Business leaders are responsible for making major strategic decisions that require them to take a high-level view of a business’s direction, growth opportunities, and threats. They are not, by necessity, engaged in the nuances of closing individual deals.
But there’s a lot of value in those details, especially when it comes to estimating future sales. For this reason, some businesses use a concept known as a sales force composite to build estimates from the bottom up, relying on the intelligence of the people responsible for handling deals on a daily basis to arrive at larger company projections. Here’s how a sales force composite works and how to use it as part of your company’s sales forecasting process.
What is the sales force composite?
A sales force composite is a sales method in which a company asks individual sales representatives to predict sales in their territories for an upcoming time period. The company then combines all estimates into an overall sales forecast for the coming period.
Sales forecasting can help businesses anticipate upcoming production and inventory requirements. Businesses can also use forecasts to adjust sales and marketing plans based on information about future demand.
For example, if your sales numbers look low, you might invest in more aggressive sales and marketing efforts.
Advantages of the sales force composite method
The sales force composite method can efficiently generate an accurate near-term sales estimate. Here are a few of the benefits:
- Simplicity. Sales force composite is one of the simplest sales forecasting methods because you don’t need to hire an expert or engage in time-consuming analysis of historical data—just ask your firm’s salespeople to submit their sales estimates.
- It leverages sales rep knowledge. Sales reps often need to achieve quotas or have bonuses riding on the outcome of a sale, so they typically have a pretty good ideaof where each customer is in the sales cycle and when to expect a buying decision. Sales force composite forecasting can harness each rep’s detailed knowledge about their region and customer base to generate an accurate overall estimate.
- Can increase sales rep motivation and accountability. Since forecasts outline what a sales rep expects to achieve in the future, submitting an attainable forecast prediction is in the rep’s best interest. The estimate sets a personal benchmark that can motivate a salesperson to meet or exceed the target. Since this is a performance-based method and estimates are submitted to the company, it can also encourage accountability. In this scenario, the salespeople are responsible for the outcome.
Disadvantages of the sales force composite method
The main disadvantage of this method is that its accuracy depends on the ability of your sales team to accurately predict sales. Here are a few drawbacks:
- It can be difficult for less experienced sales reps. Sales reps without experience selling may struggle to make accurate predictions. This approach can also be less effective for situations involving new promotions or pricing strategies, or new product lines. That’s because sales reps may not have enough information to make precise predictions, and you may not want to disclose information to your sales team that isn’t available to the general public.
- Reps may be too optimistic. Optimism is a beneficial quality in a sales rep, but it also means that some salespeople tend to overestimate future sales. This can lead you to over promise on companywide projections.
- It’s more effective for shorter-range forecasts. Sales reps tend to be more accurate with near-term sales estimates, which often involve anticipating a closure date for deals already in the sales pipeline. Customers may be less likely to share plans about purchases that are a long way off, so sales composite forecasting is less effective for long-term forecasting.
Sales force composite vs. other forecasting methods
- Sales force composite
- Executive opinion
- Expert opinion
- Customer surveys
- Correlational analysis
- Market response models
- Historical forecasting
Achieving an accurate sales forecast is important. Overstating forecasts leads to higher inventory costs, overstaffing, or unsold products. And underestimated forecasts result in an inability to meet consumer needs, which can damage your brand’s reputation and may lead customers to move to a competitor who can deliver faster.
Here are six additional sales forecasting methods and tips to help you identify types that are best-suited to your business goals:
1. Sales force composite
As discussed, a sales force composite is a method of forecasting that sums up the sales predictions of all individual sales representatives. This allows the company to form a rough estimate of upcoming sales.
2. Executive opinion
The executive opinion method is like the sales force composite method, except that instead of a forecast based on what your sales force expects, it generates a forecast based on what executives expect. Each executive submits an estimate for a particular time period, and the company averages all estimates to arrive at the company forecast.
