Companies use various sales forecasting methods to analyze company performance and forecast sales. Sales forecasting methods use a combination of numbers and past experience to determine projected sales for a company. Companies can use forecasting methods like length of sales cycle, pipeline forecasting, or even AI forecasting to predict sales.
There isn’t one universal forecasting method that can be used to predict sales for every company because each company is different. Each company has a different structure and different offerings, which is why it is difficult to assume that one forecasting method will work for every company. More often than not, companies rely on historical data to forecast sales projections.
Different sources will tell you that one forecasting method is better than another – which is completely false. Each sales forecasting method holds its own merit. Some forecasting methods, like multivariable sales forecasting, and regression analysis sales forecasting are complicated and can be costly to implement which is why companies typically don’t use these forecasting methods.
The validity of a company’s sales data will determine whether or not the resulting forecast is an accurate prediction of the expected value of the sales revenue.
However, a positive aspect that all these forecasting methods shares are that they all compliment each other very well. This means that companies don’t have to stick to one particular method. Companies can use a combination of sales forecasting methods to help predict annual sales.
One of the ways a company can create a sales forecast is by creating hypothetical outcomes of different scenarios that help prepare your sales department for various possibilities for financial projections.
Scenario Writing Sales Forecasting
Scenario writing forecast is essentially a backup sales forecasting method. Scenario writing is used when a company’s long-term sales plan is difficult to predict due to economic or environmental factors. A sales process is a difficult process to nail down which is why companies have a hard time determining a sales plan.
A company can use scenario planning to outline the sales process for future and unforeseeable circumstances. This forecasting method can be used to analyze market trends and have contingencies in place for existing products.
This sales forecasting method is essentially a management tool that helps companies determine sales performances to make informed decisions about the business.
The purpose of this method is to create various extremes that your sales data may not be able to predict. This qualitative method for forecasting is used as a long-term planning tool. For this forecasting method to be successful, sales and company leaders need to have a strong subjective understanding of the sales cycle and the company’s business model.
This forecasting method allows companies to define various outcomes that may occur based on a discrete set of well-defined assumptions. Company sales teams then draft their best-case scenarios, their worst-case scenarios, and everything in between to develop a methodical sales plan to optimize the sales process.
Advantages of This Forecasting Method
This forecasting method allows you to think strategically and map out scenarios for your company. The advantage of creating such scenarios is that if one of them is likely to be played out then your company will be well prepared.
It helps sales managers and company leaders become better decision-makers by scenario planning current and future business activities. It allows companies to set benchmarks and optimize their business plan to accurately forecast sales.
Scenario writing sales forecasts also force companies to think critically so that they may be able to find a solution to a problem that they had not thought of before.
Disadvantages of this Forecasting Method
Quality scenario writing forecasting that offers value to your company can be a challenge especially if the people within the company don’t have a strong sense of business activities within the company, in addition to having strong analytical skills of business data.
The sales team of a company needs to be able to forecast sales in addition to increasing the sales volume of a company. Sales reps often get caught up with closing deals and therefore don’t accurately record data into their CRM software or Excel.
This can be a hindrance for the financial projections of a company because companies end up working with incomplete or tainted sales data to forecast sales.
Effective Scenario Writing Forecasting
Effective scenario writing needs to be built around scenarios that are created to question uncertainties that may occur for your company. Scenario writing forecasting isn’t complete until a company has developed a plan of action for each one of these possible scenarios.
Even though this type of forecasting technique can be a good way for a company to plan for unforeseeable circumstances, it can come with its own set of disadvantages. Companies often get intuitive sales forecasting and scenario writing sales forecasting confused. Intuitive sales forecasting relies on a sales rep’s intuition to forecast sales while scenario writing is about planning for predicted and or unprecedented events that can have an impact on sales.
Planning for the Future of your Workplace
Scenario forecasting has been especially important during the COVID-19 pandemic because companies are faced with extreme uncertainty. During these unprecedented times, companies must plan out worst-case scenarios that may occur during the pandemic.
Oliver Baxter works for the Herman Miller Insight group and did a TEDx talk on how to get your workplace to think creatively to help with scenario writing.
The Planning Process for Scenario Writing Forecast
It is very easy for companies to get lost when they are trying to come up with scenarios to use for sales forecasting. One way to stay on track is to map out the scenario writing process which can then allow companies to think strategically and remain organized in the sales planning process.
