5 Steps To Success With Sales Forecasting

Wondering how to create accurate sales projections?

Today we are going to:

• Take a look at the three most popular sales forecasting methods.
• Share a five-step process for creating sales projections based on historical data.
• Discuss the limitations of sales forecasting.

The truth is that no one can predict the future… But that doesn’t mean that you shouldn’t try! 😉

Which Sales Forecasting Method Should You Use?

Let’s start by taking a closer look at the three most popular sales forecasting methods. Which one should you use for your business?

Intuitive Sales Forecasting

When you are just starting out, you don’t have any historical sales data to base your predictions on, so making an educated guess is your only option. This is known as intuitive sales forecasting.

While undue confidence is a potential pitfall inherent in all three sales forecasting methods, it’s worth keeping in mind that intuitive sales projections are the least reliable. 

That being said, conducting extensive customer research, competitor research, and market research can help you make more accurate predictions.

Historical Sales Forecasting

If you have an established business, then it makes sense to use historical sales data as a basis for your sales projections. This is known as historical sales forecasting.

However, you can’t simply take sales numbers from a past time period and project them onto an equivalent future time period. Say, you can’t look at this year’s sales and expect to make the same number of sales next year. 

There are a lot of factors that you need to take into consideration if you want to make accurate predictions based on historical sales data. We are going to discuss this later in this article.

Opportunity Stage Sales Forecasting

You can also use your sales funnel conversion rate data as a basis for your sales projections. This is known as opportunity stage sales forecasting.

However, just like with historical sales forecasting, it’s not as simple as it may seem because you can’t just assume that the conversion rates will remain the same in the future. That assumption needs to be warranted!

How To Use Historical Sales Data To Forecast Future Sales

Historical sales forecasting is the most reliable sales forecasting method out there. That’s why it’s going to be our primary focus in this article.

Step #1: Clean Up Your Data by Removing Irreplicable Events

If you want to use historical sales data as a basis for your sales projections, you need to first clean it up by removing irreplicable events. 

Say, if a celebrity stumbles upon your product, loves it, and mentions it on a popular podcast without you having to pay them for a shoutout, that might lead to a spike in sales.

However, this is a random event that cannot be replicated, so it doesn’t make sense to include it in the data that you are going to use for historical sales forecasting.

This applies to both positive and negative events: you want to remove both random disasters and random lucky breaks from your sales data. 

Only keep the sales trends that can be reasonably expected to continue in the equivalent future time period!

Step #2: Examine the Current Market Conditions

The market is always changing.

This means that when you are doing historical sales forecasting, you need to remember that in all likelihood, the market has already changed since that past time period. 

That’s why you need to examine the current market conditions. What’s going on right now?

Take a closer look at what the main players in your niche are up to, see if there are any new entrants that you should be concerned about, examine the social context (trends, politics, economy), etc. 

It’s important to account for all this when creating sales projections.

Step #3: Anticipate Upcoming Market Changes

You should also do your best to anticipate upcoming market changes that might affect your sales in the time period that you are forecasting. 

Just like with analyzing the current market conditions, you want to take a look at the main players, the new entrants, and the social context. What do you expect to happen in the foreseeable future?

You need to take all that into consideration when creating sales projections.

Step #4: Estimate Expected Future Growth

You probably have big plans for the future: new marketing campaigns, product launches, etc. 

This may be somewhat controversial but we would argue that you shouldn’t include any of that in your sales projections. Assume that none of it will work out.

When estimating expected future growth, look at the current growth and only extrapolate what can be reasonably expected to continue.

Say, if you have been running a Facebook ads campaign for a while and it’s been working well, then it makes sense to include it in your estimated future growth. 

But don’t count on new marketing campaigns working out. It’s better to assume that they are going to flop and be pleasantly surprised when they work out than to assume that they are going to work out, make decisions based on that assumption, and then find yourself in trouble once they flop!

Step #5: Create Sales Projections

Now it’s time to create sales projections. You can either use spreadsheet software like Excel or invest in specialized sales forecasting software. And if you have a simple, predictable business in a stable industry, you can probably get away with basic pen-and-paper napkin math!

Isn’t This Approach Way Too Conservative? 🧐

We realize that some might take issue with this approach to sales forecasting being extremely conservative. It’s true that it will almost certainly lead to underestimating future sales. 

However, we would argue that when it comes to money, it’s better to err on the side of caution. This is true both for managing your personal finances and for running a business. Why?

Because we humans are susceptible to the optimism bias that we are going to discuss in the next section. We want to believe that it will all work out!