Like sales force composite forecasting, the accuracy of this method depends on the executive’s ability to predict future sales accurately. Because both approaches are relatively simple and low-cost, you can use this method in conjunction with the sales force composite method to uncover any discrepancy between attitudes on the executive team and what your sales representatives experience on the ground.
3. Expert opinion
The expert opinion method involves soliciting an outside expert with knowledge of your industry and business operations.
A variation of this method, known as the Delphi method, involves asking a group of experts to provide sales forecast figures with supporting commentary. Once the experts have submitted comments, a facilitator compiles the estimates and comments and resubmits them to the group.
Each expert then reviews the comments and submits a revised estimate. The facilitator can then elect to resubmit responses for additional rounds, if needed, to reach an approximate consensus. An apparel ecommerce business, for example, might solicit opinions from ecommerce market analysts, fashion industry trend forecasters, and executives at noncompeting retail companies.
Like the sales force composite method, this method is subjective and doesn’t rely on hard data. Its main benefit is that it allows a diverse group of experts to weigh in and respond to each other’s insights.
4. Customer surveys
Some market research firms conduct customer surveys to uncover general market trends over the coming year.
For example, a firm might ask manufacturing companies if they are considering upgrading their supply chain management systems in the next 12 months. A supply chain management SaaS ecommerce company might then purchase this data to get a sense of market demand in the coming year.
Unlike sales composite forecasting, this method incorporates objective data, such as the number of companies considering switching ecommerce platforms or the percentage of consumers surveyed in the market for a new product. However, its main drawback is that it doesn’t take your specific company into account: Collecting generalized market data showing there’s a huge demand for your product type can lead to overestimating sales if you don’t have the company-specific insight that a majority of customers are already engaged in sales conversations with one of your competitors.
5. Correlational analysis
Correlational analysis uses data points known as leading indicators to anticipate buying trends within a certain market. Leading indicators are economic signals that can predict performance across industries, such as the number of new houses in construction, general consumer sentiment, or the volume of new manufacturer orders. The nonprofit business research group The Conference Board publishes a list of leading indicators on its website.
Companies can use this information to identify leading indicators that correlate with their sales figures. For example, a supplier of interior and exterior paint might pay close attention to new housing starts because the more new houses there are on the market, the greater the need for fresh paint.
Like the customer survey method, this method relies on objective data but doesn’t take your specific company into consideration.
6. Market response models
Response models examine information about how customers have responded to past marketing efforts and how that response has affected sales.
For example, a company might look at historical sales figures and website visit data to gather information about when customers make purchases—such as when a price drops below a certain point, during a specific time of year, or when a certain type of promotion is available. The company then estimates sales volumes based on planned marketing and promotional activities.
Like the sales forecasting composite approach, this method is specific to your company. Its main drawback is that it doesn’t account for marketplace changes, such as decreased consumer spending power or increased competition from other brands, which may cause your customers to respond differently to promotional activities than they have in the past.
7. Historical forecasting
Historical forecasting involves analyzing past sales figures and assuming that future sales numbers will be similar. Like market response forecasting, historical forecasting is a data-backed approach that doesn’t consider any changes in the market, or your business or sales activities since the historical comparison period.
Sales force composite FAQ
Why is sales force composite important?
Sales force composite relies on estimates generated by your sales representatives to predict overall company sales. Because your sales reps are responsible for executing deals, they tend to be more in tune with customer needs and can generate short-term sales predictions with greater accuracy.
What is the difference between customer survey and sales force composite?
The customer survey sales forecasting method estimates company sales using market research about customer demand, and the sales force composite method estimates company sales by combining sales estimates for a specific time period gathered from individual sales reps.
Is the sales force composite forecasting method accurate?
The accuracy of the sales force composite method depends on your sales reps’ ability to anticipate their individual sales over a particular time period. In general, sales force composite forecasting is more accurate for shorter-term predictions.