Sales planning is a basic skill of an experienced salesperson. This skill shows how well he understands the product, his customers and the whole sales process. In addition to achieving a sales goal, it is important to be able to forecast accurately and consistently. This process also shows whether the sales team is working perfectly or whether you will find areas for improvement there. Sales planning forecasts help senior managers to see how their product or service is performing in the market. It is also a tool that allows other departments of the company to create their sales plans as part of a more comprehensive business plan. Let’s see what such a plan is made of. We will discuss the methods and tools needed to provide an accurate forecast.
What is a sales plan?
Basically: it is a report based on a judgment of what transactions the company expects to close within the next quarter or year. It is not a wish list, but rather a commitment that includes a sales funnel, uptrend deals (deals that may close during this period) and deals that will be closed. Marketing team can also use sales forecasting techniques to evaluate the targeted market for a product and estimate a potential revenue stream when introducing a new product or entering a new market. What do you need to know about accurate sales planning? The forecast is not just a report highlighting potential future revenues or a list of transactions that may be closed. It is the end result of a long line of efforts by the marketing team and salespeople to connect with customers and prospect customers. This also includes sales managers who ensure that trades marked in the forecast are suitably qualified and have a realistic chance of being closed successfully. Marketing managers will want to make sure that market size forecasts are equally solid.
Let’s take a look at what you need to have to deliver accurate sales forecasts.
1. A clearly defined sales process
The key to an accurate sales plan is to have a solid foundation, clearly defined and consistent sales process. For B2B it will be similar to the BANT model: Budget, Authority, Needs, and Timings.
While the model is simple to understand, it should trigger a series of other questions that will help clarify the scale, scope and feasibility of the potential project. For example, is the product already included in this year’s budget? Or does it require additional investment? Is the person you are working with the last resort? Or does the client need to provide a business case to someone above? Do you know who this person is and can you meet them? What needs does your product meet? Do the business and the person making the purchase see these needs? What are the deadlines necessary to implement the project? What drives them?
Without a clearly defined sales process, sales reps will use emotions and feelings to forecast sales. This can hide a number of issues that sales managers need to be aware of.
2. Set realistic sales goals
Setting realistic sales targets is an essential part of achieving your commercial goals. While there may be a desire to set them as high as possible, the reality is that salespeople need to feel that plans are reachable and based on the opportunity they see. Setting unrealistic limits requires people to make unrealistic forecasts, which will cause a number of business problems. Instead, do some basic research on the scale and scope of the market, then use it to design quotas and territories. It is always better to hit a lower forecast than not be able to prove an unrealistic level.
3. Establish your core KPIs
A consistent and accurate sales forecast is a measure of a company’s ability to successfully engage with your target market. Such plan understands the unique needs and dynamics of the market and can adapt the standard sales process to generate revenue. A helpful exercise in ensuring that your business is successfully engaged in your target market is to understand how much work it takes to acquire a prospect clients, turn them into an opportunity, and close the opportunity. This benefits both marketing and sales teams. A classic KPI, often used in sales, says that the odds should be three times the target. But how many leads do you need to hit that triple? How many people should I contact to create a lead? How many connections and meetings are needed to turn a potential customer into an opportunity? How many opportunities lead to a transaction? How many people should you engage with in acquiring a potential customer? How quick do you need to arrange a meeting with the final approver for the deal to be a success? Capturing these and other metrics can help you establish a “good sales behavior” benchmark that consistently delivers results. It can be an additional measure of how well you are engaging in the marketplace.
The value of sales planning
It’s easy to assume that sales planning is of interest only to the company’s sales representatives, their managers and to the marketing team. While sales forecasts are rarely shared widely across a company, they are of value to managers in a wider business.
1. Forecast is your early warning system
Whether it spans the next 3 months over the next year, the sales forecast is an early-warning system. It emphasizes how sensitive the company is to changing market needs and how customers perceive its products and services. It also shows how your sales and marketing teams are following best practices, or if shortcuts are sneaking in. A solid sales plan can indicate whether your marketing campaigns and initiatives are engaging potential customers or just expressing interest and curiosity. It can also show the impact of external business issues such as a law change or the COVID pandemic. It helps managers decide if these issues can be safely ignored or if a strong response is needed.
