In any business, sales forecasting—often referred to simply as the forecast—is an essential management tool. An accurate forecast helps anticipate future sales. As such, it allows you to plan your inventory or occupancy and your cash flow, or even make growth decisions. Sales managers try to predict what will be sold and when; in other words, they are looking for current sales opportunities.
The management of these opportunities is an integral part of Dynamics 365’s functions. Although previously a forecast could be created from this data, a specific feature has just been released in the last year, simply called “Forecast.” At a glance, managers can see their team’s forecasts as opportunities progress in a given time frame, plus they can easily adjust them in real time.
In short, the configuration of a new forecast makes it possible to define:
- period covered;
- hierarchy to be used (organization chart, territory, products or completely personalized);
- filters that should be considered.
Within minutes, the sales forecast is generated and ready to use.
Like many features in a CRM, everything is highly configurable and customizable. However, the best strategy is often to stick to standard functions. Indeed, these often include certain logics which are interesting to use.
Basically, the CRM offers a categorization of opportunities in the pipeline that is independent of other statuses or processes that you have applied to them. The reason is simple: an opportunity’s advancement doesn’t guarantee its prediction. Using these categories helps distinguish progress from forecast sales.
The categories are:
- Pipeline—generic and default: this opportunity remains in the pipeline;
- Omitted—even though the opportunity is in progress, we don’t want to consider it in our sales forecast;
- Best Case— indicates a better probability of closure than the general pipeline;
- Committed—about to close—this category is included with the opportunities won in the sales forecast);
- Won/Lost—closed opportunities.
The user can therefore perform their analysis by switching opportunities from one category to another when necessary.
In addition to these categories, a new column offers a “forecast,” that is, sales that can be considered concluded for the period in question. It represents the sum of the opportunities won and those about to be closed (committed).
Dynamics 365’s predictive intelligence then activates to forecast sales that are expected to be closed by the end of the period. This prediction is based on history and the current pipeline to estimate revenue. Far from being trivial, it is one of the measures used to assess the health of the current pipeline. Indeed, too low a forecast is based on factors anticipating either losses, a decrease in estimated income or a conclusion that will take more time than assessed.
Addition of Quotas
Quotas (or sales targets) add an extra dimension to forecast analysis. They are easy to create: the configuration tool in forecast generates an Excel template file to fill out and re-import, hassle-free.
By indicating the quotas for each row, the “Gap to Quota” column gives an exact figure of the income that remains to be concluded in order to reach the objective (Quota – Sum of opportunities won + Committed).
But the most interesting measure is “Pipeline Coverage.” This metric used in several sales methodologies is an important indicator of the pipeline’s health. It indicates the current proportion of the pipeline that covers the quota. In other words, this indicator displays the percentage of closure required to meet the quota.
The calculation is as follows:
Remaining revenue to be earned ÷ Revenue in the pipeline
A number above 1 means there are not enough opportunities in the pipeline to meet objectives.
Quota: $500,000/Pipeline: $400,000 => 1.25
In this example, it would therefore be necessary to close for a value of 1.25 of the current pipeline to reach the quota.
While we know that the closing rate of opportunities is usually around 25% or 30%, the objective would therefore be to maintain this measure around 0.25 (or even lower), or according to the most likely closing percentage in your industry or team.
Using the Forecast in Sales Meetings
The beauty of getting a forecast straight from your CRM is that the data is always up to date. Unlike a fixed and scheduled report, this forecast updates repeatedly (in the case of predictions) or instantaneously (for metrics coming directly from opportunities). At any time of the day, you can have an accurate representation.
To add an extra dimension to your analysis, the forecast keeps a daily history. So, with this history, you can deepen your analysis by looking at evolutions.
The flow is a useful visual to understand the evolution of each indicator. During a pipeline review meeting, choose the last meeting date and you’ll see the evolution of the amounts by category.
- How have the opportunities in the pipeline changed over the past week?
- What were the evolutions or regressions?
- What is the value of additions or removals from the pipeline?
After taking a look back, use the Trends graph for a visual assessing the trends by the end of the period. With the predictions enabled, a line will display the expected change in earned income. Without being absolutely accurate, this graph charts trends based on your sales cycle history. It can therefore be useful to establish the following: does my current data allow me to reach the quota? How did my updates influence predictions?
In this example, we can already see that the predictions seem realistic: they anticipated reaching around $57k on February 6, while on February 5, $79k were already closed.
We also see that Sandra’s forecast may be well assessed, but there is a chance that it be closed in more than a month.
In short, with just a few columns and a user-friendly and customizable platform, Dynamics 365 offers an intelligent and optimal tool. By combining this CRM’s user-friendliness, the richness of the database, the power of business intelligence and the visuals that speak volumes, the forecasting function can become an important ally in maintaining a healthy and high-performing sales pipeline.
This article is an initiative of our expert Sarah Deschênes.
Looking to find out more?
Want to find out more?