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Sales Objectives and Sales Forecasting for Marketing

Planning
Sales Objectives
You dwelled on background for the marketing plan in the situation analysis that you
make in the initial stages of the marketing plan. It is always better to analyse facts found
in the situation analysis and develop a SWOT before you go further in to your marketing
plan. Then the next step is to set your sales objectives. It will shed light on the whole
marketing plan and give you the direction to design all other activities in a marketing
plan.

Understanding the importance of Sales Objectives


Sales objectives are basically how much of goods and services that you are going to sell
and what kind of sales volume that you hope to achieve in the marketplace. Most of the
elements in a marketing plan are designed to meet sales objectives. Confirming the size
of the target market and establishing realistic marketing objectives, to determining the
amount of advertising and promotion to be budgeted, to the actual hiring of marketing
and sales personnel to the number and kind of distribution channel utilized and, very
important, to the amount of product produced or stocked.

Sales Objectives should be SMART


Sales objectives should be Specific, Measurable, Achievable, Realistic and Time specific.
Objectives such as catch a substantial market share or increase sales by a big volume etc.
are not SMART objectives. Increase Chicken Flavoured Soya Meat sales by 20 % in the
Western Province of Sri Lanka within the first year of operation, is a SMART objective.
The company may be selling many soya products, but here, it specifically says Chicken
Flavoured Soya Meat and also the area that the sale is going to increase, so it is specific.
It says that the company is going to increase sales by 20%, so it is measurable. 20%
increase in a year is achievable and realistic. When the period ends, the company could
measure and how much of sales it has achieved and compare with the projected sales.
Further it indicates the period, within first year of operation, so it is time specific.
The sales objectives could be for a short term or for a longer term. Further the profit
expectations also could be projected at this time. It will help to prepare the marketing
plan with a view of obtaining the level of profits expected.

Factors to consider in setting sales objectives


Quantitative as well as qualitative factors should be taken into consideration when sales
objectives are set.

Quantitative factors
Sales Trends
Market potential, sales forecast and market share are all important elements in the setting
of sales objectives. All these elements could be measured from taking historical data and
the current tends in the market. If you do not expect anything to change dramatically,
historical data could be a very good predictor. If changes are taking place different to the
past trends then you got to take the future trends more into consideration.
In the quantitative factors, market sales, company versus market sales, market share
trend, market size, purchase rates of your target market should be analysed to have a
realistic Sales objectives.
Budget, Profit and Pricing Considerations
Companys budgets in the past will provide a good understanding about the companys
operating expenses and profit expectations. Sales expected from different products in
different markets, level of profits projected and achieved will provide important
information. Further, sales to different expenses ratios in the past also will provide more
information in setting realistic sales and pricing and profit expectations.
Qualitative Factors
All non quantitative factors that affect setting sales objective should be considered at this
stage. There could be numerous factors in this element and only more prominent factors
are discussed below briefly.
Economic considerations: You need take the changes in the economy into consideration
when deciding your sales objectives. It depend on what kind of economy you are facing,
such as a boom period or a rescission period etc. many other factors such as per capita
income, income distribution, interest rates, inflation, salary levels, employment and
unemployment etc have impact on economic consideration. Further global economic
trends such as American and other major economic financial crisis happened in year 2009
would have an effect on the economic consideration.
Competition: It is important take the analysis done in the business review section on
competition into consideration when sales objectives are set. It is not an easy task to
determine the impact of competition as you will find competitors act differently in many
occasions than you expect them to react.
Your products Life cycle: Your sales objectives will vary as to when you go along the
product life cycle. E.g. you may have a higher sales objective, if you have introduced a
product well into a growing market. Your sales objective may be low if your product is on
the declining stage. Therefore you need to take the PLC into consideration when you are
setting the sales objectives.
The mission and personality of your organization: What are your companys
expectations? What is its philosophy of doing business? Are you a conservative or

careful or a moderate risk taker? Are you an aggressive and we can do it type of a
company? All those factors will have a bearing on your sales objectives. Therefore you
need to take all of them into consideration when sales objectives are set.
Process of setting sales objectives
Recommended process to set sales objectives is based on three tasks
1. Set individual sales objectives using three different quantitative methods
2. Reconcile these different quantitative goals into composite sales objectives
3. Adjust the quantitatively based composite sales objectives through the
interpolation of the relevant subjective qualitative factors, such as the economy,
competition, and the personality of your organization
Setting Quantitative Sales Objectives
Depending on the availability of data you could use following three different
quantitative methods
Outside macro
Inside macro
Expense plus
Each method will help you develop a sales objective estimate, and each estimate will
provide one of three parameters from which to make realistic judgments in arriving at
your final sales objectives. Each method can be used exclusively in arriving at a sales
objective: however, the final outcome will not be as reliable as when you apply all
three approaches. By using three different approaches, you develop sales objectives
derived from three different sets of data, a safeguard against using only one set of
data that might not be totally reliable or complete.
a) Outside macro approach
First look outside your immediate company environment and estimate total or
category sales for each of the next three years. Then estimate your companys current
and future share of the market for next three years. Finally, multiply the total market
or category projections by your market share estimate for each of the next three-year
projections for both unit and value of sales. E.g. If the market category sales for next
three years are estimated at 100 million, 120 million and 150 million and your
companys future share is estimated at 30%, 40% and 50% then the sales projections
for next three for your company would be 30 million, 48 million and 60 million.

