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Sales Forecasting

A sales forecast is a projection of expected customer demand for products or services over a specific time horizon and under certain assumptions. It is an essential tool for business planning, marketing, and management decision making that can help achieve sales goals, drive revenue, and reduce costs. Sales forecasts are influenced by both external factors like the economy and competition, and internal factors like prices and new product lines. Common sales forecasting methods include qualitative approaches like executive opinions and surveys, and quantitative approaches like time series analysis, regression analysis, and market testing.

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Harsh Bansal
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854 views

Sales Forecasting

A sales forecast is a projection of expected customer demand for products or services over a specific time horizon and under certain assumptions. It is an essential tool for business planning, marketing, and management decision making that can help achieve sales goals, drive revenue, and reduce costs. Sales forecasts are influenced by both external factors like the economy and competition, and internal factors like prices and new product lines. Common sales forecasting methods include qualitative approaches like executive opinions and surveys, and quantitative approaches like time series analysis, regression analysis, and market testing.

Uploaded by

Harsh Bansal
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as PDF, TXT or read online on Scribd
You are on page 1/ 19

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What is Sales Forecasting?


A sales forecast is a projection of the expected
customer demand for products or services at a
specific company, for a specific time horizon, and
with certain underlying assumptions
Essential tool used for business planning, marketing,
and general management decision making.
Sales forecasting can help you achieve sales goals.
Sales forecasting can help drive sales revenue,
improve efficiency, increase customer retention and
reduce costs.
2
Factors affecting sales forecasting
External Factors

Relative state of the economy


Direct and indirect competition
Styles or fashions
Consumer earnings
Population changes
 Weather

3
Factors affecting sales forecasting
Internal Factors
 Labour problems
 Inventory shortages
 Working capital shortage
 Price changes
 Change in distribution method
 Production capability shortage
 New product lines

4
Sales Forecasting Methods
Qualitative Quantitative

Executive opinion method Time Series Analysis


Delphi Method Market Test Method
Sales force composite method Regression Analysis
Survey of Buyer’s intentions

5
Executive opinion method
Most widely used
Method of combining and averaging views of several
executives regarding a specific decision or forecast.
Leads to a quicker (and often more reliable) result
without use of elaborate data manipulation and
statistical techniques.
Delphi Method
Process includes a coordinator getting forecasts
separately from experts, summarizing the forecasts
giving the summary report to experts who are asked
to make another prediction; the process is repeated
till some consensus is reached 6
Sales force composite method
Also known as “Grassroots Approach”
Individual salespersons forecast sales for their
territories
Individual forecasts are combined & modified by the
sales manager to form the company sales forecast.
Best used when a highly trained & specialized sales
force is used.

7
Survey of Buyer’s intentions
Process includes asking customers about their
intentions to buy the company’s product and
services
Questionnaire may contain other relevant questions

8
Time Series Analysis
Make forecasts based purely on historical patterns in
the data. It has four components
 The Trend component-Gradual upward or
downward
movement over time.

9
 The Cyclical Component
Sales are often effected by swings in general
economic activity as consumers have more or less
disposable income available

The Cyclical Component

10
The Seasonal Component
It is a distinguished pattern to sales caused by
things such as the weather, holidays, local customs
and general consumer behaviour.

The Seasonal Component

11
The Erratic events-Random Variations in data
caused by change and unusual situations
Time series analysis are accurate for short term and
medium term forecasts and more so when demand
is stable or follows the past behavior.
Some of the popular techniques of time series
analysis are:
moving averages,
 exponential smoothing

12
Moving Averages
 The sales results of multiple prior periods are
averaged to predict a future period
 Called ‘moving’ because it is
continually recomputed as
new data becomes available,
it progresses by dropping the
earliest value and adding the
latest value.

13
Exponential Smoothing
Similar to moving average method
Used for short run forecasts
Instead of weighing all observations equally in
generating the forecast, exponential smoothing
weighs the most recent observations heaviest
Next year’s sale=a(this year’s sale) + (1-a)(this year’s
forecast)
a is smoothing constant taken in scale 0-1

14
Market Test Method
Used for developing one time forecasts particularly
relating to new products
A market test provides data about consumers' actual
purchases and responsiveness to the various
elements of the marketing mix.
On the basis of the response received to a sample
market test, product sales forecast is prepared.

15
Regression Analysis
Identifies a statistical relationship between
sales(dependent variable) and one or more
influencing factors, which are termed the
independent variables.
When just one independent variable is considered
(eg. population growth), it is called a linear
regression, and the results can be shown as a line
graph predicting future values of sales based on
changes in the independent variable.
When more than one independent variable is
considered, it is called a multiple regression
16
Benefits of Sales Forecasting
 Better control of Inventory
 Staffing
 Customer Information
 Use for Sales People
 Obtaining Financing

17
Limitations of Sales Forecasting
Part hard fact, part guesswork
Forecast may be wrong
Times may change

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