How to create a sales forecast for your startup

by Patrick Thorp - December 18, 2020

There are many conflicting views on sales forecasting. I read an article in quite a well known online publication that used phrases like “easy to get right” and “guess, art, assume, one person doing it” – all terrible words, suggesting that writing a sales forecast for your business is easy. It’s not, it’s tough but manageable and there are a few considerations.

A sales forecast is a map of where your company aspires to be. It is best reverse engineered, starting with your company goals (ARR, net new logos, products sold, renewals, etc.) and then this plots how you are going to get there. It needs to be thought of as a collaborative document, including those departments who are indirectly affected, like Operations, HR, Finance, etc. because they will use a sales forecast for different reasons.

One person can do a forecast, but better done as part of a team because there are always things even the best CRO/VP of Sales will miss. Everyone needs to buy into this document as well, not just front-line salespeople; there are other considerations like seasonality one should be aware of like December being a short month, the summer being quiet, the tax year in the UK ending in April, etc.

One thing is for sure, your forecast, where possible, needs to use available historical data. Therefore, it is a critical point for those using your CRM to input the correct data on a day/week/month basis. I recommend having data hygiene as a target for each rep going as far as suggesting commission will be held back if data hygiene drops below a certain level – see behaviour change then!

Once you feel you have the data available (if you don’t and it’s a new startup then don’t worry), there are 6 methods of sales forecasting you could choose, most pertinent to your company:

  1. Opportunity stage forecasting – this is where you focus on the percentage likelihood of opportunities closing. Top of the Funnel deals will attract a lower percentage (i.e. 10% likelihood), whereas bottom of funnel deals will attract close to 85-90% chance of closing so your forecast can reflect this
  2. Length of sales cycle forecasting – this looks at the age of the opportunity. So, if you know it typically takes a company 6 months to buy, and the opportunity is 3 months old, it has a 50% chance of closing.
  3. Intuitive forecasting – this is more gut feel and whilst subjective can be a good way of forecasting if your startup is very new.
  4. Historical forecasting – this is where you look at previous months or quarters and assume you are going to match that amount but may add a little bit on top as an aspiration.
  5. Multivariable Analysis forecasting – this is the best way, but the most complicated with the requirement of an advanced analytics system
  6. Pipeline forecasting – this looks at the win rate against the opportunity value per deal, which does work but does take some time.

A sales forecast is important and it takes time. If your new company year starts in April for example, I would start considering this forecasting at the beginning of March to give you time to assess your data set, draw in colleagues and go through some drafts of it before you present it to your board at the start of the new year.

Further Reading

Patrick Thorp
September 1, 2020

A Beginners Guide to Revenue Operations

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Funding journey
James Ker-Reid
November 30, 2021

The impact of niching when going for startup investment

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James Ker-Reid
February 21, 2022

Why is revenue operations important?

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