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The science of sales forecasting – because cash is king
Too many businesses fail because of poor cash flow management and lack of proper sales forecasting. Even with the most innovative product and a flock of customers, you can be forced to bankruptcy because of negligent cash flow management. This is true for all businesses but it is especially important for those that produce goods. Those of us who have been in this position know how difficult it can be to properly forecast sales. Produce too little and you risk shortages and long lead times which will seriously affect customer perception. Produce too much and you can get stuck with too much inventory and fall short on cash. So what are the best practices for accurate forecasting and managing your cash?
Start with something and then continuously refine it based on hard facts
If you’re just starting a business, it’s even harder to forecast sales since you have no historical data to analyze. But even with the absence of historical data, you have to define a model that is adapted to your business reality. In many cases, it starts by analyzing your sales cycle: who are the potential buyers, what are the different sales stages, how long do you estimate each stage to last and what is the percentage of closing a sale for each stage. Second step is to start capturing your pipeline of opportunities and exercising your sales cycle process. Of course, it is tempting to do this with a simple spreadsheet. You can read my own story here: HOW A CRM HELPED ME GROW SALES, AND THEN SELL MY PREVIOUS START-UP.
Using a CRM (e.g. Salesforce, Zoho, Dynamics) is extremely important from early on since this is the only way you will be able to start gathering historical data and be able to use analytics to refine your sales process and how you forecast. The more hard facts you gather, the more accurate your forecast assuming of course you are continuously refining your model as you go. Chances are the model you created 6 months ago is no longer accurate. A great book about this and that I recommend to the startups I coach is “The Sales Acceleration Formula” by Mark Roberge.
Put in place simple and real-time sales forecast reports and dashboards
Simple and adaptive dashboards that are created with a few clicks of the mouse are key. Having the data is one thing, but if it can’t be quickly digested by different people in your organization, chances are the data will be simply ignored. For example, the sales forecast needed to present to the Board of Directors meeting will be much more high-level than the one your sales director will use on a daily basis. Same is true for your operations director: he does not really care about sales revenue prediction but definitively needs to know how many units of each product SKU he needs to plan for next month. And real-time dashboards are also key. For example, three or four unexpected rush orders come in, and rather than communicate the good news to operations by e-mail with the risk of confusion, a real-time dashboard setup with threshold alarms can notify him automatically.
Consider other sales forecasting models
Once you have a few months or a few quarters of experience and historical data under your belt, it may be useful to re-consider the old tried-and-tested “pipeline of opportunities” sales forecasting model. Try to find the model that best fits the specificities of your business. For example, if 80% of your sales quarter after quarter come from a handful of customers that buy at a steady pace, your sales forecast should be heavily weighted to this reality, not on a bunch of opportunities that may or may not convert. A good CRM allows you to adjust your forecast based on different factors and weights with a few clicks of the mouse.
Cash is king
Sales forecasting is so important for cash flow management for every business. Ignoring it or trying to forecast with no data and lack of proper tools is simply a recipe for disaster. Our sales CRM experts at Soljit help you put in place a strong foundation for proper sales forecasting and show you how to refine it as you grow your company. Call us today for a free consultation 1-866-276-5548