But this unwarranted optimism can lead to terrible business decisions such as pouring resources into unvalidated ideas, overhiring, expanding too quickly, etc. 

That’s why it’s better to be pessimistic in your sales projections. It can help you avoid catastrophic business mistakes based on pie-in-the-sky thinking. 

And if you end up making way more money than you expected, then hey… That’s a great problem to have!

Warning: Sales Projections Are Not Reality!

When it comes to sales forecasting, there are a lot of potential pitfalls that you need to watch out for, but the most dangerous one of them all is forgetting that your sales projections are just that: projections. They are not reality!

Even if you do your best to forecast sales accurately, there will always be various factors that can throw off your predictions, some within your control and some outside of it.

That includes:

Optimism Bias

Optimism bias is a cognitive bias that makes people believe that they are:

1. More likely to experience positive events. In the sales forecasting context, this can manifest as being overly optimistic when creating sales projections, especially in situations where you can’t rely on historical data (e.g. product launches, new marketing campaigns, etc. ).
2. Less likely to experience negative events. In the sales forecasting context, this can manifest as a failure to accurately assess risks, such as being overly optimistic about the economy, market conditions, geopolitics, etc.

Company Culture

When you are a solopreneur, your incentives are perfectly aligned with the company’s purpose of generating profit. After all, that profit is going to end up in your pockets!

But as your business grows and you start hiring, the incentives of your employees are likely to be increasingly misaligned with the goal of generating profit. 

This can lead to a situation resembling the broken telephone game: 

People may be incentivized to come up with unrealistic timelines, lie about their progress, hide problems, etc. due to the company culture. 

Consequently, information gets increasingly distorted as it makes its way up the company’s hierarchy. By the time it reaches the top (you), it doesn’t resemble reality at all. 

You can’t make accurate sales projections when you don’t have a clue as to what’s going on in your business!

Black Swan Events

Back in 2007, mathematical statistician and essayist Nassim Nicholas Taleb published his book “The Black Swan” in which he introduced the concept of a black swan: a hard-to-predict, highly improbable event that has a disproportionate impact. 

The Covid-19 pandemic, which was arguably the most recent worldwide black swan event, is a great example of historical sales forecasting limitations: sales projections for 2020 went right out of the window in March of that year when the lockdowns started. 

While black swans are by definition hard to predict, we can probably safely assume that more of them are on their way!

Stay Humble!

Optimism bias, company culture, and black swan events are just three of the various factors that can throw off your predictions about the future. 

The reality is this: unless you have the gift of clairvoyance, you can’t possibly know what the future holds. 

That’s why it’s so important to exercise epistemic humility when making business decisions!

Increase Sales With the Value Ladder Sales Funnel

Okay, so now that you know how to forecast sales, let’s talk about how to increase them. 

We believe that the most effective way to sell anything online is the Value Ladder sales funnel.

It was created by our co-founder Russell Brunson who then used it to take ClickFunnels from zero to $10M+ in annual revenue in just one year (it’s at $100M+ now!).

This sales funnel has four stages:

• Bait. You offer the potential customer your lead magnet in exchange for their email address.
• Frontend. You offer the potential customer your least expensive and least valuable product or service.
• Middle. You offer the customer a more expensive and more valuable product or service.
• Backend. You offer the customer your most expensive and most valuable product or service.

Ideally, you also offer a continuity program of some sort, meaning, a subscription product that generates recurring revenue.

We also recommend adding downsells, upsells, and cross-sells to these core offers in order to maximize your revenue.

So the main idea here is this:

Instead of driving traffic directly to your website or sales page, you drive it to your lead magnet landing page and convert those visitors into email subscribers.

Then, once you have their email addresses, you pitch your products and services to them via email and drive traffic from your email list to your sales pages. 

The reason why this sales funnel works so well is that it allows you to:

1. Start the relationship with that person by offering free value.
2. Nurture that relationship by continuing to provide free value via email.
3. Build trust by providing progressively more paid value at each stage.

Here’s how Russell explains it:

Building a Value Ladder sales funnel for your business is the single best thing you can do to increase sales!

Build Your First Sales Funnel In Just Five Days!

Let’s keep it real:

Building a sales funnel from scratch can seem like a daunting task.

That’s why we created our 5 Day Lead Challenge where Russell walks you through it step-by-step.

You will:

• Create your first lead magnet.
• Build your first sales funnel.
• Set up a six-email welcome sequence.

…and launch your funnel in just five days!

So don’t hesitate. Take action now. It can change your life!

Join Our 5 Day Lead Challenge Today!

P.S. This challenge is completely FREE!