How does Dear Lucy do Sales Forecasts?

Dear Lucy offers three types of Sales Forecasts for its customers, each using a different calculation and serving a different purpose depending on the business of the customer. The Sales Forecasts can furthermore be customised and altered, to ensure that our clients get accurate and reliable sales forecasts based on data rather than intuition.

Dear Lucy's Sales Forecasts can, like all other data, be segmented by Sales Person, Business Unit, Pipeline, Country, etc., making it an even more powerful tool for Sales Executives to monitor and plan their business.

Weighted Sales Forecast

The Weighted Sales Forecast is the 'default' sales forecast in Dear Lucy. This forecast uses the probability of the pipeline stage for each deal, to provide weighted values for each opportunity and summing it up by close date.

Example:

An opportunity in the Negotiation pipeline stage has a value of 100,000 € and a close date in December that current year. Dear Lucy will then derive a sales forecast of 80,000 € for December that current year, as the pipeline stage Negotiation has a probability of 80%.

• Weighted Sales Forecast = 10,000 € x 80%
• Weighted Sales Forecast = Opportunity value x Pipeline stage probability of the dea

Dear Lucy then sums up all the weighted values of the whole pipeline with close dates in the future, to provide a Weighted Sales Forecast for each of the coming months in the current year.

Activity-based Sales Forecast

The Activity-based Sales Forecast is primarily used to determine whether a team of Sales Reps will be able to reach their sales targets for the team, or their individual quotas, based on their level of activity (primarily calls and meetings with clients). In short, this forecast is best used to determine whether or not the activity-levels are at a high enough level for targets to be reached, rather than as a measurement of when the actual sales will come through.

The Activity-based Sales Forecast is calculated by multiplying the number of scheduled activities in the future with the average revenue per activity. 

Example: 

Based on 12-month rolling averages, Dear Lucy calculates the Average Revenue per Activity (value of all won cases / total number of activities) and multiplies that by the number of scheduled activities in the future. If a sales team have an average revenue per activity of 200€ per activity, and 700 scheduled activities in the calendar, the Activity-based Sales Forecast will show 140,000 €.

• Activity-based Sales Forecast = 700 x 200 €
• Activity-based Sales Forecast = Number of scheduled activities in the future x Average revenue per activity

This forecast, more so than the Weighted Sales Forecast, is typically more accurate for a shorter time period ahead, typically the current month to approximately 1-2 months into the future, as the number of scheduled activities are a key factor in the calculation and activities are rarely scheduled for more than 1-2 months in advance.

Performance-based Sales Forecast

The Performance-based Sales Forecast uses a combination of factors based on your past performance (last 12 months rolling) to determine a projected value of your open deal pipeline. This forecast formula typically gives a more modest, and often more realistic forecast value than the Weighted Sales Forecast, as it tackles the problems of inflated pipelines or too optimistic inputs from the sales team members.

The Performance-based Sales Forecast multiplies the Number of open opportunities with the Average Deal Size of won deals (rolling 12 months) and Average Win Rate % (rolling 12 months), to determine the value of your pipeline. As with the Weighted Sales Forecast, the forecast value is projected to the relevant month ahead based on the close dates of the open deals.

Example: 

An opportunity in the pipeline has a value of 100,000 € and is scheduled to close in December in the current year. Based on the performance from the past 12 months, the company has an Average deal size of 70,000 € and an Average Win Rate of 40%. The Performance-based Sales Forecast for this deal will then be 28,000 €. 

• Performance-based Sales Forecast = 70,000 € x 40%
• Performance-based Sales Forecast = Average deal size x Average win rate %

As seen in the example above, the Performance-based Sales Forecast is less useful when looking at individual or only a small number of deals, as it does not acknowledge the actual deal value of a specific opportunity. Rather, this forecasting method is best used to forecast the value of your whole pipeline or at least a large set of deals. 

One advantage of the Performance-based Sales Forecast formula is that it can be tailored in different ways to increase its accuracy. For example, the Average Deal Size of won deals can easily be replaced with the Average Deal Size of currently open deals, to give a better reflection on the current pipeline value. This is a good option if a company has, for example, recently increased their prices, which would mean that their 12-month average deal size would not be a fair reflection. 

It is also possible to look at shorter period averages such as 6 or 3-month rolling averages, which might make the forecast more accurate for smaller, more agile companies.