The A to Z Guide Of Roll-Up Sales Forecasting

The roll-up sales forecasting method can give great insight into your team’s opportunity performance and can be used to determine monthly, quarterly or annual sales projections using real-time data. Like most sales forecasting tools, it can help companies get accurate forecasts for potential revenue. 

The purpose of this method is to allow account reps to analyze individual opportunities (aka deals), take the sales data, and communicate to their account managers what they believe they can win by the end of the sales time period (month, quarter, or year) or what their estimated revenue is.

Roll-up sales forecasting and bottom-up sales forecasting are synonymous terms but are often used in different contexts. In a financial forecasting capacity, the term used is bottom-up forecasting; however, in the Salesforce world, it commonly referred to as roll-up forecasting. 

With accurate sales data and strategic decisions made by the company, roll-up sales forecasting can be a great projection tool of sales revenue for an enterprise. Companies can use roll-up forecasting to help with scenario planning or use more complex forecasting techniques like multivariable and regression analysis forecasting to further assess the roll-up data. If the sales data is inaccurate, flawed, or incomplete, then your forecast will have little value. 

If a company is using accurate data for sales forecasts, then he or she should be able to determine the sales forecasting patterns in the company’s historical data to allow the company to estimate revenue. 

A strong revenue forecast can also help a team gain confidence because it will allow them to identify challenges early on and take appropriate action. It can be a good motivational tool because it allows reps to see how they are performing compared to their peers.

Roll-up forecasting can be a complex method to grasp. To make things easier, this article breaks the method down into digestible parts that are easy to comprehend.

If you haven’t read Akucast’s previous article, “Learn how to Deploy Opportunity Stage Forecasting Today”, now would be a good time to do so. Roll-up forecasting is a method that builds on the foundation of having a strong, easily understandable pipeline.

The Opportunity Stage Forecasting method detailed in Akucast’s previous article can help you simplify your pipeline. It would be beneficial to have some background knowledge before jumping into this article in order to fully grasp the concepts detailed here.

What is Roll-Up Forecasting?

Roll-up sales forecasting or bottom-up sales forecasting, in layman’s terms, is when a rep adds up the revenue each opportunity may bring in and reports the sum to their manager as their forecast number. The reason why it’s also called bottom-up forecasting is that the quarterly numbers are forecasted from the bottom (reps) and sent to the top of the chain of command.

Opportunities are the building blocks of sales forecasting because by managing your opportunities correctly and accurately, you can use the sales data gathered for your forecasts. Companies often use AI forecasting to further develop the roll-up forecasting analysis.

To simplify the concept, let’s look into an example, but first let’s determine the hierarchy of the internal employee structure of the company that we will use for our example. Our example company, Acme Corp, has four divisions in its sales team. All of the reps report their forecasts to the Directors of Sales or a sales manager who then sums up the forecasts and reports to the VP of Sales who compiles a collective report and reports to the CEO/CFO.

Account Rep -> Account Executive -> Directors of Sales -> VP of Sales -> CEO/CFO

Now that we have that straightened out, let’s dive into the example.

Company: Acme Corp

Forecast Period: Quarterly

What Do They Forecast: Sales revenue for new business

Forecast Calls: Performed Weekly

This is a snapshot of John’s (Account Executive) pipeline

In the pipeline, you can see there are deals highlighted in green. Let’s assume that John uses those numbers to forecast the number of deals he will close (Wins).

Just to clarify, most companies do weekly quarter forecasts. Each week, reps are required to submit quarterly forecast numbers to their managers for what they believe they can bring in for the current quarter. As the weeks in the quarter progress, the forecast will change.

Think about it, as you are getting closer to the end of the quarter, your quarterly forecasts will start to get more and more accurate because you’ll start to have a better indication of how many deals you will win/close for that quarter. That is why the last week in the quarter will likely have the most accurate quarterly forecast.

To do this, John would sum up the total amount of revenue generated from each of these opportunities as shown below:

Forecast Number This Week = $200,000 + $150,000 = $350,000

So the amount that John would report to his manager Michelle (Director of Sales) would be $350,000; which is the total amount of opportunities John believes he can win this week.

Michelle has 6 reps on her team and all of the reps would use the exact same formula to calculate their weekly quarter forecasts and give the final total to Michelle. Michelle would then sum up all of the numbers given to her by each of her reps to get a grand quarterly forecast for her team.

Hypothetically, if each rep had the forecast as shown below, then the forecast number for Michelle’s entire team would be $2,654,000. Michelle would then report her team’s forecast number to her boss, Jane, the VP of Sales.

Jane would take all the forecast numbers from each of her Director of Sales and sum them up to get her weekly quarter forecast. Again, let’s assume that each director forecasts as shown in the table below and that there are 2 directors. The total number that Jane will forecast for this quarter will be $4,75,000.

Jane, being the head rep, would then report that up to the CEO/CFO that they’re most likely going to win $4,754,000 this quarter.

Note that the hierarchy presented in the example above will be slightly different for each individual company.

