Sales Forecasting.
• American Marketing Association
• " An estimate of sales in Rs or physical
units for a specified future period under a
proposed marketing plan or Programme
and under an assumed set of economic
and others forces outside the unit for
which the forecast is made"
• Important Terms –
A. Market –
Market is aggregate demand of the potential
buyers of a commodity or service.
B. Market Potential –
A calculation of maximum sales opportunity for
all sellers of a goods or service during stated
period.
C. Market Share –
Market Share is the ratio of a company's sales
to the total Industry sales on either an actual or
potential basis.
D. Sales Potential –
A calculation of maximum sales opportunities
open to specified company selling goods or
services during stated future period.
• Period for sales forecasting –
a. Long-range forecast and it's uses –
Period from 5 years to 10 years.
o Anticipating the magnitude and timing of capital
expenditures required for new facilities in future.
o Determining probable trends and range of cash inflows
from sales.
o Estimating company's long-range personnel needs.
o Highlighting future problems and requirements
regarding raw materials.
o To determine R & D objective to achieve the future
sales and profitably.
b. Medium-range forecasting –
Over 1 year to 4 years.
o Determining Budgetary control over expenses.
o Determining Dividend policy.
o Deciding rate of maintenance expenditures.
o Determining schedule of operations.
c. Short-run-forecast –
Three months up to one year.
o Estimating inventory requirement.
o Providing adequate shipping facilities.
o Assessing production- worker requirements.
o Estimating working- capital needs.
o Setting production runs for each product
o Fixing sales quotas.
• Factors influencing sales forecasting –
1. General Business condition.
2. The conditions within the industry.
3. The changed market situation.
4. The conditions within the company.
• Types of forecasts –
1. The Economic forecast.
2. The Industry forecast.
3. The Company's sales forecast.
• FORECASTING REQUIRES –
1. An understanding of Demand concepts and
Demand determinants.
2. An Appropriation of the Economic trends.
3. Adoption of the correct sales forecasting
procedure and techniques.
4. An awareness of limitation of sales forecasting.
1. Demand Concept and Determinants –
a. Types –
o Primary.
o Selective.
o Derived.
b. Determinants –
o Price.
o Population.
o Income ( Disposable Income ).
o Satisfaction ( Economic & Non Economic ).
o Substitutability.
o Competition.
o Advertising and Promotion.
2. Economic Trends –
National Income Statistics.
a. Gross or Net national product.
b. Factor Incomes.
o Wages and Salaries.
o Interest.
o Rent.
o Profit before tax.
c. Consumer expenditure.
d. Private Income.
e. Personal Income.
f. Disposable Income.
3. Sales Forecasting Procedure & Methods –
o Determining the objectives and purposes for which the
forecasts are to be used.
o Dividing the company products into homogenous
groups.
o Determining the relative important of the factors which
affect sales of each such group.
o Selecting the appropriate forecasting method.
o Collecting, analyzing, cross-checking the data and
drawing deduction there from.
o Making assumption regarding effect of factors which
are not susceptible to being measured.
o Converting the deductions and assumptions into
specific forecasts relating to the products and
territories involved.
o Applying these forecasts to the company's operations.
o Periodically reviewing and revising the forecasts.
• Forecasting Methods –
1. The Jury of Executive opinion method.
2. Sales force composite opinion method.
3. The users Expectation method.
4. Statistical method.
1. The Jury of Executive opinion method –
• Advantages –
o Provides forecasts easily and speedily.
o Without preparing elaborate statistics.
o Permits pooling of specialized viewpoints.
o In the absence of adequate data, supplies only feasible
means of forecasting.
• Disadvantages –
o Interior method compared with other factual basis.
o Disperses responsibilities for accurate forecasting.
o Utilizes costly executive time.
2. The sales force composite method –
• Advantages –
o Specialized knowledge of persons closest to market.
o Provides confidence among sales force for quotas
developing.
o Greater stability through magnitude of sample.
o Responsibility on those who are expected to give
results.
o Easy breakdown by product, territory or salesmen.
• Disadvantages –
o Salesmen poor estimator being unduly optimistic.
o Salesmen often unaware about broad economic
trends.
o Salesman's time curtailed for primary job of selling.
o Intentional underestimation of demand.
3. The Users Expectation method –
• Advantages –
o Based on direct information from end users.
o Provides subjective feel of the market.
o More appropriate when other methods are
inappropriate.
• Disadvantages –
o Not practical when numerous users are there.
o Based on expectations which may change.
o Based on the judgment of ill-informed users.
4. Statistical & quantitative methods –
The Trend method –
Sales of = Sales of + Change in Sales Sales of Current
Next Period Current Period during current period Period
Sales during Last
period
The Regression Technique.
• Advantages –
o Describe the measurable objective.
o The degree of reliably in indicated.
o Quantity assumptions enables checking results.
o Major factors influenced sales.
• Disadvantages –
o Correlates sales to indicators which are generally
estimates.
o Places over reliance on statistical methods.
o Complicated statistical method.
o Requires considerable technical skill and experience.
• The Forecasting Technique –
1. Ability of executive to understand method and
confidence they place in the results.
2. Extend of accuracy and crosschecks on
accuracy.
3. Ability of technique to give timely results.
4. Cost involved in terms of efforts and money.
• Limitation –
1. Fashion.
2. Lack of sales History.
3. Anticipating growth Elements.
4. Psychology.
