Sales Forecasting

FORECAST
 A forecast is a prediction of a future
state
IMPORTANCE OF
FORECASTS
 Determining sales force size
 Designing territories
 Establishing quotas and budgets
 Determining compensation
 Evaluating performance
MARKET POTENTIAL
 Best possible level of industry sales
for a product in a specific market over
a stated time period
BUYING POWER INDEX (BPI)
 A composite measure of regional
buying power
 Composed of area’s percentage of
 US disposable income
 US retail sales
 US population
SALES POTENTIAL
 The best possible share of the market
potential that a firm can achieve
SALES FORECAST
 Level of sales that a firm expects to
make
FORECASTING METHODS
TOP-DOWN FORECASTING
 Use annual Survey of Buying Power
(Sales and Marketing Management)
 Example- To get state-by-state sales
forecast
 6% of U.S. retail sales come from New
York
 Shoe mfg. takes U.S. sales forecast and
multiplies by .06 for New York state
forecast
DETERMINING MARKET
AND SALES FORECASTS
 Market factor methods
 Regression analysis
 Surveys of buyer intentions
 Test markets
 Executive opinion
 Delphi Technique
 Sales Force Composite
 Projection of Trends
 Capacity Based Forecasts
MARKET FACTOR METHOD
 Market factors are elements that cause
demand for a product or are related to
the demand of the good
MARKET FACTOR
FORECASTING--EXAMPLE
A manufacturer of baby Shampoo (1 ltr
pack) estimated that the firm sold 16
packs for every 1000 births. Using
births as a market factor, compute a
sales forecast
 Estimated births, 1999: 4,000,000
 Rate of sales: 16 per 1,000
 Sales forecast: 64,000
MARKET FACTOR--
ADVANTAGES
 High validity
 Simplicity
 Inexpensive
REGRESSION ANALYSIS
 We predict how one variables (sales) is
affected by change in other variables
(advertising expenditures, number of
sales calls, etc.)
 Territory Sales = a + b1 (factor) + b2
(factor) + b3 (factor)
 a = constant; b’s = regression
coefficients
REGRESSION ANALYSIS
 Use of multiple factors provides a high
degree of reliability
 Many do not understand the concept
SURVEYS OF BUYERS
INTENTIONS
 Contact customers and question them
 High cost
 Time consuming
 Socially acceptable answers
TEST MARKETS
 Accurate
 Considerable time and effort
EXECUTIVE OPINION
 Simple
 Quick
 Unscientific
 Managers somewhat removed from
market
DELPHI TECHNIQUE
 Consensus approach
SALES FORCE COMPOSITE
 Ask the sales reps
 Sales people are poor forecasters
PROJECTION OF TRENDS
 Use sales data for the past 10 years
 Exponential smoothing
PROJECTION OF TRENDS
 Trend Component
 General trend due to long-term factors
(e.g., demographic population shifts,
lifestyle changes, technological advances
etc.)
 Cyclical Component
 Patterns lasting more than a year due to
cyclical changes in the economy (e.g.,
recession, inflation)
PROJECTION OF TRENDS
 Seasonal Component
 Trends within one-year period from
seasonal change (e.g., lower swimming
pool sales in fall and winter)
 Irregular Component (Residual)
 Random deviations due to unanticipated,
nonrecurring factors
CAPACITY BASED
FORECASTS
 Production capacity becomes
limitation
GUIDELINES FOR
FORECASTING
 Minimize the number of market
factors
 Use logic
 Use more than one method
 Recognize limitations
 Use max/min analysis
 Understand mathematics and statistics
SALES QUOTAS
 a performance goal assigned to a
marketing unit for a specific period of
time
 is related to the sales forecast
SALES QUOTAS--PURPOSES
 Furnish goals and incentives
 Control activities of sales personnel
 Evaluate productivity
 Compensation
 Control selling expenses
 Evaluate sales contest results
SALES QUOTAS--TYPES
 Sales volume
 Gross margin or net profit
 Expense
 Activity
 Combination
Thank You!