Sales pipeline consists of all opportunities at all stages in the sales cycle, and sales forecast is the salesperson’s prediction of which sales will close within a given time frame.
The main difference between the pipeline and the sales forecast is the prospect must have a need that the organization can address within budget and timeframe considerations to qualify for the sales forecast. There also must be a clear understanding and agreement about the “next step.” For example:
- The proposal is to be reviewed with the decision maker
- The budget process is clearly understood
- The prospect has made a verbal commitment to buy
Forecasting helps you to put things into perspective. It helps you see the possibilities and challenges of the pipeline management, and plan your further actions. Accurate forecasting helps you to maintain full control of your pipeline and its management.
Sales forecasts use historical data to project future reality. However, the truth is most sales reps end up inflating their numbers to please their managers, even though these goals are often unattainable. As a result, reps and managers may spend hours contorting themselves to project a bright revenue future based on a sales pipeline that is only 25% accurate.
Poor forecasting methods are also a factor. According to the Sales Management Association:
74% of sales leaders believe their company’s sales forecasts are either only somewhat accurate or,
in worst-case scenarios, not accurate at all
There are best practices to avoid the vicious cycle of overpromising and under delivering. Download this 5 Best Practices for Improving Sales Forecast Accuracy eBook to read more on this topic.