Each enterprise will have its own variation of a sales pipeline because the pipeline should reflect its buyer’s journey through the buying process. Often, the pipeline created by a sales team can be too complex, and therefore the sales forecasting sales data, when extrapolated, can be meaningless.

Top-Down vs Bottom-Up Roll-Up Forecasting Approach

The bottom-up approach in roll-up sales forecasting in a broad sense is when an establishment uses sales data given by lower reps to estimate a company’s future performance and revenue. 

In the sales world, the bottom-up approach or rollup forecasting approach to revenue generation refers to when reps estimate the amount of revenue they are likely to bring in on a weekly basis to predict quarterly revenue. 

The closer to the end of the quarter, the more accurate their estimates will be because the reps will have a better indication of what their revenue will be closer to the end of the quarter. With the bottom-up method, there is a target market that a rep is going after. 

In contrast, a top-down approach in roll-up sales forecasting is when higher-ups from an establishment determine the total available market or teams for a product and use analysis like regression models to determine the amount of the market your establishment is likely to capture. The top-down forecasting approach relies on external market data rather than the company’s historical data.

The top versus bottom approach can be used to estimate the financial standing of a company in addition to the total capturable market size. With bottom-up forecasting, an establishment is using financials to forecast revenue. 

With the top-down method, an establishment uses different forms of analysis to estimate the attainable market size. A huge flaw in both methods is that they depend on human judgment. Some individuals will be optimistic in their forecast while others will be pessimistic.

What is a Sales Opportunity?

Something to clarify before we continue discussing roll-up forecasting is to understand the term ‘opportunity’ in a sales capacity. An opportunity in this regard is any potential client that you have interacted with in any capacity regarding a particular sale regardless of whether or not they become a customer. 

As the Account Executive, you believe there is potential, that they are actively shopping for a solution that your company can provide.

It doesn’t matter whether or not that potential client becomes a customer. Regardless, that client is considered an opportunity. This term will make more sense when we dive into the rollup categories.

An important thing to remember is that not all opportunities will be a part of your forecast because not all opportunities are won for a particular period. For example, if you have a potential client that says that they will buy your product next quarter, then that client or opportunity will not be counted in your current quarter’s forecast.

All of the opportunities that you have are part of your entire pipeline. However, not all opportunities are part of your forecast. Whereas all the opportunities presented make up your entire pipeline, opportunities that are used for forecasting are a subset of your pipeline.

Forecast Categories

Essentially, Forecast Categories are related to your Opportunity Stages. But

These categories offer great insight into your forecasts.The categories are a way for the rep to look at all the opportunities he/she has in her pipeline and put them in certain forecast categories based on the opportunity’s level of commitment.

In general, there are five categories that are used in roll-up forecasting. Note that while you can customize these fields, the traditional and most commonly used categories are the ones listed as follows:

1. Omitted
2. Pipeline
3. Best Case
4. Commit
5. Closed-Won
6. Closed-Lost

9 Forecast Stages

• Prospecting
• Demo
• Investigating
• Trial
• Proposal
• Roadblocks
• Negotiations
• Closed Won
• Closed Loss

In order to establish which of the opportunity stages belong to which roll-up forecasting category, we first need to establish a checklist of the requirements for each opportunity stage. These requirements will be a checklist that provides, in more detail, what is needed in each specific opportunity stage to advance to the next stage.

Is Artificial Intelligence Really That Important for Forecasting?

The short answer is that it depends. It depends on what your organization deems reliable.

It is really up to each individual establishment whether or not they want to rely on Artificial Intelligence (AI) to categorize opportunities because that is essentially saying that the AI is more knowledgeable than the reps and therefore the AI can more accurately categorize opportunities.

An important thing to note when categorizing opportunities is that more often than not the reps’ perception of a deal may be skewed; which can lead them to miscategorize an opportunity.

For example, if a rep believes that they have a good working relationship with the client and are certain that the client will close the deal, the rep might place this deal in the committed category even though there are no indications of a verbal or physical commitment to the deal from the opportunity.

This makes it challenging for companies to forecast the number of money reps will bring in for a quarter. To combat these discrepancies, companies have turned to AI to analyze and score each opportunity, depending less on the reps; Opportunity Stage or Forecast Category, and more on AI inspection of a rep’s activities.

An issue that often comes up with AI is that it relies on an invasive analysis of rep communication channels. For example, for AI to be most effective, it would need access to a rep’s:

AI-based forecasting can be very effective, but often, it is the companies that have an advanced level of forecasting maturity have the most success. AI-based forecasting relies heavily on a lot of integrations with various software systems and IT support.

While the reps’ input into the CRM becomes one of many data points the AI uses to determine a forecast number, their input now becomes one of many variables in their algorithm and usually doesn’t carry the same weight as it does in more traditional forecasting methods.

Our opinion is that if your establishment doesn’t have an advanced level of forecast maturity yet, or at least 3 years of solid forecasting snapshotted, it’s best to get great at the basics such as roll-up forecasting. The rep’s input at this level greatly aids AI in becoming more accurate.

Opportunity Stages and Their Requirements

For the 9 stages we discussed earlier, let’s understand how a typical company may interpret them.