When drafting scenario writing forecasts, it is best to break it down into manageable steps so that companies can draft more efficient strategies for targeting these scenarios in the given time period.
We have broken down the scenario writing process into three easy to follow steps for a company’s sales team:
Establish and Analyze a Focal Issue Within the Assumption Parameters
Here, pick an area within the sales department that you want to focus on. This will be your “focal” issue. There are many areas in which scenario writing can be of use. For our example, we will use quarterly sales.
Factors that influence and are influenced by the focal issue
At this point, think of everything that can impact the focal issue. In the case of our example, for the sales department, we want to analyze everything that can happen, i.e. all “possible scenarios”, within the sales environment such as:
Internal Factors
Any factors within the company that can impact the focal issue can be characterized as internal factors. For example, for the sales team, internal factors can be BDR sales calls or even opportunities for potential leads.
External factors
External factors are factors outside the parameters of the company that can have influence over the focal issue. Factors such as competitors and region restrictions are all factors that can influence focal issues externally.
Extreme Uncertainties
Whether or not a company utilizes scenario writing forecasting, extreme uncertainties are things that all companies should prepare for. Uncertainties like global pandemics or market crashes are all extreme uncertainties that can influence a business.
A company’s sales team can also extrapolate information from historical data and use that for scenario writing as well.
Scenarios
Once the factors have been established, companies can then create possible scenarios for each of the factors established. The purpose of this is to develop scenarios in case one of the factors does indeed impact the focal issue.
Assessment and Implications
Once the possible scenarios have been established, a company can figure out how the organization wants to handle the situation in case one of the scenarios occurs.
Example of Scenario Writing Forecast
Let’s take the example we briefly mentioned above. If we are a sales department that is trying to implement scenario writing forecasts.
Where do we begin?
To start, we need to establish our focal issue, and as mentioned above, we chose quarterly sales. After we have established a focal issue, we need to brainstorm any and all possible factors that can influence quarterly sales.
In order to create a detailed scenario forecasting outline, we need to start by creating factors for the focal issue. The factors need to be broken down into three parts; internal factors, external factors and extreme uncertainties.
Internal factors are factors that a company has control over because all the factors are within the company and therefore can be changed. For example, our internal factors could be having an inadequate sales reps’ team, BDR team not coming up with enough leads, or perhaps potential leads not turning into opportunities.
External factors are factors that are outside of the company and therefore are harder to control. For our example, external factors can be factors like having competitors that have a similar product as ours or even regional restrictions. Competitors that have similar products can hinder a company’s ability to reach their sales goals especially if the company does not have a good product marketing strategy.
Extreme uncertainties can be anything out of the ordinary that may impact the focal issue, which in our case is quarterly sales. One of the biggest uncertainties that all businesses currently face is the COVID-19 pandemic. Instances like the pandemic would be extreme uncertainties that we would need to take into account.
Once we have established all our factors, we can start to plan for different scenarios. For internal factors, we might hire a new sales team, or we could implement better coaching tools for our current team.
Our external factors could be influenced by having a strong product marketing team that can distinguish our product from that of our competitors and make the product appear unique.
Extreme uncertainties with scenario writing forecasting can be a good way for companies to perform contingency planning. For instance, if another pandemic were to happen, how would we account for a loss in sales? How would we pay our employees?
Planning for external and internal factors, and extreme uncertainties is a good way for companies to predict and prepare for the best and worst possible cases should one of these scenarios play out.
Is Scenario Writing Forecasting Right for You
There isn’t a hard and fast rule as to which forecasting technique you should use indefinitely and likewise there isn’t a rule that in sales you can only use one forecasting technique.
Realistically, all companies use some form of scenario writing forecasting and whether they do it in a formal matter or not is up to each individual company.
While there are benefits to scenario writing forecasting, it shouldn’t be the only forecasting tool used for a company because on its own, scenario writing forecasts are not an accurate forecasting tool.
With accurate data in conjunction with other forecasting tools, such as opportunity stage forecasting, roll-up forecasting, and historical forecasting, scenario writing forecasts can be a useful tool for any company.
Conclusion
Scenario writing forecast is a great planning tool for a company because it determines the likely outcome in planned scenarios for a company. This method can help with forecasting sales because it allows business owners and sales teams to plan ahead for unforeseeable circumstances.