To run a business, you need not only transparency about the current sales deals and the likelihood of their closure but also a strong vision of the future pipeline. 

This is where sales projection comes in, which is used to estimate the future performance of the company based on past indicators. In this article, we explore how to make sales projections, what the key tools are in the process, and how your business can benefit from understanding this future sales potential.

What are Sales Projections?

A sales projection is a forward-looking estimate that anticipates the sales revenue of a business over a specific timeframe. This forecast is crafted through a detailed analysis of past sales data, identifying trends and patterns to envisage future revenue outcomes. 

In constructing a sales projection, several critical factors are taken into account, including the broader economic environment, the company's current market positioning, and the allocated budget for acquiring new customers. 

Additionally, when launching new products or features, sales teams often prepare for multiple outcomes by creating best-case, worst-case, and most likely-case scenarios to capture a comprehensive range of future possibilities.

The role of sales projections extends beyond mere forecasting; they are integral to strategic business planning. By setting realistic sales targets, companies can monitor progress, adjust strategies timely, and make informed decisions on resource distribution. 

These projections are also vital for accounting departments to set budgets, assess financial prospects, manage risks, and undertake holistic business planning. Without accurate sales projections, companies can fluctuate unpredictably between under- and over-achievement, creating a climate of uncertainty and making it difficult to achieve set targets effectively.

How to Do Sales Projections?

Calculating an accurate sales forecast is a multi-layered process that involves understanding your market, analyzing historical sales data, taking external factors into account, and applying certain calculation methods. Here you can find out how to approach the individual aspects:

Understanding Your Market and Customer Base

  • Quantify market share potential: Estimate the percentage of the market you can capture based on your understanding of customer preferences and competitor analysis. For example, if market research indicates a growing trend in your sector and you have a strong competitive advantage, you might project an increase in market share, which should be reflected in your sales forecasts.
  • Adapt forecasts to customer behavior: Use purchasing behavior data to forecast sales for different industries and customer segments. If the analysis shows that a particular industry or segment is growing, you should adjust your sales forecasts upwards for products that are popular with this group.

 

Historical Sales Data Analysis

Analyzing past sales data is the basis for predicting future sales. This involves identifying patterns, trends, and seasonal fluctuations in your sales history. By examining how your sales have changed over time, you can make reliable predictions for future sales. This analysis should take into account product life cycles, customer loyalty, and the influence of marketing measures on past sales.

Considering Market Trends and Economic Factors

External factors such as market trends, economic conditions, regulatory changes, and technological advances can have a significant impact on your sales projections. Keeping up to date with these factors and assessing their potential impact on your market and customer base will help you create more accurate forecasts. Both the macroeconomic environment and industry-specific trends need to be taken into account.

How to Calculate Sales Projections Using Formulas

There are various methods for calculating future sales trends. Sales projection formulas range from simple linear models based on historical growth rates to more complex models that take several variables into account. Here's a breakdown of the most utilized formulas:

  • Growth rate-based forecast: This approach extrapolates future sales based on past growth rates, making it an easy choice for companies with a constant growth record. For example, a company specializing in cloud storage solutions reported revenue of $8 million in 2023, compared to $6.4 million in 2022. This implies a growth rate of 25% (($8 million - $6.4 million) / $6.4 million × 100). Assuming the growth rate remains constant, the projected revenue in 2024 would be $10 million ($8 million × 1.25), which is in line with their upward trend in the fast-growing cloud services market.
  • Acquisition-based forecasts: In this method, future revenues are calculated by analyzing the costs and results of sales-generating activities, such as marketing and sales efforts. Consider a company that offers subscription-based software for project management. It generates $2 million per month from existing clients (organic growth) and plans a $800,000 monthly spend on digital marketing campaigns, assuming an average subscription value of $4,000 at a cost per acquisition (CPA) of $200. The forecasted monthly revenue incorporating these figures would be $14 million: $2 million from organic growth + ($800,000 / $200) × $4,000. With this formula, the company can estimate the return on investment for its marketing spend, which is crucial for budget planning and growth strategy.
  • Simple annual sales forecast: This formula is ideal for businesses with stable sales and uses average monthly sales to predict annual sales. For example, a company that provides cybersecurity solutions to other companies generated $24 million in revenue in the first six months. With an average monthly sales figure of $4 million, and six months remaining in the fiscal year, the total projected revenue would be $48 million: $24 million for the first six months + ($4 million × 6 months). This method works well for the cybersecurity company, as the demand for its services is constant at a time when digital threats are omnipresent.

