Sales Forecasting Methods

Types of sales forecast

All (Total) sales
Industry sales
Company sales
Product level
Product line sales
Product variant(form) sales
Product item sales

Types of Sales Forecast Long range

Time Period Medium range
Short range

World
Nation
Geographic area Region
Territory
Customer
Qualitative forecasting methods
Grass Roots: deriving future demand by asking
the person closest to the customer. (Sales force
composite method: bottom up approach or grass
root approach)
Market Research: trying to identify customer
habits; new product ideas. (Survey of buyer’s
intentions method)
Panel Consensus: deriving future estimations
from the synergy of a panel of experts in the area.
(Executive opinion method: oldest, simplest and
most widely used)
Historical Analogy: identifying another similar
market.
Quantitative methods
• Test marketing
Full blown test markets
Controlled test markets
Simulated test markets

• Time Series analysis

a) Moving average method:
Sales forecast for next year=
actual sales for past 3 or 6 years
Number of years (3 or 6)
• Decomposition: previous sales data is broken
into 4 major components such as trend ,cycle,
seasonal and erratic events.
• Exponential smoothing:
Sales forecast of the next year= (L)actual sales
of this year+ (1-L)this years sales forecast
• Naïve method
Sales forecast for the next year= actual sales of
the yr*actual sales of this yr
Actual sales of last yr
Sales planning and budgeting
 Why Plan?
• Provides direction
• Improves morale
• Cooperation and coordination
• Flexibility
• Individual and collective standards
 Planning at different levels
• Strategic planning: CEO, Board of Directors- mission,
vision, goals, overall budgeting
• Tactical planning: GM Sales: departmental, yearly
quarterly plans, policies, procedures budgets.
• Monthly and weekly planning: Regional sales
Managers: branch plans and budgets
• Daily planning: Sales supervisors and sales
representatives- unit plans and budgets
 Sales management information system
(SMIS)
• SMIS collects information from within the company as well as
from customers, suppliers and other outside sources for the
purpose of supporting the decision making of sales managers
at both headquarters and field levels.
Task undertaken in SMIS
• Collection and transmission of the data
• Accumulation of the data
• Categorization of data
• Analysis
• Circulation of data analysis
• Scenario development
 Sales Management planning process
• Analyze the situation
• Set goals
• Determine market potential
• Forecast sales
• Select strategies
• Develop detailed activities
• Allocate necessary resources( budgeting)
• Implement the plan
• Control the plan
 Analyze the situation
• Market characteristics
• Competition
• Sales, cost and profit data for current and
recent years
• Bundle of benefits offered by potential
customers
• Promotional mix
• Distribution systems
 Setting goals and objectives
• Goals : broad
• Objectives: specific
 Determine market potential
• Market potential
• Sales potential

Accordingly sales quotas and sales force are

decided
 Selecting strategies

• growth strategies

Current New
products products
Current Market Product
markets penetration development
New markets Market diversisificati
development on
• BCG growth share
matrix Relative market share

High Low

high Stars Problem

rate
Growth

children
Low Cash cows dogs
 Budgeting
Annual sales budget
1. Review and analyze the situation
• Salaries
• Direct selling expenses
• Commissions and bonuses
• Benefit package
• Office expenses
• Promotional materials
• advertising
 There are three types of sales expenses:
❖ Fixed Expenses: These expenses pertain to the compensation of salespersons,
office rent, insurance and interest on fixed assets like vehicles, office space, office
equipment, etc.
❖ Performance-related Expenses: These include commissions, incentives, bonus
and awards, etc.
❖ Activity-related Expenses: These include travel and communication expenses, etc.
2. communicate sales goals and objectives
3.Identify specific market opportunities and
problems
4.Develop a preliminary allocation of resources
and selling efforts
5.Prepare a budget presentation to sell
6.Implement the budget and provide periodic
feedback