Sales forecasting

Sales forecasting is a process of estimating the sales volume during a future time period.

A sales forecast is an estimate of sales that a business firm expects to achieve during specified
period in future, in a stated market and under proposed marketing plan.

Importance of Sales Forecasting

1. Supply and demand for the product can be easily adjusted by, overcoming temporary
demand, in the light of anticipated estimated.
2. A good inventory control can be maintained by avoiding the situation of understocking
and over stocking.
3. Allocation and reallocation of sales territories are facilitated.
4. It is forward planner as all other requirement of raw material, labour, plant layout,
warehousing, transport facility depends in accordance with sales volume is expected in
advance.
5. It is an indicator to the department of finance as to how much and when finance is
required to overcome difficult situation.

Factors influencing Sales Forecasting:

1. General Economic Condition: It is essential to consider all economic
conditions relating to the firm & consumer. The forecaster must see the
general economic trends such as inflation or deflation that may adversely or
favourably affect business.
2. Consumer Preferences: Consumer’s products like apparalels, luxuries
goods, furniture, and vehicles have an impact on sales forecast. The size of
population by its composition:- customers by age, gender, economic
condition have an impact on sales forecast. Trends like fashion, religious
habits, social group influences also have impact on sales forecasting.
3. Industrial Behaviour: Unstable conditions within the industry such as
industrial unrest, government control through rules & regulation, improper
 availability of raw material etc., directly affects the production, sales &
profit.
4. Marketing Plans: Any change in the product, price structure, distribution
channels, promotion plans & other marketing policies of the firm may
influence the future sales.

Methods Of Sales Forecasting

Qualitative Methods
1. Expert Opinion/Jury Member:
This is the simplest and oldest method of sales forecasting. In this method, the views of
top executive concerning future sales are obtained. These executives are experts in
studying sales trends. The opinions of the executives are averaged to make one’s forecast.
The main advantage of this method is that it is simple and time saving that is why small
and medium size companies can easily adopt this method.The disadvantage of expert
opinion method are that changes in future business environment are not taken into
consideration.Secondly this method is very unscientific and works on mere guess
work..Thirdly the opinion of top executives of strong feeling may influence the final
forecast.
2. Sales Force Opinion Method:
In this method the firm collects and estimates from each sales person of the product or
service they expect to sell in the forecast period. The individual forecasts are then
aggregated to an overall forecast of the firm. This is a grassroot method of estimating.
This method is useful for short term sale forecasting.The sales people are often poor
forecaster. They tend to either overtly optimistic or pessimistic. It also involves much
time of both sales person and the management.

3. Consumer Survey Method/Survey Of Buyer’s Intention:

 Here the potential customers or buyers are contacted to find out how much they would
buy at a stated price. The survey of the customer may give good estimates as the data is
collected first hand directly from buyers. But it is very time consuming and expensive
method. Moreover, most of the buyers may not be able to indicate their accurate purchase
plan.

4. Delphi Technique/ Delphi Method:

This is the modification of the jury or expert opinion method. Jury members make
individual anonymous forecast which are then compiled and returned for the second
round of forecast. This process continues until a consensus emerges. Any information
collected from one expert is passed on to other to eliminate the effect of majority opinion.
The final estimate is made after sorting out difference in opinion.

Quantitative Method
1. Moving Average Method:
Under this method, future sales are predicted on the basis of past sales on the assumption
that market condition of the past will be repeated in the coming period. Average of sales
over several years in the past is calculated to construct the sales forecast of the future
year.

2. Exponential Smoothing:
This is a modification of moving average method. Sales in recent years are given more
weightage than the sales in distant past. Exponential smoothing is better suited for short
term forecasting in relatively stable markets. It is particularly useful in updating quarterly
forecast.

3. Regression Analysis:
Regression analysis is one of the simplest mathematical techniques for sales forecasting.
The aim of regression analysis is to identify the factor that influence or are closely
associated with the changes in sales. When a single independent variable is used it is
 called as simple regression. The use of two or more independent variable is multiple
regressions.

