Sales forecasts are a vital component of any business.
In order for a company to survive let alone succeed, sales forecasts must be as accurate as possible.
Such forecasts usually originate in the sales department, but their influence goes well beyond Sales: they are utilized for a company’s financial projections. To the degree they are reliable is the degree the company can evolve and invest in sales strategies with confidence. The less accurate the forecast, the riskier the future.
For manufacturing, however, sales forecasting has an additional dimension within different types of sales pipeline.
A manufacturing enterprise must purchase enough raw materials to manufacture a certain amount of goods, and there must be a sufficient market for those goods once they are made. A sales forecast will project how many units will be sold in a given period. Based on that, the company will order enough raw materials to manufacture those units.
If the sales forecast is too optimistic, the company is stuck with units it must store instead of sell and is obligated to pay for the raw materials that were required to produce this overstock. On the other hand, if the sales forecast was too conservative, not enough units are made, backorders are created and loss of clients and order cancellations are a real threat. Additionally, company repute can often be severely damaged.
Sales Forecasts Based On Guesswork
Although nobody wants to admit it, traditionally sales forecasts have been based on a considerable amount of guesswork, albeit educated guesswork.
Sales management meets with members of the sales force. Each sales rep walks through his or her pipeline and hypothesizes based on past experience as to when sales will close, and for how much. This data is then collected into a sales forecast with supporting figures added and sent up the line to company executives.
The truth is that no matter how “dressed up” the forecast presentation is, and how convincing it is made to seem, it is still to a greater or lesser degree a shot on the dark. Because of the inaccuracy of the data on which it is based, the forecast can be off by a considerable margin. For manufacturing, this can be a costly occurrence.
A sales forecast could be defined as “a proper balance of risk and opportunity.” The goal is to obtain the most opportunity for the least amount of risk. With this as the goal, how can the error-prone guesswork be replaced with more precise and factually based forecasts?
The CRM Solution Difference
The most concrete and reliable sales forecasts are created with a CRM solution that includes precise and accurate sales analytics.
Such analytics begins with an agreed-upon system for rating each sale, based on factors such as average closing ratio and past buyer behavior. More granular measures such as average time for a sale at a particular stage of the sales process are also taken into account. Such a system allows a much more precise calculation of risk-versus-reward, sale by sale, and a sales forecast based on such analytics carries a much higher degree of accuracy than previous methods based on “best guess.”
For manufacturing, this means that raw materials are ordered with more confidence. With a higher accuracy of prediction regarding the number of units to be manufactured, a company won’t be regularly saddling itself with overages or, on the other hand, frantically having to catch up because not enough units were predicted.
Accurate sales forecasts are crucial to any manufacturing enterprise, empowering them to profitably meet their sales goals and perform in their industries. Such forecasts are can only be enabled through a leading-edge CRM application.
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