1

SALES MANAGEMENT
PLANNING & FORECASTING
CBU 2204
 2

Sales Management
• What is sales planning
• What is sales forecasting
• What is the importance of forecasting in sales management
• What are the different categories of sales forecasts
 3

Introduction
• Planning stems from the sales forecast
• Planning is deciding now what, how and when we are going to
do it
• The purpose of planning is to allocate company resources in
such a manner as to achieve these anticipated sales.
• Without reasonably accurate forecasting, planning will be in
vain.
 4

• Why is planning important to sales managers?

 5

Planning
• improving morale when the entire sales organization actively
participates in the planning process
• providing direction and focus for organizational efforts
• improving co-operation and co-ordination of sales force efforts
• developing standards by which sales force performance can be
measured and deviations can be identified to take corrective
actions
• increasing the sales organization’s flexibility in dealing with
unexpected developments
 6

Sales forecasting
 7

Sales forecasting
• Forecasting is a tool used for predicting future demand based
on past demand information.
• A sales forecast is the estimated dollar or unit sales for a
specific future time period based on a proposed marketing plan
and an assumed market environment.
• A sales forecast is a prediction of the future market potential
for a specific product.
• It sets the sales expectations for a given time period and can
indicate what types of products customers are likely to want.
 8

• What are the different types or categories of sales forecasts?

 9

Sales forecasts
• Are broken down by duration:
• Short term
• Medium term
• Long term
 What are the characteristics of each sales forecast?
 10

Sales /Market forecasts

• Short term: up to 3months particularly for purchasing, job
scheduling, workforce levels, job assignments, production
levels
• Medium term: up to 1 year, have a direct implication for
budgeting & sales and production planning
• Long term: 3 years and upwards, affected by turbulence of the
environment (PESTELI/PESTLEC)
• New product planning, facility location, research and
development
• For certain industries 3 years is the maximum while for other it
can stretch up to 10 years
 11

• Why is sales forecasting important?

 12

Importance of sales forecasting

• Forecasting sales is the most difficult aspect of budgeting, and
the rest of the budget depends upon the sales forecast.
• The forecast must be very accurate, because all other
organisational forecasts base their plans on such forecasts e.g.
• Production
• Purchasing
• HR
• Finance/ Accounting
• Marketing
 13

Importance of sales forecasts

• A sales forecast becomes a basis for setting and maintaining a
production schedule – manufacturing.
• It determines the quantity and timing of needs for labour,
equipment, tools, parts, and raw materials – purchasing,
personnel.
• It influences the amount of borrowed capital needed to finance
the production and the necessary cash flow to operate the
business – finance
• It provides a basis for sales quota assignments to various
segments of the sales force – sales management.
 14

Importance of sales forecasts

• sales and marketing planning
• production scheduling
• cash flow projections
• financial planning
• capital investment
• procurement
• inventory management
• human resource planning (hiring salespeople)
• budgeting
 15

Sales forecasting

• What is the impact of erroneous sales forecasts in the various

functional areas in an organisation?

• What are the possible causes of forecasting errors?

 16

Possible causes for forecasting errors

• Flaws in data used in the forecasting process
• Insufficient data
• Unpredictable economic and socio-political environment
• Technologic changes
• Non realistic and inaccurate assumptions
• Etc.
 17

• What factors should be considered in coming up with sales

forecasts?
 18

Major factors to consider when forecasting

sales:
• Past sales levels and trends
• General economic trends
• Other factors expected to affect sales in the industry
• Political and legal events
• The intended pricing policy of the company
• Planned advertising and product promotion
• Expected action of competitors
• New products contemplated by the company or other firms
• Market research studies
 19

• What is the influence of the Product Life Cycle on sales

forecasts?
 20

Influence of Product Life Cycle on sales

forecasts
• Introduction – Growth – Maturity – Decline
• Introduction stage –There is no historical sales record and new
products have a high failure rate, so it very important to prepare very
realistic estimates of potential sales, based on thorough marketing
research.
• Growth stage – if the product gains market acceptance. Sophisticated
mathematical models are used here to project market share and
estimate sales.
• Maturity and Decline stage –Historical data can be analysed
statistically to project sales.
• Introduction and growth require longer forecasts than maturity and
decline
• As product passes through life cycle, forecasts are useful in projecting
• Staffing levels
• Inventory levels
• Factory capacity
 21

• What are the characteristics of effective sales forecasting?

 22

Criteria for evaluating sales forecasting

methods C2AT-FQ2
• Comprehensibility: Sales managers must understand the
methods of developing forecasts.
• Accuracy: A forecasting method must provide results that are
sufficiently accurate for the purpose desired.
• Timeliness: The forecasting method must generate forecasts in
time for managers to use them.
• Flexibility: Managers continually monitor actual sales for any
deviations from forecast that may indicate the need for revised
sales forecasting tools.
• Quality and quantity of information: In forecasting as in other
areas, “garbage” input leads to “garbage” output (GIGO).
 23

Criteria for evaluating sales forecasting

methods
• Qualified personnel: Experts should be used to give opinions
on qualitative techniques like the jury of executives’ opinions
or the Delphi method.
• Costs/benefits: The benefits from forecasting must more than
offset the costs of generating the sales forecast.
 24

