated by.
However a high level annual target can often appear too big to be meaningful. So to make it more tangible, it makes sense to break it down. For example you could work out:
- Average value per sale (forecasting sales needed to hit your target)
- Monthly sales targets (by revenue)
- Monthly sales targets (by quantity)
- Sales targets per sales rep etc.
But whilst this breakdown will give you a better grip on your progress, it’s not enough to give you confidence that you’re on target. That’s because a sales target only focuses on the closure at the end of your pipeline.
You see, in order to know with any confidence that your sales forecasting is on track, you also need to know what’s happening at each stage of your sales pipeline. And that’s why pipeline analysis is critical to the success of your business.
Let me tell you more…
If you know what’s happening at each stage of your sales pipeline, you’ll get an early warning if something is wrong. That’s because, before you can close a sale, a prospect needs to be nurtured and nudged from being a lead to a paying customer. In short, over time, prospects will visibly move from one stage of your pipeline to another.
But as you know, not all leads will translate into sales. For example, the lead may not be your ideal customer, they may not have the budget, they may not be the decision maker and they may not be ready to buy. As a result, your sales funnel is a leaky funnel. Which means at every stage, you’ll lose a number of prospects.
Unfortunately, a high number of leads is not necessarily indicative of a high level of future sales! It means that sales leads alone should not be used when forecasting sales.
For example, if only 1 in 100 leads eventually converts, you may have some serious work ahead to create the momentum you need.
The good news is you can proactively model and predict this fallout by calculating the ratio of prospects that will move to the next stage of your pipeline.
- Your leads to sales qualified leads ratio will tell you how many qualified leads you can expect to generate from your total number of leads.
- Your close to quote ratio will tell you how many sales you can expect to close at the quoting stage.
- Your sales leads to close ratio will tell you how many sales you can expect to close from your total number of leads.
The image below shows how a typical sales pipeline looks in Pipeliner CRM. Notice how you can see at a glance the number of prospects at each stage.
Now this information is really powerful. Simply because it allows you to make informed decisions:
- If you aren’t generating enough leads, you’ll know you need to shift your focus to lead generation in order to get you back on track to hit your sales target.
- If you’re closing a smaller percentage of your quotes than expected because you know this will affect future sales, you can explore why.
- If you get a sudden increase in the number of leads that convert to a sale, you can figure out the factors that led to this and embed them into best practice.
But there’s more…
Role of Sales Targets and Lag Times in Forecasting Sales
Knowing your lag times through your pipeline is also important. For example, you may have what appears to be a sufficient number of prospects at the quote stage. But your expected lag time will allow you to predict whether these prospects are likely to close within the timeframe that you need to hit your sales target by.
Work Backwards and Forwards
In addition, as well as using your pipeline to see if you’re on track to hit your sales targets, you can also calculate forwards. Based on the number of prospects at each stage and based on your opportunity reports, you can forecast to see what your likely overall sales will be.
You can also model various scenarios. For example, you could assess the impact on your overall sales if your quote to closure rate or your sales lead to close ratio were to increase.
The best way to analyze your pipeline in this way is to invest in a CRM software application that allows you to view in real time, exactly what’s happening in your business. Could Pipeliner be the right CRM solution for you?
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