Where to Start When You Develop a Sales Forecast

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It may seem overly simple, but the first step in developing a sales forecast is to define what it is that you are actually forecasting.

 

For companies that have been around for a while, that’s not usually a major challenge. But for sales leaders at some of the early stage companies that we speak with, it’s a bridge they still need to cross.

Depending on how your business operates today and which direction you’d like it to go in the future, there are a number of different metrics that you can forecast.

To name a few:

• Total revenue
• Annual recurring revenue
• Monthly recurring revenue
• New business bookings
• New business and upsell
• Annual contract value
• Licence revenue and services

 

 

Of course, there are many other metrics that could be relevant. The key is to choose the one that is the most meaningful leading indicator of growth for your business.

At OpenView, we believe strongly that for early stage and expansion stage SaaS companies, new business bookings tends to be that leading indicator to growth. Put simply, new business bookings are defined as the value of a 12-month subscription contract from a new customer. Because early and expansion stage companies are also typically competing for market share, tracking those bookings from new customers makes a lot of sense.

It’s also important that you align forecasting with the way you compensate your salespeople. By connecting sales rep quotas with the same metric you use for forecasting, the business will save significant administrative work and make the forecasting and planning processes easier on everyone.

Finally, you need to get buy-in from other members of the executive leadership team to determine their expectations of the sales forecast. There needs to be a collective agreement on the metric you’ll use and the ultimate purpose of the forecast. That way, everyone knows what to expect when the forecast is delivered.

For some great forecasting tips, check out OpenView’s eBook, “Sales Forecasts: A Question of Method, Not Magic.”