Projecting sales revenue is essential to running your startup. Data-driven sales forecasting enables you to make informed business decisions.
Creating forecasts for sales volume will guide business decisions, such as setting a budget and pursuing growth. Creating realistic revenue projections can also attract investor funding. However, forecasting is difficult for startups because they tend to lack sufficient historical data.
Forecasting and measuring sales activities will help your startup uncover valuable insights that can drive growth.
- Sales forecasting is integral to strategic planning and attracting investors to your startup
- Early-stage startups must make presumptions about factors related to sales
- Later-stage startups can use more sophisticated tools to analyze their date and make forecasts
Understanding the Importance of Sales Forecasts
A sales forecast is a projection of your startup’s sales revenue for a specific period (e.g. the next 90 days). It is essential for supporting your startup’s growth and development. It helps with understanding and planning sales activities, managing cash flow, planning procurements and production, and developing revenue projections to secure financing.
Creating a sales forecast involves collecting and using data to project future revenues. Projections can include predicted volume, sales by account or product, and growth rate. The accuracy of your forecast can affect how well your startup is prepared for the future.
However, forecasts are predictions, not guarantees. Changes to various internal and external factors can influence forecasts in many different ways. Sales projections depend on data quality, which will vary according to how long you have been in business, how you have been collecting data, and how you analyze that data.
Forecasting Sales for Early-Stage Startups
Many early-stage startups have little to no effectively measured data. They might not have been in business for enough time, or they have not acquired enough customers or made enough sales to accumulate sufficient data to forecast future sales. Therefore, they must use any available data and metrics to make presumptions.
One strategy is to use bottom-up forecasting. This involves calculating your startup’s potential sales revenue for a specific time period. Doing a forecast every three months is ideal. To find your potential sales revenue, estimate and multiply the number of likely sales for each product, time to make a sale, and average value of each deal.
Number of Leads Required for Sales Funnel
Create and optimize your sales funnel to bring in a steady stream of new leads for your business. Identify how many leads you need to create a legitimate pipeline of new deals. Determine how many leads make it to each stage in your sales funnel, moving from prospect to eventual customer. Calculate your conversion rate to determine how many sales you are likely to make.
Sales Cycle Time
Measure the length of time it takes for prospects to move through each stage of your sales funnel. Make reasonable assumptions about the time required for a customer to pass through the entire buying process (e.g. familiarity with your products, cost level, urgency, decision process) and your sales process (e.g. complexity of making the sale, resources required, preparation required, distance needed to travel).
Average Value of New Deals
Calculate the average selling price of your products or services, including which revenues occur once or repeatedly (e.g. selling price of a unit, licensing fees). Subtract the average costs involved in securing those deals (e.g. marketing, human resources) to calculate the average value of new deals.
Forecasting Sales for Later-Stage Startups
If your startup has been operating and selling products for some time, you should have collected enough sales data and metrics to forecast future sales. Use your historical sales data (e.g. unit prices and costs, conversion rates) to create a simple sales forecast for a specific time period. To support your forecast:
- Define your sales goals as an organization
- Detail your sales process to better understand your sales cycle, closing rate, and other key data
- Track sources of incoming and outgoing money
- Include data on product costs, expenses, and fluctuations in the market or pricing
Use the following tools to generate a sales forecast from your existing data.
Customer Relationship Manager
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. It provides data-driven revenue projections for 90-day sales sprints, and enables you to set sales lead generation and sales development goals.
Getting Started with Doing Sales Forecasts for Your Startup
Many startups have difficulty with accurate sales forecasting. It requires collecting data based on numerous factors and deciding how to use that data to make strategic business decisions.