Sales forecasting

When you are in a buyer driven market, Sales Forecasting is a must to avoid inventory surplus or deficit. Companies can have a short term (2-3 months), medium term (1 year) and long term forecast (multiple years, depending on the industry). In the medium to long term, it becomes more important to judge the sales trend, apart from other macroeconomic trends, to ensure that the company is in a position to meet demand as efficiently as possible

Sales Forecasting
Relevance:
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Production department for production planning and coordination with the sales team Purchase department must know about the forecast to ensure it can plan its purchases in advance HR department can use the forecast for its manpower planning The accounting department needs to plan for future cash inflows as well as plan for new equipment needed R&D people must be aware of product life cycle in the market so they can make innovations in advance Marketers need to have a forecast to plan their activity accordingly in coordination with the sales team

Sales Forecasting
Market Potential: An estimation of the maximum possible sales opportunities present in a particular market and open to all players for a given product/service during a stated time period Sales Potential: It is an estimate of the maximum possible sales opportunities present in a particular market available to a specified company in a particular product category during the stated future period Sales Forecast: Estimate of the number of sales on rupees or physical units, in a future period under a particular marketing program and an assumed set of economic conditions and other external factors

Sales forecasting
Analysing market potential: First of all it is important to analyse the current and prospective buyers/users of the product/service In B2C scenarios you need to do extensive STP to ascertain the target customers In a B2B scenario companies have to be classified by size, location, type of industry, growth rates, buying process, etc. Companies also need to study market motivation, i.e. why people may/may not buy a particular product or service. This helps in strategising the sales approach and also how companies may want to promote the product. Finally, companies need to study market factors associated with the products demand to arrive at the market potential estimate«

Sales forecasting
Market index: A numerical expression indicating the degree to which one or more market factors associated with a given product¶s demand is present in a given market segment Sales forecasts take the sales potential as a starting point and then adjust for various company constraints like production, distribution/sales force or company policies like focus on profits and not sales

Sales forecasting
Commonly used sales forecasting methods are as follows:
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Jury of executive opinion: In this method, high ranking executives estimate probable sales and then an average estimate is calculated. Its benefits are: Quick and easy method Pools opinion of experienced, well informed people For a young company, it may be the only way When statistics are missing, there can be no other option

The Delphi technique is a variation, where questionnaires are given to experts and new questionnaires formed based on responses

Sales forecasting
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Poll of sales force opinion: Individual sales personnel forecast sales for their territories and these are pooled and modified as considered appropriate by the management The benefit is that sales force knows ground reality and would be better prepared to achieve the target they set. However, they are often too close to the trees to see the forest. A key question is how do you mix newcomer¶s projection with a veteran Makes more sense as a method to cross check other methods used

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Sales forecasting
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Projection of past sales: Set the sales forecast as per past growth trend; which can be the previous year or a moving average; it would be more appropriate for industries where growth rates are relatively stable

Sales Sn+1 = Sn x (Sn/ Sn-1)
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Time series analysis: Analyse four sales variations in historical data: long term trends, cyclical changes, seasonal variations and irregular fluctuations and then a mathematical model is made describing the past behaviour of these variables and used to call on what can be turns for better or worse

Sales forecasting
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Exponential Smoothing: It is defined as an average that represents a weighted sum on all past numbers in a time series with heaviest weight placed on the most recent data. Survey of customer¶s buying plans: This can help ascertain what can be the potential demand for the upcoming period

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Based on the sales forecasting, the company can then set its final volume objectives