A Simple Guide on Pipeline Sales Forecasting and How to Effectively Implement it Into Your Business

Pipeline Forecasting a Simple Forecast

Pipeline forecasting is one of the more popular sales forecasting methods because it encompasses everything involving pipeline management. This forecasting method takes the entire reporting period for the sales cycle and predicts future sales.

As the name implies, pipeline forecasting is a revenue forecasting method that uses your sales pipeline to predict the future sales of the sales team. 

Both sales reps and sales managers, also known as account executives, contribute to a sales pipeline.

This forecasting method incorporates the estimated opportunity value of each potential deal and each sales rep’s win rate into its calculations of your future revenue. 

This means that this method of sales forecasting is much more data-intensive and relies heavily on you to produce accurate and time-relevant data to input into your forecasting software.

Although a pipeline forecast that is the result of poor pipeline management will provide you with next to nothing in value, a pipeline forecast with accurate and current data will provide you with a close to accurate sales forecast.

How Pipeline Sales Forecasting Works

A common misconception in the sales forecasting world is that all leads turn into opportunities. Leads enter the sales funnel and then are turned into opportunities as they progress down the stages of the pipeline. 

Typically, a company’s BDR team is the one that generates leads and finds prospective customers for the sales leaders (account executives) to distribute to the sales team. 

A company’s marketing team also determine potential sales opportunities using KPIs for digital media such per click rate.

Accurate sales forecasting begins with properly defined pipeline stages, also known as opportunity stages. The weighted value of each stage is different depending on how far the stage is in the sales pipeline. 

Later stages in the pipeline will carry more weight because they are closer to the deal closing.

Who Should Use Pipeline Forecasting?

Pipeline forecasting is a good method of forecasting for those who are seeking reliable, adaptable forecasting, so long as they keep up with updating the data on a frequent basis.

It is a very data-intensive method of forecasting which can be rendered useless if it lacks the correct data. It cannot be overstated how crucial reliable and relevant data is to its functioning. This forecasting method is very doable for almost any company, as long as they have a couple of months of sales in the books.

Pipeline forecasting requires a good amount of baseline data to start off with, so attempting to use this method of forecasting effectively is impossible for new companies with zero in sales.

Pipeline Health

As mentioned, a strong revenue impact is dependent on a proper pipeline. Determining factors such as deal value and the forecasted deals are all essential factors that determine the strength of a pipeline. 

A weak sales pipeline can negatively impact a company sales forecast model, lowering pipeline value which is why it is crucial to have accurate forecast data. 

Why Use Pipeline Forecasting?

Pipeline forecasting is a very thorough revenue forecasting method that weighs the individual factors of each potential deal. This method includes the opportunity value of each potential deal combined with the closing rate of each individual sales rep to make a very detailed and well-calculated prediction.

Pipeline forecasting can account for fluctuations and inconsistencies in your pipeline. The pipeline forecasting method has the capability to readjust its calculations in order to account for a large dip or spike in sales.

This contrasts with other forecasting methods which normally base their predictions on your sales trend and don’t account for possible erratic sways in month-to-month sales. In this head to head, pipeline forecasting comes out as the clear winner. Pipeline forecasting relies heavily on data input, making it one of the most accurate revenue forecasting methods.

Implementing Pipeline Forecasting

Now that we have gone over revenue forecasting and pipeline forecasting, let’s get into the steps that will allow you to implement pipeline forecasting into your company.

How to Catch Your Pipeline

The first step in implementing successful pipeline forecasting is catching your pipeline. To put it simply, catching your pipeline is just tracking your potential deals.

This can be accomplished through the use of a spreadsheet or a great CRM software. Although more expensive, the choice to use a CRM software to catch your pipeline will certainly make things easier for you, especially if you want to work with others.

Sales Bookings or Accounting Revenue

The next step in implementing successful pipeline forecasting is deciding between using sales bookings or accounting revenue for tracking your sales pipeline.