4. Extrapolation/Trend Analysis:
This method involves assessing future sales by analyzing past sales over several years.
Suppose the sales of firms over the last 20 years indicate an average increase of 10% per
year then the sales forecast of the future year will be:

Sales Forecast=Sales Forecast of last year+10%

5. Econometric model/econometric analysis:

Input output model which shows that the output of one industry is the input of another is
an example of econometric model. Any sales forecasting situation that can be
mathematically replicated can be developed into econometric model. Example: EOQ
Models.

Key Decisions Areas in Sales Management

Some of the important decision areas in sales management are as following

1)Designing Sales organization

A sales organization structure gives a framework showing what task are performed
and by whom. Many sales organization have developed separate organizational
structures depending upon degree of specialization, degree of centralization, line
and staff position, sales orientation, effective co-ordination and span of control.
These are different types of organization such as
 Functional Organization
  Product Specialization Organization
 Geographical Specialization Organization
 Customer Specialization Organization

2)Decision regarding type and quality of sales personnel

This is one the important issue in sales management. This means that whether the
sales person is a product specialist or a market specialist or both. A product
specialist is needed for technical or for pharmaceutical product. A market specialist
must be aware of market characteristics and various markets.

3)Decision regarding size of sales force

The decision on how many salespeople are required to meet the company’s sales
volume and profit objective is a critical decision.If the company has less than
optimum size of salesforce, there will be a loss of sales and profits , and if it has
more than required numbers, there will be an increase in sales and cost.To find the
optimal size there are three methods:
 Work Load method
 Incremental Method
 Sales Potential Method.

4)The staffing and training procedures

Proper selection of salesforce is very important as it has strong impact on
company’s performance. Salesforce training is the most important activity of a
sales manager. The salesforce staffing include planning, recruitment, selection,
hiring and socialization among the most challenging and important responsibilities
of sales management. Sales manager has to decide whether the salesperson has to
be recruited from internal(within the organization) or external (outside the
organization) .Decision regarding the method of training on the job and off the job
is also critical for salesperson performance and organization success.
5)The compensation and motivation of sales force
Compensation includes salary benefits, commission , bonus and other fringe
benefits maintain internal and external equity. The compensation plan must be
well designed for motivating salesforce. Sales Managers often find the task of
motivating the salespeople difficult and important

6)The Territory design

The main objective of a sales territory is to accurately formulate sales plans and
strategies, analyze sales potential ,organize sales force and allocate sales
responsibilities .There are a number of ways to design a territory such as circle
,clover leaf ,wedge shape etc. A well designed sales territory creates big
opportunities for salespeople ,equitable work load and reduce travel time.
Moreover , it helps sales manager to supervise and control the salesforce more
effectively.

7)The performance appraisal and control system

It is important to know how much work is being done by the sales personnel. To
facilitate this, appraisal system are devised. The sales team does not work in a
closed area such as office or a plant. So it is very important to devise ways and
means to control them. Companies have to rely on daily sales reports sales
performance and market feedback. The right kind of control begins at the stage of
planning .Control should not aim at finding faults, but it must mean identifying the
reasons of not achieving the results. A positive control boosts the morale and helps
in achieving the pre laid objectives

8)Managing multichannel relationship

Multichannel means two or more distribution or marketing channels. A sales
manager has to select and effectively manage these channels to avoid conflicts
.During the process of selection and management of sales channel , the sales
manager has to address many key issues.

9)Coordinating with other departments

Coordination is one of the prime functions of sales department because it has to
depend heavily on others for its functioning sales people have to collect orders and
ensure delivery. A sales personnel can’t work alone. Sales person has to take help
from all other departments such as advertising , logistics, human resource
,customer service etc for better co-ordination and control.

Each of these decisions area are discussed in succeeding chapters.