Market Trend Line Sale Projection


Rather than applying straight percentage increase to arrive at market volume for future
years, you can statistically project a market trend line. If you need to project sales for
year 2015, you can take the changes taken place during the period 2006 to 2010 and
adopt the tend line to project the sales.
Assume the amount of sales done in year 2006 was Rs. 800 million and the sales done in
year 2010 was Rs. 900 million, you would perform the calculation as follows;
Increase in sales from 2006 to 2010 was Rs. (900 million 800 million) Rs. 100 million
Average per year = 100/4 = Rs. 25 million
Projected sales increase for next 5 years would be 25 million x 5 = 125 million
Therefore the projected sales for 2015 would be 900 million plus 125 million = Rs.1025
million
This method is called the freehand and is the simplest method of determining trend lines.
There are advanced trend line methods when there is a substantial fluctuations in sales,
which are deal in detail in business statistics such as least squares method.
Company /product Trend Line Share Projections
To arrive at a share of market estimate, review the change in your companys share over
the past five years and project similar share change for the future. You can estimate a
percentage point change or use the same freehand approach shown in the preceding
example.

company
share
percent
of the
market

Market
Sales
Volume

Value Rs.

Percentag
e change
of value
from
previous
years

Percentag
e change
of units
from
previous
year

Units

Market
Share
Value

Percentag
e point
change of
Mkt Share
value from
previous
year

Percentag
e of units
of the
market
share

Previous 5
years
1998
1999
2000
2001
2002

952.2
1067
1135.1
1202.9
1275

13.3
12.1
6.4
6.0
6.0

449.1
484
508.2
527.9
544

5.10
7.77
5.00
3.88
3.05

5.00%
5.10%
6.10%
6.50%
6.60%

0.10%
0.10%
1.00%
0.40%
0.10%

4.00%
4.70%
5.20%
5.70%
6.10%

P
e
o
f
p
y

Projections Next
3 years
2003
2004
2005

1355.7
1436.4
1517.1

Three year
sales
projections for
company

2003
2004
2005

6.3
6.0
5.6

567.7
591.4
615.1

4.40
4.10
4.00

7.00%
7.40%
7.80%

0.40%
0.40%
0.40%

6.60%
7.10%
7.60%

Company
sales
value
94.9
106.3
118.3

Market
Sales
Units
567.7
591.4
615.1

Company
unit share
percent of
market
6.60%
7.10%
7.60%

Company
unit sales
37.5
42.0
46.7

would be
as follows

Market Sales
Value
1355.7
1436.4
1517.1

company
sales
percentag
e of value
7.00%
7.40%
7.80%

Inside Micro Approach


Review your organizations past sales records. Using the straight
percentage increase or the trend line approach, arrival at projected three
year sales for your company. From the top go further and using the
straight percentage or trend line approach, estimate sales for each
product or department, adding the projected sales of each
product/department together for a three year company total. Reconcile
this total with your initial sales estimate for the entire organization to
determine an ultimate top projection.
Next review your sales by Rupees and units from the bottom up to
arrive at an estimate of a sales figure. Bottom up approach means
estimating sales from where it generates, such as sales by each channel,
store unit, or service office. Based on history and the current changes in
the market, estimate sales for each bottom up sales generator and add
them together to determine each years projection.
Reconcile the organizations sales estimates derived from top with those
derived from the bottom to figure out a realistic value.
Expense plus approach
How mush of sales should be required to cover up the expenses. What
amount of sales is required to brake even? This method is more short
term in nature and is most useful in helping to arrive at your one year

sales objective. However, you can develop sales objectives for each
year for of a three year sales period by employing this approach. In
order to prepare a sales objective by this method the budgeted expenses
are required and even the expected profits also can be taken into
consideration. Then you can find out how much of sales at what level
gross margins should required covering the expenses and expected
profits.
E.g.
If the total expenditure is Rs. 500,000 and the expected profit is Rs.
100,000, then the gross margin should cover at least Rs. 600,000. If the
gross profit rate is 15%, then the sales target should be 4,000,000.
( 600,000 /15 * 100).
Alternative New product category approach
This method is useful for new products or product categories where
there are no past records. Potential target market has to be estimated
and then work backwards to figure out a value for sales objective. It
could comprise of trial purchases, repeat purchases of the new product.
The estimates would be highly speculative and uncertain if a good
analysis of the potential market is not made.
Reconciling Sales Objectives
You can take all the estimated sales objectives obtained through
different methods and make reconciliation. Then you can take an
average of all or weighted average placing more emphasis on or two
methods used. This reconciliation will help you to make a better
decision on the sales objective than taking only a sales objective
obtained by using one method.
Qualitative adjustments of quantitative sales
Once the quantitative assessment is taken about a sales objective, you
could review the qualitative factors that could affect sales. Then taking
them into consideration, you may increase or decrease your sales
objective. E.g. A positive economic outlook may increase the sales
estimate and negative outlook may decrease the sales estimates.
Other considerations
Include a rationale with the sales objectives. - It should summarise the
process used and assumptions made

Involve upper management in setting sales objectives.- Make sure that


upper management of the company has an understanding of the sales
objectives
Plan to revise the sales objectives regularly the sales objectives
should be reviewed and necessary adjustments should be made to make
it current. It is better to have set periods in advance to review the sales
objectives, so that it would become and integral part of the marketing
control mechanism.