How can you forecast revenue for a business with a long sales cycle?

2 Assign probabilities to each stage

The second step is to assign probabilities to each stage, which are the percentages that reflect how likely the prospect is to close the deal at that stage. For example, you could assign a 10% probability to the lead stage, a 20% probability to the qualified lead stage, a 40% probability to the opportunity stage, a 60% probability to the proposal stage, a 80% probability to the negotiation stage, and a 100% probability to the closed stage. These probabilities should be based on your historical data, industry benchmarks, and sales team feedback, and updated regularly to reflect any changes in your sales process or market conditions.

3 Calculate your weighted pipeline value

The third step is to calculate your weighted pipeline value, which is the total value of your sales pipeline multiplied by the probabilities of each stage. For example, if you have 10 prospects in the lead stage with a total value of $100,000, 5 prospects in the qualified lead stage with a total value of $200,000, 3 prospects in the opportunity stage with a total value of $300,000, 2 prospects in the proposal stage with a total value of $400,000, 1 prospect in the negotiation stage with a total value of $500,000, and 1 prospect in the closed stage with a total value of $600,000, your weighted pipeline value would be: (10 x $100,000 x 10%) + (5 x $200,000 x 20%) + (3 x $300,000 x 40%) + (2 x $400,000 x 60%) + (1 x $500,000 x 80%) + (1 x $600,000 x 100%) = $1,020,000.

4 Estimate your revenue forecast

The fourth and final step is to estimate your revenue forecast, which is the amount of revenue that you expect to generate from your sales pipeline in a given period. To do this, you need to factor in the average duration of each stage and the time horizon of your forecast. For example, if you want to forecast your revenue for the next quarter, you need to look at your weighted pipeline value and see how much of it will be closed within the next three months. You can use your historical data, industry benchmarks, and sales team feedback to estimate the average time to close for each stage. You can also adjust your forecast based on any external factors, such as seasonality, competition, or market trends, that may affect your sales performance.

5 Here’s what else to consider

This is a space to share examples, stories, or insights that don’t fit into any of the previous sections. What else would you like to add?