3. Sales
forecasting is an important aspect of
sales management.
These forecasts are the result of painstaking
efforts by a number of individuals and
departments in the firm.
Forecasts aids sales managers in improving
decision making.
4. However
no one sales forecasting method is
suitable for every situation.
Sales managers must be familiar with the
various forms of forecasting and their use.
Particular attention must be given to
matching the sales forecasting method to the
decision-making situation.
6. Sales Quotas and Budgets
Two
of the most vital managerial uses of the
sales forecasts are the setting of sales
quotas and the developing of sales budget.
7. Sales Quotas
Sales
goals and objectives sought my
management.
They are the performance standards for the
sales force; comparison of the actual sales
with assigned quotas is the basis of much of
the sales function’s evaluative effort.
The establishment of the realistic quotas is
one of the most critical tasks faced by a sales
manager.
8. The
forecast is the company’s actual
prediction of what sales will be in a
forthcoming time period.
If
sales quotas are realistic, they are the best
and fairest method for setting sales quotas.
9. Sales Budgets
Another
important evaluative technique.
Sales Budget is a management plan for
expenditures to accomplish sales goals.
It’s a blueprint for sales force action.
12. Sales Potential
Individual
Firm’s share of the market
potential…
it can be expressed as:
Sales Potential = maket share x market potential
13. Market Share
Percentage
of a market controlled by a
company or product…
The sales forecast, by contrast, is the sales
estimate that the company actually expects to
obtain.
Is based on marketplace circumstances,
company resources, and the firm’s marketing
plan.
15. ESTIMATING MARKET AND SALES
POTENTIAL
Continuous
assessment and monitoring of
market and sales potentials is important to
effective sales forecasting.
a company must keep track of trends in sales
and market share.
it must also remain alert to basic shifts in
product offerings and competitive marketing
program.
16. ESTIMATING MARKET AND SALES
POTENTIAL
Market
and sales potential assumes that the
current product offerings are relevant to a
particular market.
If a competitor were to come out with a greatly
improved product, company’s sales would be
effected.
18. Ability To Buy…
The
ability to buy refers primarily to wether or
not a buyer has the financial resources to
purchase a product.
Sales potential is also dependent upon the
buyer’s ability to purchase the good or
service.
19. Willingness To Buy…
The
willingness of customers to buy also
influences market potential, but is far more
difficult to assess.
Marketing research studies are the most
common method of estimating the effect of
customer willingness to buy upon sales
potential.
20. Willingness To Buy…
Marketing
research methodology is quite
varied; it ranges from simple mail
questionnaires to focus groups to actual test
marketing of a product in selected localities.
21. Test Marketing
Test
marketing is expensive in terms of time
and money.
Some firms are turning to it as a way of
estimating market and sales potential.
Test marketing involves marketing a product
in a limited geographic region, measuring
sales, and then using the results to predict
the product’s sales over a larger market area.
22. Test Marketing
The
most frequent use of test marketing is to
estimate demand and project sales for a new
product.
Test marketing can also be used to assess
different product features, marketing options,
and sales strategies.
24. The Product Life cycle
Is
an important sales planning and control
tool, since it projects the changes in a
product’s sales and profits that will occur
overtime.
When estimating market and sales potential,
sales managers must also take into account
the stage, the product has reached in its life
cycle.
25. The Product Life cycle
It
provides a conceptual framework for
developing sales objectives and strategies for
different stages of a product’s life.
26. The Product Life cycle
The
most difficult stage of the product life
cycle to forecast is the INTRODUCTION.
There is no historical sales record, and new
products have a high failure rate.
It is important for the sales forecaster to
prepare a realistic estimate of potential sales
so that management can assess the risks of
introducing the new item.
27. The Product Life cycle
Most
firms use marketing research
techniques such as focus groups, surveys,
and test marketing to project sales of new
products.
If a new product gains market acceptance
and enters the GROWTH STAGE, traditional
sales forecasting methods can be used.
The forecaster must be aware of the adoption
rate for the new product, and of the potential
impact of competitive products.
28. The Product Life cycle
During
the MATURITY and DECLINE stage,
traditional forecasting techniques are
appropriate.
Historical data can be analyzed statistically to
project sales.
The sales forecaster must be alert to other
factors, such as new uses for the product,
that may suggest significant changesin the
sales trend.
30. Sales forecasting procedures
Preparing
a forecast of general
economic conditions,
Preparing a forecast of industry
sales,
Preparing a forecast of the product
or company sales.
31. 1. Forecasting general
Economic Conditions
Sales
forecasting is based upon an
assessment of general economic conditions.
The standard yardstick for measuring general
economic activity is the Gross Domestic
Product (GDP).
GDP is the value of all the goods and
services produced within a country during a
given year.
32. 1. Forecasting general
Economic Conditions
For
many sales forecasters, estimates of
general economic conditions are difficult to
evaluate because of problems in determining
their accuracy and their economic
usefulness.
33. 2. Estimating Industry Sales
Many
firms attempt to predict industry sales.
The development of industry forecasts seems
to be related to the size of the firm:
Smaller firms are apparently less concerned
with, or less able to develop, such forecasts.
They often rely on industry estimates
available from trade associations and
government sources.
34. 2. Estimating Industry Sales
Some
of the estimates are based upon the
relationship between industry sales and a
national economic indicator such as GDP or
National Income.
