How negative sales forecasting can benefit your company

Sales forecasting is an essential part of every sales leader’s job. As you present your estimates, it’s important to answer two crucial questions: How much will we sell, and over what period of time?

Some say sales forecasting is both an art and a science, and there are many techniques you can use to predict revenue for your business. But if the pandemic has taught us anything, it’s that game-changing events can come out of seemingly nowhere and completely upend your revenue projections.

Both business and consumer confidence can flip in an instant when an economic crisis, natural disaster, or indeed a pandemic take hold. These types of events can dramatically affect your sales forecasts and hamper revenue growth.

In times like these, it’s okay to focus instead on empathy and building relationships with your clients and team.

Remember, your sales reps and team leaders need to be empowered to maintain their customer relationships as much as possible; when the storm passes, you will need to learn on these strong relationships as you grow and recover.

Your forecast may not be as you anticipated in these scenarios, but it’s still important. Your sales forecast is a critical resource to plan for the months and years ahead, so your team can understand:

  • How’s our pipeline looking today?
  • What are the best-case and worst-case scenarios?
  • How has the sales forecast changed from a week or a month ago?
  • When are recurring payments from existing customers set to renew?

This is all part of a risk management approach called Negative Forecasting, which allows you to assess the current risks to your business.

What goes into a sales forecast?

Accurate and complete data is an extremely important requirement for a robust sales forecast. If you’re starting out as a new business, you may not have sales data of your own, but you can instead look at industry trends and make educated estimations.

In addition to outlining your current pipeline and setting some goals/benchmarks, your sales forecast will typically take into account conversion rates from initial conversations to closed deals.

Here are some possible limitations to your sales forecasts:

  • Forecasts based on single-point estimates and metrics, like a sales target
  • Sensitivity analyses focused on single variables like seasonality
  • Inadequate application of formal stress testing approaches
  • Limited integration between strategic planning, financial forecasting and budgeting

How to conduct a Negative Sales Forecast

Negative sales forecasting addresses the current risks to your business and how to mitigate them. Some of the most common techniques for assessing these issues include:

  • Migrating from single-point forecasting and single-input sensitivity to multi-factor perspectives 
  • Adopting the use of quantitative distributions and aggregation of individual volatilities to evaluate ranges of possible outcomes
  • Shocking the financial and sales forecasts with major risk drivers to get a cash flow or earning distribution for each type and period
  • Enabling the cash flow cycle to be shortened so you can get ahead of payments owed to your business and reduce your exposure

Very simply, this means having multiple forecasts and models that assess different variables and provide the opportunity to create an advanced plan in case of stress or crisis events.

Key takeaways

Sales forecasting always needs to take external risk factors into account – even those that seem unlikely or extreme. You never know! To paint a highly comprehensive and diverse picture of the risks ahead, you should also implement different types of modeling.

If you want to reduce your risk exposure and maintain your cash flow, you’ll need an airtight sales process. Download our handy sales contract template to help your sales team close deals faster than ever and reduce their admin time!

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