The Advantages and Disadvantages of Sales Forecasting

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Sales forecasting is a common activity in sales-driven organizations. Accurate forecasts offer useful insights on future revenue and help a business plan for the future, but concerns about the time involved to prepare forecasts and the biases of sales professionals can make them less attractive. In addition unforeseen economic expansions or contractions can quickly render the projections obsolete.

Alignment of Strategy and Results

When sales forecasting aligns well with a company's business strategy, it allows for the right resources to be allocated at the right time. A company with a goal of increasing its customer base by 10 percent, for instance, may be basing this on lofty sales forecasts and allocate the necessary resources to salespeople to generate prospects. A business with aggressive sales forecasts may also invest more time and money in training salespeople for optimum performance. Additionally, if incentive pay is tied to business goals, sales representatives often are more motivated to hit their targets.

Adjustment Opportunities

Another key advantage of sales forecasting is the opportunity to make adjustments based on expectations. If a company anticipates much more business than its current staff can handle, for instance, human resources may lead a hiring push to get people in place. On the other hand, if sales forecasts are modest relative to staff and objectives, the business can look at ways to ramp up performance. Additional marketing investments, better training, bonuses, product bundling and new solution development all are possible strategies to adjust to low forecasts.

Time Involvement

A primary drawback of sales forecasts is that they take time to develop. Companies use a variety of forecasting methods that rely on either salespeople, sales managers or marketers to carry out extra tasks. Regardless of the approach used, the company pays for the time and resources it takes to prepare sales forecasts than it otherwise would. Also, with heavy sales rep involvement in forecasting, there less time spent on the phones and in the fields generating sales.

Environmental Uncertainty

When salespeople are active in forecasting, accuracy may be adversely affected by excessive optimism, or alternatively by sandbagging to minimize risk of underperformance. With many forecasting methods, environmental or industry uncertainty isn't taken into account either. A quarterly forecast may not come to fruition of a recession takes hold on the market in the midst of the quarter, for instance. If bad news hits the industry, a similar shortfall may take place. Societal shifts away from certain products or rapid declines in previously successful products can also contribute to missed forecasts.