SALES FORECASTING

Sales Forecasting
is a projection of the expected customer demand for products
or services at a specific company, for a specific time horizon,
and with certain underlying assumptions.
WHY SALES FORECASTING IS IMPORTANT?

Forecasting can be used for…

• Strategic planning (long range planning)
• Finance and accounting (sales budgets and cost controls)
• Marketing (sales quotas, new products)
• Production and operations
 1
Principles of Forecasting
Many types of forecasting models that differ in
complexity and amount of data & way they generate
forecasts:

 Forecasts are rarely perfect

 Forecasts are more accurate for grouped data than
for individual items.
 Forecast are more accurate for shorter than longer
time periods.
 Factors affecting Sales Forecasting

External Factors Internal Factors

Relative state of the economy Labor problems

Direct and indirect competition Inventory shortages
Styles or fashions Working capital shortage
Consumer earnings Price changes
Weather Production capability shortage
Political Conditions New product lines
 2

TYPES OF
FORESCASTING
Types of Forecasting

Economic forecasts
Predict a variety of economic indicators, like money supply,
inflation rates, interest rates, etc.

Technological forecasts
Predict rates of technological progress and innovation.

Demand forecasts
Predict the future demand for a company’s products or
services.
 TYPES OF
FORECASTING
METHODS
 “
Qualitative methods: These types of forecasting methods
are based on judgments, opinions, intuition, emotions, or
personal experiences and are subjective in nature. They do
not rely on any rigorous mathematical computations.

Quantitative methods: These types of forecasting methods

are based on mathematical (quantitative) models, and are
objective in nature. They rely heavily on mathematical
computations.
 1

QUALITATIVE FORECASTING METHOD

 Executive Opinion Method
 Most widely used
“
 Method of combining and averaging views of several executives
regarding a specific decision or forecast.
 Leads to a quicker (and often more reliable) result without use of
elaborate data manipulation and statistical techniques.

Merit: This method is simple and quick.

Detailed data are not needed.
Demerit: It is not based on factual data.
More or less, the method rests on guess-work, and may lead to
wrong forecasts.
 Market Survey “
 Process includes asking customers about their intentions to buy the
company’s product and services
 Questionnaire may contain other relevant questions

Merit: First hand information is possible.

User’s intention is known.
Demerit: Customer’s expectation cannot be measured exactly.
It is difficult to identify actual buyers.
The method is costly.
Buyers may change their buying decisions.
 Sales Composite Survey “
 Also known as “Grassroots Approach”
 Individual salespersons forecast sales for their territories
 Individual forecasts are combined & modified by the sales manager to
form the company sales forecast.
 Best used when a highly trained & specialized sales force is used.

Merit: Specialized knowledge is utilized.

Salesmen are confident and responsible to meet the quota fixed.
Demerit: Success depends upon the competency of salesmen.
The estimation may be unattainable or may to too low for the
forecasts as the salesmen may be optimistic or pessimistic.
 Delphi Method “
 Process includes a coordinator getting forecasts separately from
experts, summarizing the forecasts giving the summary report to
experts who are asked to make another prediction; the process is
repeated till some consensus is reached

Merit: Forecasting is quick and inexpensive.

It will be more accurate.
Specialized knowledge is utilized.
Demerit: The success of forecasting depends upon the competency of
experts. It may not be reliable.
 2

QUANTITATIVE FORECASTING METHOD

 Time-Series Models “
 Assumes information needed to generate a forecast is contained in a
time series of data. It looks at past patterns of data and attempt to
predict the future based upon the underlying patterns contained within
those data.
 Assumes the future will follow same patterns as the past.
Merit: No guess-work creeps in.
The method is simple and inexpensive.
Specialized knowledge is utilized.
Demerit: ‘Market is dynamic’ is not considered.
No provision is made for upswings and downswings in sales
activities.
Time Series Components

Irregular/
Seasonal
Random
Component
Variations
Cyclical
Component

Trend
Component
Trend Component
 Gradual upward or downward movement over time.
 Date taken over a period of years.
Cyclical Component
 Sales are often effected by swings in general economic activity as
consumers have more or less disposable income available.
Seasonal Component
 It is a distinguished pattern to sales caused by things such as the
weather, holidays, local customs and general consumer behavior.
Irregular / Random Variation
 The Erratic events-Random Variations in data caused by change
and unusual situations.
 Associative Models “
 (often called causal models) assume that the variable being forecasted
is related to other variables in the environment. They try to project
based upon those associations.

Merit: Can evaluate the impact of changes in other variables.

Demerit: Difficult to identify other variables.
Require historical data on all variables of the model.
Depend on the future values of the other variables.
 Sufi Legend:
The Lost Horse
 A man who lived on the northern frontier of China was skilled in interpreting
events. One day for no reason, his horse ran away to the nomads across the border.
Everyone tried to console him, but his father said, "What makes you so sure this isn't a
blessing?"

Some months later his horse returned, bringing a splendid nomad stallion. Everyone
congratulated him, but his father said, "What makes you so sure this isn't a disaster?"

Their household was richer by a fine horse, which the son loved to ride. One day he fell
and broke his hip. Everyone tried to console him, but his father said, "What makes you so
sure this isn't a blessing?“

A year later the nomads came in force across the border, and every able-bodied man
took his bow and went into battle. The Chinese frontiersmen lost nine of every ten men.
Only because the son was lame did father and son survive to take care of each other.

Truly, blessing turns to disaster, and disaster to blessing: the changes have no end, nor
can the mystery be fathomed.
Thank You! 
PRESENTED BY: JEHRA MAE SEVILLANO