How Sales Forecasting Can Make You More Successful in 2020 (Year-End Planning Series, Part 1)

Welcome to our new mini-series on the three fundamental things you need to do at year-end to build the right framework for growth and to prepare for an amazing year: sales forecasting, goal setting, and budgeting!

What is Sales Forecasting and Why is it Important?

Many of us hurl ourselves into the new year fueled by 95% optimism and 5% planning. 

Optimism is vital, but blind optimism is not a sales strategy. When the industry’s average growth hovers around only 2-3% per year, you can’t expect to grow 30% just because you “feel it in your gut” or because you simply think you should. You can’t will your way to growth, you have to channel that optimism into intelligent action by aggressive planning and it all begins with sales forecasting.

Sales forecasting is not simply estimating your future sales, it’s much more than that, it’s a powerful insight tool. Sales forecasting is not guesstimating, but calculating your future sales so that you can determine precisely what, how much, and where you need to grow. 

Think of sales forecasting like weather forecasting. With weather, you know there are predictable seasons of rain in the spring, and snow in winter, you know this because of long-term history. You also know that because of recent weather patterns, your fall seasons might have become shorter or your winter seasons longer. 

Sales forecasting gives you a similar lens to look through; it gives you a baseline to begin from so that you can create your strategy and allows you to prepare for the predictive patterns. But much more than that, it allows you to build your budget for the upcoming year, restructure your sales and support teams if necessary, and create a dynamic sales playbook for 2020. 

But everything hinges, first, on forecasting the right outlook.

Sales Forecasting Helps You Prepare for Predictable Patterns 

The first step is to know the total picture: look at your annual sales growth and your monthly sales growth over the past three years. (If you’re managing a team, you must do this same exercise with each rep and their book of business, it not only helps you coach them better, it establishes a baseline for expectations).

The second step is to determine what are your predictable patterns. As you review your annual monthly sales numbers for the past three years, do you notice any trends? 

When I was distributor, we had a few predictable patterns, Q1 and Q4 were heavier quarters than Q2 and Q3; we also knew that the three J’s -January, June, and July- were slower months for us. And since we were looking at invoiced sales, in reality, the sales activity for the months right before each of the three J’s (Dec, May, June), were soft. Knowing predictable patterns helps you capitalize on opportunities. We knew we needed to double down on sales growth during the slower quarters of Q2 and Q3, but we also realized we could use our team’s sales and support capacity to marshal our forces and focus on proactive sales and marketing. 

Comparing year-over-year, we could also spot macro trends with clients, budgets that had lessened, or industries that had grown. Seeing these trends in our numbers also gave us clues where we needed to focus more.

But we also needed to know our patterns for cashflow purposes. Most small businesses don’t go out of business when they are declining in sales but when they are growing. For us, I knew that in our busier months of Q1 and Q4, we would have to keep a closer eye on accounts receivable so we wouldn’t get cash-strapped. 

Sales Forecasting Helps You Discover Non-Repeatable Patterns 

By reviewing our monthly and annual sales, we were not only looking for predictable patterns for the upcoming year, but we were also looking for repeatable and non-repeatable patterns. 

“Sales forecasting is hard work only because it takes time to stop and focus, but it’s important for planning,” said Nate Bailey, founder of Ideation, who shared his thoughts on forecasting in a recent skucast episode. “We even break it down by customer. We look at every month by customer, to gain an understanding of what it is that we’ve done and where we need to grow. For example, if you had a $250,000 customer that had a rebrand, you’d better not count on that same revenue for your growth for the upcoming year, you need to figure out where you’re going to make up for that loss in sales.” 

Nate continued, “I had a huge hospital client that ordered every other year, so they’d order a ton in one year, and that budget would sustain them through the next, they went from a $100,000 client to a $40,000 client, an important cycle to understand for your sales planning.” 

Forecasting helps bring clarity, shows you the gaps in your upcoming sales and provides a realistic outlook.

Sales Forecasting is About Changing the Course of Your History

Craig Dunlap from Meyer Dunlap delivered a scorchingly honest talk at skucamp about their journey from $4.4 million to $11 million, and they did this mainly by forecasting a new plan for their company. 

Most distributors, as they grow, learn to winnow out the unprofitable business so that they can focus on the most profitable opportunities. When Craig and his business partner Kirk looked at their business history, they realized that at $4 million in sales they had 455 clients with an average order size of $926. They discovered that the bottom 20% of their clients represented $884k in sales. And with 4.5 of their 10 employees dedicated to those clients, they netted a bottom-line profit of only $8,413. They realized they needed to right-size their portfolio, which meant winnowing out the small and low margin clients and focusing their resources on the right kinds of clients. The result? They eventually grew to $11 million with only 87 customers. 

Nate Bailey called this concept, “weed and feed.” To add to that garden and weather analogy for business planning: If in May, you want to harvest twice as many tomatoes as you did last year, you know you’ll need twice as much room and will need to plant twice as many seeds about 60-80 days in early spring. And as in Craig’s example, if you and your team are doing everything you can to nurture tiny plants, you’ve got no plan, no capacity, and no energy for growth. Forecasting, in this sense, becomes foretelling: you begin to shape your future by predicting and planning your success. 

Know the intimate details about your numbers

As the saying goes, those who don’t know their history are doomed to repeat it. By not knowing your numbers, where you need to adjust, you allow your upcoming year to become a self-fulfilling prophecy rather than using forecasting to alter the course of your journey. 

Ultimately, you forecast your sales so you know where to start with your sales goals, so you can reverse engineer your sales and marketing activities and establish clear tasks to grow your sales. Sales forecasting is not about the past but about the future, though you might be looking in the rearview mirror to understand where you’ve been, it’s the front view that matters most. (More on goal-setting in our next post).

You can’t positive-think your way into sales success in 2020, as Nate said, by analyzing and planning, “you know what you intend to do, and if you forecast it, [each month, each quarter, the entire year] then you can’t have an unsuccessful year.”