SALES FORECAST

Purpose:
To plan and achieve forecasted sales in the most
effective 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 purchase
4. HRD : for manpower planning

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SALES FORECAST
What is Sales Forecast :
It is estimated units or Rupees sales for a
specific future time period based on an assumed
marketing environment and a proposed
marketing 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 types
of forecast possible
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SALES FORECAST
Product Level :
1.
2.
3.
4.
5.

Product Item Sales

Product Variant Sales
Product Line Sales
Company Sales
Industry Sales

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Time Period :
1. Short Term
2. Medium Term
3. Long Term
Geographic Area :
Customer
Area (Territory) / Branch
Region / Zone
Nation
World
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Market Potential :
It is the maximum possible estimated sales of a
given product or service for the entire industry in
a 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 of
Industry marketing expenditure, in a given
market, for a specific period of time.
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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 marketing
plan, 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 sales
forecast

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 environmental
factors over specific period of time
2. Market Potential for relevant Industry over
specific period of time
3. Work out Company Sales Potential
Industry potential X Market share

4. Company Sales forecast of product

5. 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
Bottom Up Approach Steps:
1. Sales persons sales forecast of individual
customers
2. Combined into Area / Branch Sales
forecasts
3. Combined into Region / Zones Forecasts
4. Combined into Company Sales Forecast

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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 Method
3. 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 Smoothing
C. Decomposition
D. Ratio Method
E. Regression Analysis
F. 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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SALES FORECAST (Qualitative)

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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SALES FORECAST (Qualitative)

3. Sales force Composite Method :
Almost similar to Bottom-up approach.
Advantages :
(a) Salespeople forecast ; better insights
(b) breaking down is easier
Disadvantages :
(a) Could be very optimistic or pessimistic
(b) Salespeople may underestimate demand

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SALES FORECAST (Qualitative)

4. Survey of Buyers Intentions :
This method is also called as Market research.
may get classified as quantitative as well if
respondents are selected based on probability
technique
Advantages :
(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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SALES FORECAST (Qualitative)

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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SALES FORECAST (Quantitative)

B. Exponential Smoothing Method :
Sale forecast = (L) X Sales for this year +
(1 L) 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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SALES FORECAST (Quantitative)

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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SALES FORECAST (Quantitative)

D. Ratio Method :
In this method company assumes that whatever
happened in immediate past will continue
Sales forecast = sales of this year X P
where P = sales of this year / sales of last year

Advantages :
(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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SALES FORECAST (Quantitative)

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 factors
4. 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 in
units or revenues from the companys products
and services and the selling expenses.

Sales budget is then broken down into :

(a) product-wise quantities, average selling price per
unit and sales revenue
(b) Territory-wise quantities & sales revenue
(c) Customer-wise and sales person wise sales
volume quota for budget periods
Sales budget includes selling expenditure as well
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SALES FORECAST
Sales Manager is responsible for making
three detailed budgets :
(1)
(2)
(3)

Sales volume budget

Selling expenses budget
Administrative budget of sales dept

Purpose of Sales budget :

(a) Planning
(b) Co-ordination
(c) Control
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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)
(b)
(c)
(d)
(e)

Review Situation
Communication
Subordinate budgets
Approval of sales budget
Budgets for Other departments

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