Projecting sales revenue for a startup is similar to relying on GPS to go from Point A to Point B. Without sales projections, it’s hard to map out the direction of your startup. Data-driven sales forecasting can enable you to keep your startup on the road rather than in a ditch.
Creating forecasts for sales guides business decisions, such as setting a budget and plotting growth. Calculating revenue projections can also attract investor funding. But forecasting can be tough for startups because they often lack sufficient historical data.
“Sales forecasting is critical to the success of every organization, yet it remains a constant struggle for many,” says Xactly, a provider of revenue software. “We live in an ever-changing business landscape which demands unified frameworks and approaches across all business functions — especially when it comes to sales forecasting.”
Even though it might be tough, B2B sales forecasting must be done. Forecasting helps your startup uncover insights that can drive growth.
“The most important number in a company is the forecast, and it’s moved from just talking to your sales manager to something that’s a combination of art and science,” venture capitalist Carl Eschenbach explains.
Key takeaways:
- Sales forecasting is critical to strategic planning and attracting investors
- Early-stage startups must make presumptions about sales to come up with forecasts
- Later-stage startups can equip themselves with sophisticated tools to analyze data and develop sales forecasts
Why Are Sales Forecasts Important?
A sales forecast predicts your startup’s sales revenue for a specific period (such as the next 90 days). Simply put, this forecast supports your startup’s growth and development. For instance, you can better understand and plan sales activities, manage cash flow, plan procurements, and develop revenue projections to secure financing.
Creating a sales forecast involves harvesting data to project future revenue. Projections can include predicted volume, sales by account or product, and expected growth rate. The accuracy of your forecast can affect how prepared your startup is for what lies ahead.
Keep in mind that forecasts are predictions, not guarantees. Changes in internal and external factors can influence forecasts, as can the quality and depth of your data.
Forecasting Sales for Early-Stage Startups
Many early-stage startups have little to no data that can be applied to sales forecasts. They might not have been in business long enough to gather adequate data, for example, or they might not have completed enough sales to accumulate sufficient data. Therefore, they must rely on available data to make sales presumptions.
In the absence of reliable data, one strategy you can try is bottom-up forecasting. This involves calculating your startup’s potential sales revenue for a certain period, such as every three months. To find your potential sales revenue, multiply the estimated number of likely sales for each product or service, figure out the estimated time to make a sale, and come up with the average value of a deal.
Gathering Leads
Create and optimize your sales funnel to bring in a steady stream of new leads by:
- Identifying how many leads you need to create a legitimate pipeline of potential deals.
- Determining how many leads make it to each stage in your sales funnel, moving from prospect to customer.
- Calculating your conversion rate to project how many sales you’re likely to close.
Measuring the Sales Cycle
Measure the amount of time it takes for prospects to move through each stage of your sales funnel. Then, make reasonable assumptions about the time required for a customer to pass through the buying process, incorporating factors such as familiarity with your products or services, costs, sense of urgency, and decision-making steps.
You also should take into account the elements of closing a sale, such as the complexity, needed resources, required preparation, and potential travel.
Averaging the Value of New Deals
To come up with the average value of a new deal:
- Calculate the average sales price for your products or services.
- Identify one-time revenue (selling one product) and recurring revenue (ongoing licensing fees).
- Subtract the average cost of securing deals (including human resources and marketing) to calculate the average value of a new deal.
Forecasting Sales for Later-Stage Startups
If your startup has been in business for a while, you should have collected plenty of data to forecast sales. Use this sales data, such as unit prices, unit costs, and conversion rates, to create a sales forecast for a certain period. To support your forecast:
- Settle on your organization’s sales goals.
- Detail your sales process to nail down the sales cycle, the closing rate, and other key factors.
- Track sources of incoming and outgoing funds.
- Include data on product costs, sales expenses, and pricing or market fluctuations.
Consider using the following three tools to generate sales forecasts with existing data.
Customer Relationship Management Software
A robust CRM like Hubspot enables you to track and measure your sales, analyze your sales data, and produce sales forecast reports. The software uses your pipeline of potential deals to predict future sales growth.
Growth Acceleration Starting Grid
Sellerant’s Growth Acceleration Starting Grid measures revenue opportunities and produces sales KPIs (key performance indicators). The grid provides data-driven revenue projections for 90-day sales sprints, and enables you to set goals for lead generation and sales development.
Artificial Intelligence
Artificial intelligence (AI) can’t take over your entire sales process. But it can be a powerful addition to your sales forecasting efforts.
According to Xactly, automating sales forecasting with AI “ensures more reliable and consistent results. Businesses that harness both human and technological power can consistently improve sales by optimizing strategy and customer satisfaction.”
AI can help sales representatives pinpoint indicators that yield the highest likelihood of closing a sale, Xactly says. AI can also detect cracks in your sales pipeline, which if fixed could improve sales forecasting.
“AI-powered forecasting models are programmed to continuously learn and adapt to new data. The information it analyzes and generates compounds with every business deal,” Xactly says.
Forecasting Sales for Your Startup
Many startups find it hard to accurately forecast sales. Why? Because it requires collecting data that may be inadequate or may not be available at all. But with the data you’ve got, you must make strategic decisions that could make or break your startup.
If you need help creating accurate sales forecasts and growing sales, let’s talk!