 

Choosing the right method depends on the availability and quality of your data, the complexity of your market, and your specific business requirements. When you combine these approaches with a clear understanding of your market, a thorough analysis of historical sales data, and consideration of external factors, you can create accurate and reliable sales projections.

Navigating Through Sales Projection Tools

Navigating through the myriad of tools available for sales projections can seem daunting, but if you know the general categories of these tools, you can make the process much easier. These tools range from sophisticated platforms that are deeply integrated with your sales data to simpler, more intuitive applications that allow you to quickly get started with forecasting.

CRM and Sales Analytics Platforms

Customer Relationship Management (CRM) and sales analytics platforms are essential for tracking and analyzing sales activity. Instead of the old sales projections templates, these platforms provide a central repository for all sales-related data, including customer interactions, sales transactions, and lead history. By leveraging the data stored in these systems, companies can gain insights into sales trends, customer behavior, and pipeline health to make informed projections about future sales performance.

Financial Modeling Software

Financial modeling software offers a more numbers-driven approach to sales projections, allowing companies to create detailed financial models and scenarios. These tools allow users to input various financial and operational data to simulate different future states based on assumptions about growth rates, market conditions, and business strategies. This approach is particularly useful for companies that want to align their sales projections with overall financial planning and analysis.

AI and Machine Learning Tools

Artificial Intelligence (AI) and machine learning tools represent the cutting edge in sales projection technology. These tools analyze large amounts of data to identify patterns and predict future results with high sales forecasting accuracy. By incorporating factors such as market trends, competitor activity, and even social media sentiment, AI-powered tools can create dynamic and highly nuanced sales forecasts. This category of tools is particularly valuable for companies operating in fast-changing markets where traditional forecasting methods struggle to keep pace.

BoostUp combines sales analytics with AI capabilities, offering your business a never-before-seen depth into past, present, and future sales performance. Interested in learning more? See BoostUp in action now!

FAQ - Sales Forecasting

What are Sales Projections?

Sales projections are forward-looking estimates that predict the sales revenue of a business over a specific timeframe. They are based on past sales data, current market conditions, and other factors such as economic trends and customer behavior.

How to Calculate Sales Projections?

Calculating sales projections starts by collecting and analyzing historical sales data. Segment the data by product, region, or sales channel and consider external factors such as regulatory changes, technological advances, and economic conditions to understand market trends. Depending on your business needs and the available data, you can use different forecasting methods like growth rate-based forecasts, acquisition-based forecasts, or simple annual sales forecasts for calculating sales projections.

Why are Sales Projections Important?

Sales projections have an important role in strategic business planning. They help companies set realistic sales targets, monitor progress, adjust strategies, allocate resources efficiently, and make informed financial decisions.

What is the Difference Between Sales Forecast vs. Projection?

The terms "sales projection" and "sales forecast" are used interchangeably. Both aim to predict future sales based on past data, market conditions, and other influencing factors.

What Kind of Sales Projection Tools are Available?

Sales projection tools include CRM and sales analytics platforms, financial modeling software, and AI/machine learning tools. Each tool type offers unique capabilities to help businesses create accurate sales forecasts based on their specific needs. 

BoostUp’s Revenue Command Center offers integrated forecasting, deal inspection and rep coaching with advanced AI capabilities, providing your business with unparalleled insight into historical, current & future sales performance.

How Do CRM and Sales Analytics Platforms Aid in Sales Projection?

CRM and sales analytics platforms centralize sales-related data, enabling businesses to track and analyze sales activities, customer interactions, and sales trends. This data-driven approach provides insights necessary for accurate sales projections and strategic planning. 

How Can AI and Machine Learning Enhance Sales Projections?

AI and machine learning tools analyze large datasets to identify patterns and predict future results for creating a highly accurate sales projection. These tools incorporate various factors like market trends, social media metrics, and competitor activity, making them especially valuable for dynamic and fast-changing markets.

What are the Key Benefits of Accurate Sales Projections?

Accurate sales projections help businesses set realistic targets, allocate resources efficiently, monitor progress, and make informed decisions. They are essential for strategic planning, budgeting, and risk management.