How often should I update the sales forecasts?

I suggest that you update the sales forecasts regularly, at least quarterly or as market conditions change. This ensures that forecasts remain accurate and relevant to current business realities. I’m not talking about changing your approach to finding the forecast (see above). I’m talking about updating the budget number you called for Q4 based on how Q1 and Q2 actually played out.

How can I improve collaboration between sales and other departments in the forecasting process?

Improve collaboration by establishing clear communication channels, sharing data and insights, and involving relevant stakeholders in the forecasting process from the outset. Encourage a general mindset of curiosity across GTM departments. This can go a long way to foster a team environment where everyone is working towards the same goal: Revenue! 

What are some common pitfalls to avoid in sales forecasting?

Common pitfalls include relying too heavily on intuition or gut feelings, neglecting to consider external factors and market dynamics, and failing to incorporate feedback and insights from frontline sales teams. Other plagues to forecast accuracy include lack of sales process standardization, and lack of collaboration and communication between Marketing and Sales. 

How can I measure the success of the sales forecasting process?

You can measure success by comparing forecasted sales figures to actual sales performance, evaluating forecast accuracy and reliability, and soliciting feedback from stakeholders on the usefulness and effectiveness of the forecasting process. You need to keep track of your forecast accuracy on a rolling basis. 

Commit to tracking the accuracy of your forecast on a rolling basis. For example: The forecast was 10% over in Q1, %20 under in Q2, 3% over in Q3 and 5% under in Q4. You can see that the margin of error has tightened over the course of the year. It’s you and your team’s job to uncover why. Did you get better at implementing your processes over the course of the year? Or were there factors in the later half of the year that made the task easier? Perhaps it’s some mix of the two. You can do this in a spreadsheet manually, in a BI tool, or in a forecast specific platform like Clari. 

What is an acceptable margin of error when forecasting? 

Sales forecasting is hard! Consider accuracy within +/- 5% to be great, while anything north of 80% is typically good. Your renewal sales forecast should generally be easier to nail down than new business. Set different success benchmarks for each forecast as tailored to your business. 

Now that you’re tracking accuracy, you have a baseline to compare to if and when you decide to make changes to your forecasting process. But again, be SCIENTIFIC! Make only changes you can measure and ideally limit the number of changes made so you have a better chance of seeing the result of each change as it plays out in your forecast accuracy trends over time.