9 sales forcasting final

8/13/2019 9 Sales Forcasting Final

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What is a Sales Forecast?

Level of sales a single organization expects to

achieve based on a chosen market strategy and

an assumed competitive environment.

A forecast is not only an estimate of what

consumer’s demand will be for certain products,

but how much of them the firm can produce and

sell at certain prices, and how its competitors &

customers will respond to those prices.


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Forecasted Sales reflect…

1. The size of the target market.

2. The marketing mix chosen for the

target market.

3. The assumed number of competitors

and competitive intensity in the target

market.


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Market and sales forecasting

1. The sales and market forecasts provide the basis for

all subsequent planning and decision making.

2. Forecasting indicates what will happen in a given

environment if a specific set of decisions and actions

is implemented with no subsequent changes.


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Forecast characteristics

• Based on historical information from which

projections can be made.

• Look forward over a specific, clearly defined time

period.

• Make clearly specified assumptions, sinceuncertainty characterises the future.

• Market Forecast refers to the estimates of future

sales of a company’s products in the market

• Sales forecasting is very popular in industriallyadvanced countries where demand conditions are

always uncertain than the supply conditions


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REASONS FOR UNDERTAKING SALES

FORECASTS

Key decisions derived from sales forecasting include:

Employment levels required Promotional mix

Investment in production capacity


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TYPES OF FORECASTING

Macro forecasting is concerned with

forecasting markets in total. This is about

determining the existing level of Market

Demand and considering what will happen to

market demand in the future. Micro forecasting is concerned with detailed

unit sales forecasts. This is about determining

a product’s market share in a particular

industry/ organization and considering whatwill happen to that market share in the future.


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The selection of which type of forecasting

to use depends on several factors:

(1) The degree of accuracy required – if the

decisions that are to be made on the basis of the sales

forecast have high risks attached to them, then it

stands to reason that the forecast should be prepared

as accurately as possible. However, this involves more

cost

(2) The availability of data and information - in some

markets there is a wealth of available sales information(e.g. clothing retail, food retailing, holidays); in others it

is hard to find reliable, up-to-date information


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(3)The time horizon that the sales forecast is

intended to cover . For example, are we forecasting

next weeks’ sales, or are we trying to forecast whatwill happen to the overall size of the market in the

next five years?

(4) The position of the products in its lifecycle. For example, for products at the

“introductory” stage of the product life cycle, less

sales data and information may be available than for

products at the “maturity” stage when time series

can be a useful forecasting method.


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Sales forecasts can be based on three

types of information:

(1) What customers say about their intentions to

continue buying products in the industry

(2) What customers are actually doing in the

market

(3) What customers have done in the past in the

market


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PURPOSES OF SHORT-TERM FORECASTING

Appropriate production scheduling

Reducing cost of purchasing Raw Materials.

Determining appropriate price policy

Setting sales targets and establishing controls andincentives

Evolving a suitable promotional program

Forecasting short-term financial requirements


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PURPOSES OF LONG-TERM FORECASTING

Planning of a new unit or expansion of an existing

unit

Planning of long-term financial requirements

Planning of man-power requirements


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Forecasting methods


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METHODS OF SALES FORECASTING

Survey of Buyers’ Intentions

Opinion Poll and

Survey Method

Collective Opinion

Analysis of Time Series and Trend Projections

Use of Economic Indicators

Controlled Experiments

Judgmental Approach


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The four stage approach to forecasting

(Wolf e 1966)


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Sales analysis


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Marketing costs and profitability analysis


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Making a Sales Forecast

1. Market potential (M)

2. Proportion of market you are Targeting (T)

3. Extent of market Coverage (C)

4. Number of Units expected to sell per

customer during the year (U)

5. Average Price per unit (P)

Sales Forecast is a function of:

Sales Forecast = M x T x C x U x P


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Making a Sales ForecastExample

Total number of potential buyers = 1 Lks.

Target Market (25%) = x 0.25

Market Coverage (75%) = x 0.75

Units purchased per year (20) = x 20

Average Price (10 Rs.) = x 10 Rs.

Forecasted Sales = 37.5 Lks.


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Qualitative targets


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The Relationship of Forecasting to Budgets

Sales Forecasts

Sales Budget

Production Budget

Direct Labor Budget

Cost of Goods Sold Budget

Budgeted P/L Statement

Budgeted Balance Sheet

Revenue Budget

Revenue Budget

Sales &

Administration

Expenses Budget

Factory O/H

Budget

Expenses

Budget


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Functional organisation


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Product organisation


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Regional organisation


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Matrix organisation


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The marketing control process


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Examples of marketing performance evaluation

methods

• Sales analysis.

• Costs and profitability analysis.


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Sales analysis


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Marketing costs and profitability analysis

9 sales forcasting final

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