Large organizations are likely to have a
corporate economist who provides support
and information for sales forecasting.
35. Projecting Company and
Product Sales
Company
and product sales estimates are
the major areas of concern for a firm’s sales
forecasting function, since they are the
revenue forecasts upon which other planning
activity throughout the company are based.
Forecasting methods can be classified as
either Qualitative or Quantitative.
36. Qualitative
Methods rely upon subjective,
but informed, opinions or judgments.
Quantitative
Forecasting applies
mathematical and statistical techniques.
Both
are useful in sales forecasting function.
37. QUALITATIVE METHODS
Jury
of Executive opinion
Delphi Technique
Sales force Composite
Survey of Buyer’s Intentions
Factor Listing
38. Jury of Executive Opinion
The
jury of executive opinion is probably the
oldest approach to forecasting, and is used
by many firms.
Managers from sales, marketing research,
accounting, production & advertising
assemble to discuss their opinions on what
will happen to sales in future.
These forecasts are usually made for only the
most aggregate of the sales categories such
as districts, product groups, or customer
classes.
39. Delphi Technique
A
similar, forecasting method, which has
been developed recently is called the
DELPHI Method.
Its is used to make long-range projections by
group of experts.
Delphi Method also gathers, evaluates, and
summarizes expert opinions as the basis for
a forecast, but the procedure is more formal
than that for the jury of executive opinion
method.
40. Sales Force Composite
A
sales forecasting technique that predicts
future sales by analyzing the opinions of
sales people as a group.
Salespeople continually interact with
customers, and from this interaction they
usually develop a knack for predicting future
sales.
It is considered very valuable management
tool and is commonly used in business and
industry throughout the world.
41. Survey of Buyer’s Intentions
Applicable
to situations in which potential
purchasers are well defined and limited in
number, such as industrial markets.
Forecast survey of a limited and well-defined
group of buyers.
43. QUANTITATIVE METHODS
Quantitative
methods of sales forecasting
have the advantage of impartial objectivity
not possible with the qualitative methods.
The basic disadvantages and limitations of
quantitative methods concern the nature and
the validity of the assumptions used, the lack
of data, and the fact that mathematical
forecasting techniques tend to generalize on
the basis of past experience.
44. Methods
Continuity
Extrapolation
Time series Analysis
Exponential Smoothing
Regression & Correlation Analysis
Multiple regression analysis
Leading indicators
Econometric models
45. 1.Continuity Extrapolation
Projection
of the last increment of sales
change into the future.
Continuity extrapolation can be done on
either an absolute basis or percentage basis.
46. 2.Time Series Analysis
Projection
of the average increment of sales
change into the future.
Time series analysis is best used for longterm company forecast and industry sales
projections.
49. 4.Regression and Correlation
Analysis
Simple
Regression: Forecasting technique
using only one independent variable.
Multiple
Regression: forecasting technique
using two or more independent variables.
53. Sales
forecasting is a complex, challenging
task. Sales managers who become involved
in forecasting, must deal with the following
key issues:
Who
should be responsible for forecasting?
Which forecasting methods should be used?
What should the lengths of forecasts be?
How should forecasts be evaluated?
54. Responsibility for Forecasting
Although
it varies among firms…
Accounting professionals originally became
involved in this activity because of their
natural interest in, and control over, much of
the internal data required to forecasts sales.
Today, marketing has assumed responsibility
for developing the forecasts in most
companies.
55. Sales
managers are not always responsible
for preparing the sales forecasts.
Some companies have elected to make the
marketing research department responsible
for sales forecasting, particularly in regard to
its quantitative analysis aspects.
56. Selecting Forecasting Methods
The
best approach to sales forecasting is the
use of a combination of methods.
It is particularly important to balance a
forecast derived from a quantitative approach
against one developed by qualitative
methods.
Combining sales forecasting techniques
improves forecasting accuracy.
57. Lengths of Forecasts
Most
firms develop sales forecasts of varying
lenghts, ranging from weeks or a months to
several decades.
An appliance manufacturer might prepare
monthly, quarterly and annual forecasts.
As well as long range projections of periods
from two to ten years.
58. Short-term
forecasting is necessary to
formulate production, human resources, and
sales plans.
Long-term forecasting is critical in capital
expenditure decisions.
Short-range forecasts are likely to be more
accurate than long-term predictions simply
because basic assumptions are usually more
correct over the short run.
59. Evaluation of Sales Forecasts
The
sales manager is often given the
responsibilty for periodically evaluating the
sales forecast.
In other cases, higher-level management is
charged with this duty.
60.
1.
2.
3.
Three objective criteria can be employed for
assessing the accuracy of sales forecasts:
Comparison with total sales.
Comparison with actual change in total
sales.
Comparison with other forecasting
techniques.
61. 1.Comparison with total sales.
This
approach matches sales performance
forecasts with actual sales performance.
62. 2.Comaprison with actual
change in total sales.
Here,
the forecast’s anticipated change is
compared with the actual change.
For example, if sales are expected to
increase from $200 million to $230 million,
but only go upto $215 million, then the sales
forecast has failed to predict 50% of the real
change.
63. 3.Comparison with other
forecasting techniques.
Another
evaluating approach is to compare a
firm’s actual sales forecast with the results
obtained through some naïve method of
estimating future sales such as extrapolating
the last increment of change in sales.