Sales forecasting methods are techniques that apply historic sales data to determine future consumer purchasing trends. A company uses forecasting techniques to allocate funds in its budget for sales and marketing activities conducted over a specific period to maximize the return on their investment. Some sales forecasting techniques include forecasting based on the opportunity stages, length of the sales cycle, regression analysis and scenario writing.
Sales forecasting based on the opportunity phases works best for a company that clearly separates their sales pipeline into a series of steps. After separating its sales pipeline into stages, the company analyzes the past performance of its sales team to establish trends regarding the instances of successful sales at each stage. For example, if half the prospects who requested quotes finally purchased the company's products, the sales forecast indicates a 50 percent probability of making a sale on deals that reach this stage. Sales forecasting based on the length of the sales cycle usually relies on accurate data about how long it takes to close a particular type of customer. A company creates algorithms that predict the average time it takes to close a new client or a repeat customer to generate an accurate sales forecast.