Pipeline Forecasting – a step-by-step guide

by | Sep 24, 2019 | Forecasting methods, Sales Forecast, Sales Management, Sales Velocity

We’re always looking for ways to improve the accuracy of our sales forecast – right?!

After all, a sales forecast is a useful tool that informs decisions, measures performance and can drive your business forwards. Looking at how you create and manage your forecast can help improve the accuracy. Here’s our guide on pipeline forecasting, how to do it, understand it and embed it into your business processes.

What is it?

Pipeline forecasting is the process of forecasting from a business’ sales pipeline (deals under negotiation with customers and prospective customers). Enhanced pipeline forecasting combines basic pipeline forecasting with intelligent sales velocity modelling to extend forecast predictions beyond the immediate pipeline and improve the level of accuracy and understanding.


How to get started:

Step 1 – Capture your sales pipeline

You first need to find a way to track your sales pipeline – this can be done by using spreadsheets, however, this approach isn’t recommended if you need to work with others or want to capture rich customer data. Instead opt for one of the many great CRM systems on the market. If you’re keen to keep costs down, HubSpot have a brilliant CRM that is available for free. 

To make sure your pipeline is easy to understand across all teams, invest some time creating meaningful sales cycle stages, that represent real steps in your customers’ buying journey. Try to keep it as simple as possible to ensure the stages are understood and applied consistently.  

Once you’re capturing your sales pipeline, you’re well on your way to creating your first forecast.    

Top Tips

Make sure your sales team are on-board with the CRM, otherwise you’ll potentially end up with an expensive database no one uses. 

Be clear on your definition of leads vs opportunities/deals. Don’t add early stage leads to your sales pipeline. Track them separately as contacts. 

√  Be realistic about deal close dates – deal slippage is the most common error in forecasts. 

√  Frequently review your sales pipeline and clear out the deadwood.

Step 2 – Sales Bookings or Accounting Revenue?

Sales bookings are a list of deals/opportunities a business hopes to sell on a particular date– this is your raw sales pipeline.  

Accounting revenue is how these bookings are recognised as income, on a monthly basis, through time – also known as Revenue Recognition. Check our blog article Revenue Forecast vs. Sales Pipeline – what’s the difference? to understand why this distinction matters and to determine what you need to capture. 

CRMs capture sales bookings, not accounting revenue, so you’ll need additional tools to create a revenue forecast.  

Top Tips

Think about your audience – if it’s the company board, they are more likely to be interested in a revenue forecasts than sales bookings. 

If you care about tracking monthly profitability in a robust way, you’ll need a revenue forecast, not a sales booking forecast. 

Step 3 – Calculate stage probability weightings

Accurate stage weightings will make sure you’re not over optimistic or pessimistic with your forecast.  

If you’ve been capturing your sales pipeline in a CRM for a while you can calculate these from your historic sales data. If not, you may need to track a few months of sales data first. 

Next you’ll need to calculate your conversion rate at each stage of your sales funnel. To do this, you’ll need to know how far through your sales funnel each lost deal went before dropping out of your pipeline. This data can be hard to get out of your CRM – but it is do-able. 

Top Tips

Calculating the weighting is also an effective tool for measuring the effectiveness of your sales approach. A good sales process qualifies out low probability prospects early in the sales funnel.  

If you have a low conversion rate throughout your sales cycle, including late stages, you’re probably not qualifying opportunities out early enough and potentially wasting valuable sales efforts. 

Step 4 – Create your first Pipeline forecast

Once you have your sales pipeline in the right format (bookings or accounting revenue – see step 2) all you need to do is apply the weightings calculated in stage 3 to each individual deal.  

Top Tips

Share your sales pipeline and forecast frequently and consistently with senior management to encourage your sales team to keep their pipeline up to date.  

Keep it simple, compare figures to targets and include insights in the email text to create optimal visibility.  

Step 5 – Take your forecast further by including a new business prediction

Usually, your sales pipeline only includes the deals your team are currently working on. Depending on the length of your sales cycle, this may mean your forecast is only reliable 2-6 months out as your pipeline is likely to drop-off after a few months.  

What about future new business you’re not yet talking to customers / potential customers about? 

By calculating the velocity of your sales team, you can predict the rate at which future deals are likely to enter your pipeline and contribute to your forecast further out.

You’ll need to consider: 

  • – Number of deals 
  • – Average time to close 
  • – Average deal size 
  • – Win rate 
  • – Average deal length (accounting revenue only) 

Top Tips

Calculating a new business prediction based on the velocity of your sales team is an effective way to measure your chances of hitting budget further out.  

It also helps with setting meaningful and achievable budgets for the year in the first place too. 

Step 6 – Repeat 

Creating a sales or revenue forecast isn’t a one-time exercise, it’s an essential part of sales management. To make sure it’s as useful as possible, aim to update your forecast at least once a month but ideally at least once a week.  

As this can be timing consuming for even the most efficient businesses, we built QuarterOne to do all the hard work meaning businesses can now have access to automated real-time forecasts without any of the hassle. Why not give it a try…