2. 07/06/10 2
“A student pursuing management education from IILM-
Graduate School of Management, for example may find
himself or herself placed in a firm as a Sales Manager.
Our goal is to prepare the student for the exciting
challenges related to leading sales organizations in
today’s hyper-competitive global economy”.
IILM-GSM
Importance of this course
Selling & Sales Management
4. 07/06/10
Contents
• Sales Forecasting & Application
• Forecasting Process
• Popular Methods of Forecasting
1. Judgment based- Qualitative
2. Sales extrapolation- Quantitative
3. Customer based
IILM-GSM
Selling & Sales Management Sales Forecasting
5. 07/06/10
Sales Forecasting
Sales forecasting is estimating what a
company's future sales are likely to be
based on sales records as well as
market research.
• Companies conduct sales forecasting in hopes of
identifying patterns so that revenue and cash flow
can be maximized.
IILM-GSM
Selling & