Sales Forecasting

By Kaustubh Pal
 Why forecasting???
• It is used in product strategy and planning.
• The following questions could be answered:
– What volumes can marketers expect from a new
product?
– How will sales of existing products be affected by the
launch of a new offering?
– Is brand equity increasing or decreasing?
– What do customers really want, and what are they
willing to sacrifice to obtain it?
• Test markets and volume projections enable marketers to forecast sales by
sampling customer intentions through surveys and market studies.
• By estimating how many customers will try a new product, and how often
they’ll make repeat purchases, marketers can establish the basis for such
projections.
• Trial Rate (%) = First-time Triers in Period t
----------------------------------------
Total Population
• First-time Triers in Period t = Total Population * Trial Rate (%)

• Penetration t = [Penetration in t-1 * Repeat Rate Period t (%)]

+ First-time Triers in Period t

• Projection of Sales t = Penetration t * Average Frequency of Purchase

* Average Units per Purchase
EXAMPLE: A cable TV company started selling a monthly sports package in January.
The company typically has an 80% repeat rate and anticipates that this will continue
for the new offering. The company sold 10,000 sports packages in January. In
February, it expects to add 3,000 customers for the package. On this basis, we can
calculate expected penetration for the sports package in February.

Penetration in February = (Penetration January * Repeat Rate)

+First-time Triers in February
= (10,000 * 80%) + 3,000 = 11,000

Later that year, in September, the company has 20,000 subscribers. Its repeat rate
remains 80%. The company had 18,000 subscribers in August. Management wants to
know how many new customers the firm added for its sports package in September:

First-time Triers = Penetration - Repeat Customers

= 20,000 - (18,000 * 80%) = 5,600

Projection of Sales = Penetration * Frequency of Purchase

* Units per Purchase (#)

• Data from consumer panel of size 8000 during a I year test marketing operations of
Vito which is marketed by Hindustan Foods Ltd