4.sales forecast

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MMS - III Sales Management

SALES FORECAST

Purpose:

To plan and achieve forecasted sales in the mosteffective manner

Uses by other departments are:

1. Production : for setting up capacity

2. Finance : for raising the cash for investment

3. Purchase : for planning their purchase4. HRD : for manpower planning

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SALES FORECAST

What is Sales Forecast :It is estimated units or Rupees sales for aspecific future time period based on an assumedmarketing environment and a proposedmarketing plan

Three Factors :

1. Product Level (say 5 types)

2. Geographic Area (5 types)

3. Time Period (generally 3 types)In combination there could be 75 different typesof forecast possible

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SALES FORECAST

Product Level :

1. Product Item Sales

2. Product Variant Sales

3. Product Line Sales4. Company Sales

5. Industry Sales

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SALES FORECAST

Time Period :

1. Short Term2. Medium Term

3. Long Term

Geographic Area :

Customer

Area (Territory) / Branch

Region / Zone Nation

World

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SALES FORECAST

Market Potential :

It is the maximum possible estimated sales of agiven product or service for the entire industry ina given market for a specific period of time.

It is also known as Industry Sales Forecast

Market Forecast :

It is the expected industry sales of a given

product or service at one specific level ofIndustry marketing expenditure, in a givenmarket, for a specific period of time.

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SALES FORECAST

Company Sales Potential :

It is the maximum possible estimated sales of a

given product or service for a company in a

given market for a specific period of time.

Company Sales Forecast :

It is the expected company sales of a given

product or service under a proposed marketingplan, in a given market, for a specific period of

time.

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SALES FORECAST

Sales Budget :

It is the estimate of expected sales volume in

units or revenues from the companys products

and services and the selling expenses.

Sales budget is generally higher than salesforecast

Sales Quota :It is the sales goal (or performance goal) set for a

marketing unit for a specific period of time

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SALES FORECAST

Forecasting Approaches :

1. Top Down Approach

- also known as Break down approach

2. Bottom Up Approach

- also known as Build Up Approach

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SALES FORECAST

Top Down Approach Steps:

1. Forecast relevant external environmentalfactors over specific period of time

2. Market Potential for relevant Industry over

specific period of time3. Work out Company Sales Potential

Industry potential X Market share

4. Company Sales forecast of product5. Sales Managers forecast for Regions,

Branches, Territories & Customers

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SALES FORECAST

Top Down Approach :

In last step breaking down of company

sales forecast to different region is based

on market potential of diff areas.

Two Major methods available are :

(a) Market Build Up Method

mainly by Business Marketers

(b) Multiple Factor Index Method

mainly by Consumer Marketers

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SALES FORECAST

Sales Forecasting Methods :

1. Qualitative Methods

2. Quantitative Methods

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SALES FORECAST

Qualitative Methods :

1. Executive Opinion Method

2. Delphi Method3. Sales Force Composite

4. Survey of Buyers Intentions

5. Test Marketing

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SALES FORECAST

Quantitative Methods :

A. Moving Average Method

B. Exponential SmoothingC. Decomposition

D. Ratio Method

E. Regression AnalysisF. Econometric Analysis

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SALES FORECAST (Qualitative)

1. Executive Opinion Method :Oldest, simplest and most widely used.

Advantages :

(a) Quick & Easy forecasting

(b) less expensive

Disadvantages :

(a) Unscientific

(b) Subjective

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2. Delphi Method :Experts within organisation & outside form a

committee to make a forecast.

Advantages :(a) Objective forecast ; more accurate

(b) useful for Industry sales more

Disadvantages :(a) Difficult to get panel of experts

(b) longer time to reach consensus

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4. Survey of Buyers Intentions :

This method is also called as Market research.

may get classified as quantitative as well ifrespondents are selected based on probability

techniqueAdvantages :

(a) useful for industrial products, White Goods

(b) relatively inexpensive & fast

Disadvantages :

(a) some buyers dont reveal their plans

(b) expensive & time consuming for FMCG

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5. Test Marketing Method :

used for forecasting sales of New product.

Major methods used in Consumer - Product

Market testing includes :

(a) Full blown test markets

(b) Controlled test marketing

(c) Simulated test marketing

Advantage : should company launch product

Disadvantage : Competitors may get to know

about our product in (a) & (b) above

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SALES FORECAST (Quantitative)

A. Moving Average Method :

relatively simple method

based on sales of previous 3 or 6 years

Sale forecast = Sales for last 3 yrs / no of yrs

Advantages :(a) relatively simple

(b) easy to calculate

Disadvantage(a) unable to predict market (up or down)

(b) cannot predict long term forecasts

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B. Exponential Smoothing Method :

Sale forecast = (L) X Sales for this year +

(1L) this years sales forecast

L = smoothing constant or probability weighing factor

(value varies between 0.2 to 0.8)Advantages :

(a) market trend is considered

(b) useful when sales trend is known

Disadvantage

(a) arbitrary smoothing constant

(b) cant predict long term/new product forecast

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C. Decomposition Method :

In this method companys previous periods data

is broken down in four major components viz.

technology trend, cyclic, seasonal or erratic event

Advantages :

(a) conceptually very sound method

Disadvantage

(a) difficult & complex(b) historical data is required

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D. Ratio Method :

In this method company assumes that whateverhappened in immediate past will continue

Sales forecast = sales of this year X P

where P = sales of this year / sales of last yearAdvantages :

(a) simple to calculate

(b) requires less data

Disadvantages

(a) long term periods & new products not possible

(b) accuracy depends on past data

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E. Regression Analysis :

Statistical forecasting method to forecast

sales by finding the relationship with factors

which influence sales

Advantages :

(a) high forecasting accuracy

(b) objective method

Disadvantages

(a) technically complex & time consuming

(b) use of Computer software is essential

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SALES FORECAST

Guidelines to improve Forecasting accuracy :

1. Use multiple forecasting methods

2. Identify suitable methods

3. Develop a few factors4. Obtain a range of forecasts

5. Use Computer Hardware and Software

tools

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SALES FORECAST

Sales Budget :

It is the estimate of expected sales volume inunits or revenues from the companys productsand services and the selling expenses.

Sales budget is then broken down into :(a) product-wise quantities, average selling price perunit and sales revenue

(b) Territory-wise quantities & sales revenue

(c) Customer-wise and sales person wise salesvolume quota for budget periods

Sales budget includes selling expenditure as well

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SALES FORECAST

Methods for deciding sales expenses budget :

(a) Percentage of Sales method

(b) Executive judgement method

(c) Objective and task method

Sales Budget Process :(a) Review Situation

(b) Communication

(c) Subordinate budgets(d) Approval of sales budget

(e) Budgets for Other departments

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4.sales forecast

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