Sales bookings are the opportunities a business wishes to close on a certain day. Sales bookings are your raw sales pipeline. Accounting revenue is the other option to choose from. Accounting revenue is how your sales bookings are identified as quarterly income.

Unfortunately, CRMs do not capture accounting revenue, so you will need an additional tool on top of your CRM software in order to create a pipeline-based revenue forecast.

Deciding which one is right for you is dependent on what you want from your pipeline forecast. If you care more about tracking sales, then going with sales bookings might be right for you.

On the other hand, if you sway more to the side of revenue tracking, then accounting revenue will probably be the choice for you. However, one thing you’ll want to keep in mind, is that using sales bookings is the simpler method as it does not require extra software on top of your CRM.

Dialing in Your Stage Weightings

Dialing in your stage weightings will be your next step on the path to implementing pipeline forecasting. Dialing in your stage weightings will ensure that you have an accurate revenue forecast, rather than one that is oversized or undersized.

You can calculate your stage weightings using the historic sales data within your sales pipeline. You should keep this data on a good CRM software. You will also need to determine at what stage of your sales funnel each lost deal dropped out of your pipeline.

Using this information, you can then find your conversion rate at every stage of your sales funnel, something which is necessary in order to produce an accurate pipeline forecast.

Generating a Pipeline Forecast

The next step on the road to pipeline forecasting is actually to generate one. As you have already gathered all of the data to input into your forecast, this should be the simplest step yet.

Once you have your sales pipeline in the correct format, either sales bookings or accounting revenue, you just need to apply your stage weightings to every individual deal.

Moving Forward

Congratulations! You have just completed all of the steps necessary to complete your first pipeline forecast. However, now it is time to look ahead to the future and the steps you will need to take in order to improve your newly minted pipeline forecast.

Once you have completed your initial pipeline forecast, you will want to begin adding and changing the information in it. Doing this will keep your forecast accurate, since most forecasts are only good for anywhere between 2 to 6 months.

In order to keep your forecast time-relevant, you will want to consider readjusting a number of different factors including but not limited to your new win rate, average deal size, and number of deals.

Common Problems and Solutions With Pipeline Forecasting

Although pipeline forecasts are one of the most accurate ways to forecast sales, they certainly don’t come without their faults. Arguably the biggest plus that comes with pipeline forecasting can also be its biggest possible problem, and of course, I am referring to its data reliance.

The constant need for relevant and precise data associated with pipeline forecasting can be a plus for very organized data-driven individuals, but for disorderly individuals without CRM software, the task of constantly updating the data can be the downfall of their pursuits of pipeline forecasting.

The other main problem that comes with pipeline forecasting is the workload. Pipeline forecasting involves so many different moving parts and without simple software to lend a helping hand, the tasks can seem virtually impossible.

But of course, any issues involved with pipeline forecasting can be overcome. Both of the main stresses involved with pipeline forecasting, being data reliance and workload size, can be overcome with refreshing your data in a timely manner and with a simple, user-friendly CRM software.

Refreshing your data when necessary will keep your forecast relevant and stop it from becoming useless and outdated, while a sales forecasting CRM can help you manage your relations, store your data, and predict your sales.

Pipeline Management in Salesforce

Salesforce Lightning is a great CRM tool to manage a sales pipeline because it gives the user a real-time view of the pipeline. In addition, a user can filter the pipeline by team or territory for customized insights into the business. Here is a short video that shows how to manage your pipeline in Salesforce:

Overall, pipeline forecasting is a foundational tool used for sales forecasts. Once a company has a well built out pipeline, it can use the data gathered from the pipeline to better forecast daily, quarterly, and yearly sales revenue.

Conclusion

Pipeline forecasting is a tool that when used with other forecasting techniques, can be a powerful analytic method. Companies can use pipeline forecasting to verify other forecasting methods that aren’t data intensive like scenario writing and intuitive sales forecasting. Pipeline forecasting is an anchoring forecasting methods that is used by most sales teams as part of their forecasts. Having a pipeline with clean data in crucial for any forecasting method used by companies.