2. Improved recruitment and resource management
Accurate sales forecasting can also help other departments develop plans to respond to market changes. If the forecast or pipeline suggests that more workers are needed or production needs to be increased, this may give them time to plan, contact HR department, business partners or suppliers. This gives you time to accelerate your business processes; the more time to react on accurate and solid sales forecasts, the better. Likewise, these plans can be put on hold if the market slows down for any reason. The forecast should indicate why transactions are slowing down. Is it slowing due to business conditions or changes at customer’s side?
3. Increased business efficiency
Something about the term “forecast” makes salespeople sit a little more straight in their seats and listen more carefully to their manager or customer. In the absence of closing a deal – and usually sellers don’t close a deal weekly or even monthly – the sales forecast is all they need to show about their efforts until the next deal is closed. Therefore, sellers do their best to make sure they have included all the forecasted sells in the plan. At the same time, they want to be sure that the deals included in their forecast will be closed on time, in line with the manager’s offer. It proves the competences and skills in managing the sales process and the difficulties of closing transactions. The challenge is different for marketers. They are responsible for determining the scale and scope of the target market and the prospect clients with the greatest inclination to purchase a product or service. Their role is to develop campaigns, initiatives and strategies that generate leads for the sales team. As with sales, validation of their skills and knowledge comes from achieving results. In the meantime, they rely on accurate forecasts, re-scrutinized, to demonstrate that their campaigns and initiatives are firmly rooted in commercial realities.
Sales forecasting methodology
The evaluation of the sales plan consists of different elements. The forecast model will vary from company to company and will depend on issues such as the length and complexity of the sales cycle and whether the commercial buyer is the end user or is it a consumer of the product.
1. Forecasting based on leads
Some companies create their plans based on acquired leads. It is an ideal solution for products with low value and high turnover, especially in the consumer sector. Using sales data from different periods, you can determine how many leads you need to close to reach the target. You can predict your results for future reports, based on the number of leads you are currently generating. This works best when your business has high lead volumes and short sales cycles.
2. Stages of forecasting opportunities
In more sophisticated sales environments, especially with long sales cycles and many decision makers, the sales process is divided into different stages. Progress at these stages can be reported in the sales forecasting system. A standard measure of progress is shown in percentage, according to specified sales guide, based on a funnel model, growth and forecast. For example, the initial interest may be 10%, while the last two options before making a decision may be 70% and the verbal engagement rate may be 90%. It’s nothing uncommon for sales managers to use these weights to evaluate the overall value of the sales funnel and determine the sales reach. They need to achieve their goals. It is not necessarily a ‘forecast’, but it helps to provide an additional element of the assessment.
3. Predictive modeling
A more sophisticated approach to forecasting, based on predictive models, may be necessary for large sales operations involving millions of dollars. This may include manufacturing and distribution facilities.
These models can record quantitative historical sales information, data from e-commerce systems, and macroeconomic data such as GDP growth or changes in the population. Specific quality data may also be taken into account, examining changing tastes, preferences and attitudes of customers in order to assess market opportunities and revenue potential for a product or service. While not foolproof by any means, these models help senior managers to make an informed judgment of business opportunities and determine if they should continue to bring the product to market.
4. Forecasting with test market analysis
Another form of forecasting is to assess future large-scale sales based on the results of product promotion in the test market. Test markets provide real feedback on your product or service. Combined with detailed customer feedback analysis, companies can fine-tune their offering, refine the pricing model, and change product features or functions before being fully launched on the market. It would be wise not to make direct predictions, but this approach provides a useful guide to the potential of a new product, especially when combined with other analytical tools.
5. Historical forecast
An analysis of historical sales data can provide you with a useful perspective on forward-looking forecasts. These analyzes help you understand the main market drivers and the extent to which they are driving sales up or down. You can understand the impact of introducing a new product to the market, sales promotion, or special discount. These forecasts work best for recent periods. In the case of consumer markets, these indicators are quickly out of date. In the B2B sector, the technological change means that they are probably useless after three years.
6. Forecasting with the use of multivariate analysis
Another approach to planning is to use multivariate analysis to understand how different variables that drive customer demand are related to each other. For B2B, this can include headcount, revenue growth, customer locations, and other factors. For companies, B2C can include population size, GDP growth, education level, number of children per family, and other factors.
These variables can help determine the size of the market and assess which target sectors, areas or populations are most likely to become the best business opportunities. This exercise will be most useful when planning your go-to-market. For example, it can help managers who are trying to estimate revenue for the first 12-18 months. It is less suitable for assessing which company will get closed in the next three months.
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This article was created by cooperation with Graig Cleary, Regional Manager.