B2B companies can achieve tremendous success by harnessing their data and applying it to predictive models. Data-driven organizations are 2x more likely than others to exceed profitability, market share, and productivity goals, according to McKinsey research. The impact of shifting data into wisdom has never been greater, and nowhere is this more apparent than in B2B sales forecasting.
But what is sales forecasting? Simply put, it’s the process of predicting future revenue based on past performance and current trends. In the B2B world, this is an essential exercise for two reasons:
1) to allocate resources effectively and
2) to manage stakeholder expectations.
When it comes to allocating resources, forecasting is the key to understanding future capacity needs. By estimating how much revenue your business can generate in the near future, you can plan for the necessary staffing, equipment, and other resources. This is especially important for businesses with seasonal fluctuations or those that rely on new customer acquisition to grow.
However, this article will go through deeply when why and how to do sales forecasting for your business.
When should you do sales forecasting?
Ideally, it should be done quarterly to keep track of your business’ performance. If you are a B2B company with little seasonality and no major swings in revenue month-to-month, this may not be necessary. But if you have one-off deals or an extremely volatile month-to-month revenue, you’ll need to forecast on a monthly basis.
Why and how to do sales forecasting?
When considering the why and how of sales forecasting for your business, it’s important to understand what‘s at stake. Forecasting will help you allocate resources between different areas of your business- whether that be your marketing team or your sales team.
It can also help you manage stakeholder expectations by giving them a realistic idea of your company’s near-future performance. Forecasting is an essential tool for businesses that need to make informed strategic decisions.
There are four main steps in the forecasting process:
1) data collection,
2) trend analysis,
3) forecasting models, and
Let’s take a closer look at each of these steps.
1) Data Collection:
The first step is to gather data about your sales performance over the past few months or quarters. This data should include revenue, units sold, average sale price, and the total number of customers.
2) Trend Analysis:
This is the key to effective forecasting, and often where businesses go wrong. In order to come up with a reasonable forecast, you’ll need to analyze past performance and look for patterns in your sales data. Are there any correlations between changes in revenue and customer count? When it comes to forecasting, the more context you have about your historical performance, the better.
3) Forecasting Models:
This is where things get interesting. At this point, you’ll have applied trend analysis to your data and taken any necessary steps towards establishing a baseline for future forecasts. Now you can use predictive models (or statistical models that estimate future value based on historical data).
These models can help you estimate how changes in your operations, product mix, marketing efforts, and business strategy will impact the future performance of your company.
The final step is to use this information to generate a prediction or range of possible futures for your business. These predictions should be made cautiously and should be considered just that: predictions. As with any type of forecasting, it’s important to remember that these numbers will never be perfect and you should only use them as a guide for making decisions.
Why is forecasting useful?
Forecasting has many advantages for your business, including the following:
1) Improved resource allocation
2) Management of stakeholder expectations
3) Strategic clarity on market opportunities.
Why is forecasting not so useful? If you use forecasts as a basis for making strategic decisions, it’s important to remember that they are never perfectly accurate. It’s always better to act with caution and based on the best information you have at the time.
B2B Sales forecasting is a key part of effective strategic decision-making for any business. By applying trend analysis and using predictive models, you can generate a realistic idea of your company’s near future performance. However, it’s important to remember that these predictions should be treated cautiously and always used as a guide.