Qualitative forecasting methods

• also known as survey/judgmental methods
• Educated guesses
• Forecasts generated subjectively by the forecaster
• Qualitative forecasting analyses can be used to formulate forecasts for
new products for which there are no historical data;
• Qualitative forecasting methods include:
• Consumer/ User survey (market research ) method
• Panel of executive opinion (Jury method)
• Sales force composite
• Delphi method
• Product testing/ Test marketing
 25

Sales forecasting methods

• Other qualitative methods include:
• Naïve forecast
• Built-to-order
• Etc.
 26

Panel of executive opinion (Jury method)

• By a group of individuals, sometimes called a “jury of executive

opinion.”
• Key executives submit the independent estimates without
discussion, and these are averaged into one forecast by the chief
executive.
• The group meets,
• each person presents separate estimates,
• differences are resolved,
• and a consensus is reached.
 27

Delphi Method
• Group of experts used to make long-range projections.
• Method eliminates the effects of group potential dominance of the
most vocal members.
• The group involves experts from inside as well as outside the
organization.
• Typically, the procedure consists of the following steps:
• Each individual in the group makes his/her own forecasts in form of
statements
• The co-ordinator collects all group statements and summarizes them
• The co-ordinator provides this summary and gives another set of
questions to each group member including feedback as to the input of
other experts.
• The above steps are repeated until a consensus is reached.
 28

Consumer/ User survey

• Solicits input from customers pertaining to their future
purchasing plans.
• The challenge is ascertaining what proportion will accrue to
your company
• It involves the use of questionnaires, consumer panels
• Forecast survey of a limited and well-defined group of buyers
such as industrial products.
• Customers however tend to be optimistic when making
predictions for the future
• Disadvantage is that a customer might not always do what they
say and they plan to do.
 29

Sales force composite

• Each salesperson provides his/her sales estimates product by

product for his/her territory .
• Those forecasts are then reviewed to make sure they are
realistic.
• These forecasts are then pooled and built to obtain an overall
company forecast.
• Best used when a specialised and highly skilled sales force is
used.
• Problems arise when forecasting method is linked to
remuneration
 30

Product testing/ test marketing

• Product testing is of value for new products for which no

previous sales figures exist
• Where it is difficult to estimate likely demand
• Test marketing is of more value for forecasting purposes
• What is the difference between the two?
 31

Quantitative forecast methods

• Forecasts generated through mathematical modelling
• These are objective, statistical methods
• Superior techniques because their reliability is higher than qualitative
techniques
• Very popular due to sophisticated computer packages
• Require specialist skills, therefore require consultancy with
specialists
• These methods include:
• Time series analysis- trends, seasonal, cyclic , erratic variations/movements
• Causal Relationship: models that use statistical techniques to establish
relationships between various items and demand
• Simulation: models that can incorporate some randomness and non-linear
effects
• Regression and correlation analysis: aim to identify factors that influence, or
are closely associated with changes in sales. A simple regression is a
forecasting technique using only one independent variable. While multiple
regressions uses two or more independent variables
 32

Time series methods

• Using historical data to predict sales, consists the following:
• Trends
• Periodic/Seasonal
• Cyclical
• Random/Erratic
 33

Trend Component

• Persistent, overall upward or downward pattern

• Changes due to population, technology, age, culture, etc.
• Typically several years duration
 34

Seasonal Component

• Movements are consistent patterns of sales changes in a given

period generally called seasonal variations.
• Regular pattern of up and down fluctuations
• Due to weather, customs, holidays, general human consumption
behaviour etc.
• Duration is shorter within a single year
 35

Cyclical Component

• Movements are wave-like movements of sales that are longer in

duration than a year, such as business recessions.
• Repeating up and down movements
• Affected by business cycle, political, and economic factors
• Multiple years duration
 36

Random Component

• Erratic, unsystematic, ‘residual’ fluctuations

• Due to random variation or unforeseen events
• Short duration and nonrepeating
• Movements are one-time specific events such as wars, strikes,
snowstorms, hurricanes, fires, and floods (that are not predictable).
 37

Time series analysis

• Include moving averages, exponential smoothing
• Only variable considered is time
• However tends to place too much emphasis on past events to
predict the future
• Useful in predicting sales in relatively stable markets where
demand follows past behaviour.
 38

Moving averages
• Moving averages forecasting method –sales results of multiple
prior periods are averaged to predicts sales for future period.
• It is continually re-computed as new data becomes available
• Progresses by dropping the earliest value and adding the latest
• It gives more importance to what happened recently, without
losing the impact of the past.
• Most recent observations must are much better indicators of
the future than older observations
• Used if there is little or no trend
 39

Exponential smoothing
• Exponential smoothing is similar to the moving-average
forecasting method.
• It allows consideration of all past data, but less weight is placed
on data as it ages
• Exponential smoothing forecasting weighs the most recent
observation the heaviest
 40

What determines the choice of forecasting

methods?
• Data availability
• Time horizon for the forecast
• Required accuracy
• Required resources
 41

The Bottom line

• Because of the growing trend in business to centralize data
collections, the job of forecasting has become an integral part of
a firm’s marketing decision support system (MDSS).
• A forecast is only as good as the information included in the
forecast (past data)
• History is not a perfect predictor of the future
• Firms know sales forecasting is never 100% correct.
• Forecast accuracy decreases as time horizon for forecasts
increases.
• Because the sales forecast has a major impact on the company,
the top executives give final approval.
 42

The End