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Sales forecasting

Presented by Vrushali Dhanore

Definition ‡ Sales forecasting is the process of estimating what your business sales are going to be in the future ‡ 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 factor ‡ Purpose to provide information to make important decisions ‡ Helps marketer  to develop marketing budget  Allocate market resources  Monitor the competition .

Gather the data needed to make the forecast 6.Steps involved 1. Select the forecasting model or models 5. Implement the result . Determine the use of forecast. Determine the time limit? 4. Select the items or quantities that are to be forecasted 3. Make the forecast 8. Validate the forecasting model 7.what objective are we trying to obtain? 2.

for its manpower planning 4) The accounting department .for production planning and coordination with the sales team 2) Purchase department .to plan for future cash flow well as for new equipment needed 5) R&D .to plan its purchases in advance 3) HR department .to plan their activity accordingly in coordination with the sales team .to make innovations in advance 6) Marketers .Uses of forecasting 1) Production department .

Exponential smoothing Causal 1. Multiple Regression . Regression analysis 2. Jury of executive opinion 2. Customer / channel /user survey 3.Techniques of of sales forecasting Qualitative 1. Moving averages 2. Delphi Quantitative Time Series 1. Executive opinion 4.

capabilities and marketing program Jury of executive opinion Jury of Executive Opinion . High ranking executives estimate probable sales ii.There are two steps in this method: i. An average estimate ‡ The assumption is that the executives are well informed about the industry outlook and the company¶s market position.

Benefits of Jury of executive opinion ‡ ‡ ‡ ‡ Quick and easy method Pools opinion of experienced. well informed people For a young company. there can be no other option . it may be the only way When statistics are missing.

Delphi Method ‡ The panel of experts responds to a sequence of questionnaires in which the responses to one questionnaire are used to produce the next questionnaire ‡ Thus information disseminated to all. enabling all to base their final forecasts on ³all available´ information .

Sales force estimation ‡ ‡ ‡ By analyzing the opinion of the sales people as a group Interaction with the customers Can be improved by providing sufficient time to the sales people .

which can be the previous year or to a moving average ‡ It would be more appropriate for industries where growth rates are relatively stable Next year s sale= This year s sales/ Last year s sales .Projection of past sales ‡ Set the sales forecast as per past growth trend.

Time.series analysis ‡ A statistical procedure for studying historical sales data.It has four components ‡ Trends(T) is the gradual upward or downward movement of the data over time ‡ Seasonality(s) is a pattern of the demand fluctuation above or below the trend line ‡ Cycles (c) are patterns in annual data occur every several years ‡ Random variation (R) blips in data caused by change and unusual situations multiplicative model Demand=T*S*C*R Additive model Demand=T+S+C+R .

67 .Moving averages technique ‡ Moving averages are useful if we can assume that market demands will stay fairly steady over time moving average forecast= sum of demands in previous n periods / n Month January February March April Actual Sales 10 12 13 16 Three month moving average (10+12+13)/3=11.67 (12+13+16)/3=13.

Weighted moving average ‡ Weights are used to give more values to recent values ‡ This makes the techniques more responsive to changes because latter periods may be more heavily waited .

Weights Applied period 3 2 1 3 *sales last month + 2 *Sales Two month ago + 6 1 Last month ago Two month ago Three month ago *Sales three month ago Sum of the weights Month January February March April Actual sales 10 12 13 16 (3*13)+(2*12)+(10)/6=12.17 Three month moving average .

0 and 1.smoothing constant and is set between 0.0 Determine value of a is difficult as a should be small to retain the effect of earlier observation .Exponential smoothing ‡ Exponential smoothing: A statistical technique for shortrange sales forecasting Next year s sale= a(this year s sale)+ (1-a) (this year s forecast) a.

as used in sales forecasting.Regression Analysis ‡ Regression Analysis is a statistical process and. determines and measures the association between company sales and other variables ‡ It involves fitting an equation to explain sales fluctuations in terms of related and presumably causal variables. substituting for these variables values considered likely during the period to be forecasted. and solving for sales .

Continue« There are three major steps in forecasting sales through regression analysis: 1. Derive the sales forecast from these estimates . Identify variables causally related to company sales 2. Determine or estimate the values of these variables related to sales 3.

Evaluation of sales forecast ‡ Before submitting forecasts to higher management. differences explained. and indicated adjustments made for the remainder of the period . sales executives evaluate them carefully ‡ Every forecast contains elements of uncertainty ‡ All are based on assumptions so a first step in evaluating a sales forecast is to examine the assumptions ‡ Sales executives should evaluate the accuracy and economic value of the forecast as the forecast period advances ‡ Forecasts should be checked against actual results.

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