Selling your products or services is essential to the sustainability and growth of your Company. Sales Forecasting is an activity that demonstrates the maturity of your sales process. It allows you to have a concrete vision of your objectives and to plan your inventory, your cash flow and your operations accordingly.
In B2B sales, it is necessary to combine quantity and quality factors in your pipeline to make effective sales forecasting. Always use common sense in your analysis.
The methodology to use will depend on your knowledge of the market and the maturity of your sales process.
In this article, we share with you two approaches that are often mentioned in sales forecasting – Bottom-Up & Top-Down.
The Bottom-Up Sales forecasting approach
The bottom-up approach uses historical revenue data and balances it with some of the elements of your sales cycle that you feel are relevant.
The example below shows the method Applied to a marketing activity, use it for all the channels you have in place.
- £ 1,500 / month of Digital Marketing brings 30 leads,
- Conversion into Customer rate: 10%
- Revenue per generated customer: £ 1000
This method allows you to make a more or less precise link between your investments (money and resources) and your expectations in terms of Revenue.
Depending on the size of your Organisation, it is recommended that you follow this approach over short periods of time, typically monthly or quarterly, to minimize data entry inaccuracy.
This method is also particularly suitable for start-ups because it will allow them to identify the development levers of their model.
The Top-Down Sales forecasting approach
A top-down forecast is based on the overall condition of the market and uses this information to estimate the market share that your Company is able to secure and convert into revenue.
For example, a CRM solutions company can look at the number of SMEs using similar solutions and make predictions about the percentage of market share achievable.
While it’s important to have optimistic forecasts, it’s more important to be realistic about your growth opportunities. This is a common mistake among new entrepreneurs who overestimate their ability to reach their target and ignore (often by inexperience) many factors like competition, etc.
At Reexia, we review companies that want to work with us to enter new markets using both approaches:
What are the shares of its domestic market that the company has been able to secure and what is its sales process in this particular market. This allows us to make predictions about the company’s ability to enter new territories and identify where we can help.