With each of the opportunity stages, we first need to determine which items need to be checked off so that a rep can proceed to the next stage.

Prospecting

·  Conduct research into the company assessing needs

·  Determine if they are currently working with competitors

·  Perform a LinkedIn search into the person who you are going to be in contact with

·  Understand how your product can be a fit for the potential opportunity

Demo

• Answer any questions the potential client might have
• Determine their timeline
• Determine their budget
• Establish ROI for the client
• Highlight customer stories and point out references

Investigating

• Determine if your product can meet their specific needs
• If the customer’s needs cannot be fulfilled with what you are offering, determine alternative reasons why they would benefit from the service
• Set up the specs for a trial period
• Determine ROI for your team

Trial

• Establish a periodic check-in schedule with your client
• Assess any concerns they have during their trial

Proposal

• Draft a proposal for the client outlining the timeline and cost
• Sort through internal approvals and delivered proposals
• Draft a project implementation plan

Roadblocks

• Assess and solve any additional issues that may arise

Negotiations

• Adjust prices if needed
• T&C agreement signed by customer
• Finalize proposal agreement from the customer
• Customer PO
• SOPs review

Closed Won

• Cha-ching; deal booked

Closed Loss

• Deal closed, the customer decides to go a different route or the dreaded do nothing.

Once the checklist is determined for each stage, we can now place each stage into the appropriate rollup categories.

The prospecting stage does not fit into our four roll-up categories, so we are going to put it in its own section (omitted). Aside from that, we can divide up our opportunity stages as follows:

These categories are another type of forecasting that help outline your sales process and filter your opportunities to better manage your pipeline. There isn’t a right or wrong way of doing this, it’s more of a way to help organize your forecasting.

Roll-Up Forecast in Salesforce

As mentioned previously, roll-up forecasting is referred to as rollup forecasting in Salesforce. To better understand how forecasting works in Salesforce, here is a quick video that sums up the process in Salesforce.

The video breaks forecasting down into 3 easy-to-follow steps in Salesforce. Something the video mentions that can be a point of concern is your automated forecast based on the categories mentioned above and adjusted forecasts.

Adjusted forecasts are used only when a rep feels that their actual numbers are expected to be different than what is being forecasted. That is why they need to adjust the numbers so it truly reflects what the rep thinks he/she can close in the quarter.

Since adjusted forecasts are subjective and aren’t based on actual numbers and concrete sales data, they shouldn’t be used in your forecast.

Types of Rollup Forecasts

In order to understand what type of forecasting is best suited for your specific business, it’s best to analyze and understand the two different ways opportunities can be rolled up into forecast amounts.

Individual Forecast Category

Individual sales forecasting is a subjective method of forecasting. It requires reps to conduct individual opportunities and tag each opportunity they want to include in this week’s forecast.

The sales data extracted from individual forecasting will be based on each distinct rollup category and the opportunity stages associated with it.

The purpose of doing an individual forecast is to answer questions like; where is the deal currently in my pipeline based on all the opportunities?

Advantage of Individual Forecast Category

Individual roll-up forecasting allows reps and account executives to determine how much each rep is going to bring in total for the month, quarter or year by adding the 4 rollup categories’ forecast amounts together. It is the method that allows the rep to convey exactly what they want to lead.

Cumulative Forecast Category

Here is when opportunities from multiple different rollup categories rollup together to form cumulative forecast amounts. Here, the sales data that is extracted is based on an accumulation of forecast categories.

This method of forecasting is the objective method. Other than assigning a forecast category to an opportunity, the rep has no input to which opportunities to include in a forecast.

To conduct cumulative forecasting, you take opportunities for a category and combine them with subsequent opportunities in the subsequent categories to get a cumulative forecast.

The purpose of conducting a cumulative forecast is to determine what your company will deliver based on all of the opportunities.

Advantages of Cumulative Forecast Rollups

The advantage of having a cumulative forecast rollup is that it highlights the cumulative amounts from the opportunity stages in each rollup category and the subsequent rollup categories within the sales funnel. It allows the team to see the total amount that they are likely to bring in without having to combine the category totals themselves.

Conclusion

Roll-up forecasting is an effective forecasting model to help determine revenue projections. It can be a tricky model to grasp which is why most companies that use this forecasting method use customer relationship management software to help facilitate the forecasting process. 

The forecast accuracy is relatively high with this forecasting method because it uses real-time sales data. If the sales data is accurate, companies can have great calculated forecasts. Companies often use roll-up forecasting in conjunction with other sales forecasting methods such as historical, pipeline, length of sales cycle, or intuitive sales forecasting.

Proper software that helps companies implement roll-up forecasting can increase revenue projections. Roll-up forecasting can help companies with their financial planning by optimizing sales operations for the company. It can help establish companies in existing markets and develop forecast data.

Summary:

Roll-up forecasting is the de facto standard for enterprise sales teams for good reason. It is one of the most effective methods for reps to communicate to management what they think they can win; which allows for an efficient method to obtain a company’s forecast outlook.

While this method is relatively simple to understand, many companies struggle to execute it well without great software to assist them in enforcing best practices, enterprise standards, and easy inspection.