I received this question a few weeks ago:
Can software development companies forecast the sales pipeline for more than 3-4 months ahead?
My short answer is yes, you could forecast your sales pipeline for more than 3-4 months ahead, if you have very long sales cycles.
The longer answer is, as usual, it depends.
There are several conditions I think need to be fulfilled so you can forecast at least 3-4 months ahead:
1. Long sales cycles
If your typical sales process takes 3, 6, or even 9 months, your forecast can be accurate for longer time frames.
Long sales cycles are the norm if you are working with larger companies, doing long term projects or having relatively large teams in each project.
2. A predictable marketing or prospecting inflow of opportunities
If you have good visibility into the sources of projects that will come into the sales pipeline in the future, then you can build some prediction models.
In my experience, referrals are the least predictable.
Cold outreach can be forecasted when it works well
Customers coming from marketing activities can also be predictable, to some degree, especially from SEO and inbound marketing.
The other 2 big sources of customers (distributors and events) are less predictable and even less cyclical, so it’s difficult to predict well in advance how many opportunities will come your way.
Depending on the proportion of leads you get from each of these sources, the level of confidence for your forecasts will vary significantly.
3. Narrow customer segments definition
Any numbers and KPI’s from the past that are used to forecast the future are relevant only if you are selling to some specific types of customers.
If you are working with many different customer segments, from different industries, in different geographies, it’s very difficult to predict anything.
Getting 5 leads per week in the past 3 months from e-commerce companies doesn’t tell you anything about how many potential customers from startups you will have in the next 3 months.
The number of opportunities you got from the US in the last 6 months doesn’t mean anything when you want to predict how many projects you could get from Germany in the next 6 months.
This is the reason we go back to the start: your strategy.
A good strategy means first and foremost a narrow definition of the customer segments you target.
When you have historical data on a very specific customer segment, you will be able to see patterns and use that knowledge to make predictions into the future.
4. Having a method in place
To make any predictions about the future, you need to have a very good understanding of both the past historical patterns and the current environment.
None of the data and information you have collected will help if you don’t analyze everything with a method that is applied consistently from quarter to quarter and reporting cycle to reporting cycle.
WHAT THIS MEANS FOR YOU
The waters ahead look rough, for at least 2023 if not longer.
Whether we will go through a deep recession or just a mild one, whether inflation will be very high or just higher than we are used to, whether another unexpected black swan will add fuel to the fire, nobody knows.
Because it’s very difficult to make predictions, especially about the future (a quote attributed to many famous people, most probably originating from a Danish proverb).
In any case, forecasting is more important than the forecasts.