Sales Forecasting for Finance Teams: Building Accurate Revenue Projections
Finance teams need reliable revenue forecasts to manage cash, plan expenses, and communicate with stakeholders. Here's how to build forecasts you can trust.
Sales forecasting is where finance and sales must collaborate most closely. Sales owns the pipeline data; finance needs accurate projections to run the business. When these teams aren't aligned, forecasts miss, and everyone suffers. This is a core challenge in revenue operations.
The Forecasting Challenge
Studies show that average forecast accuracy is only 40-50% at the deal level. Top-performing companies reach 70%+. The difference comes from process discipline and better data, not luck.
Forecasting Methods
Bottom-Up Pipeline Method
Sum individual opportunities weighted by probability. Most accurate for current quarter.
Forecast = Σ (Deal Value × Win Probability)
Top-Down Capacity Method
Based on sales capacity rather than individual deals. Better for longer-term planning.
Forecast = Reps × Quota × Expected Attainment
Historical Run Rate Method
Uses historical conversion patterns applied to current pipeline. Good sanity check.
| Method | Best For | Weakness |
|---|---|---|
| Pipeline (Bottom-Up) | Current quarter | Rep judgment varies |
| Capacity (Top-Down) | Next quarter+ | Misses deal dynamics |
| Historical Run Rate | Validation | Assumes past = future |
Pipeline Analysis
Forecast Categories
Commit (90%+ probability)
Verbal or written agreement in place. Close date and terms confirmed.
Best Case (60-70% probability)
Likely to close if normal process completes. No major blockers identified.
Pipeline (20-40% probability)
Qualified opportunity but timing uncertain. May slip to future quarters.
Pipeline Coverage
How much pipeline do you need to hit quota? The rule of thumb is 3-4x coverage. For deeper analysis, see our guide on pipeline metrics for finance.
| Win Rate | Required Coverage |
|---|---|
| 40% | 2.5x |
| 30% | 3.3x |
| 25% | 4x |
| 20% | 5x |
Improving Forecast Accuracy
Best Practices
Common Pitfall
Don't just add probabilities. A rep with 10 deals at 30% each won't necessarily close 3. Deal outcomes are often correlated—a market downturn affects all deals simultaneously.
Need Help With Forecasting?
Eagle Rock CFO helps companies build reliable forecasting processes.
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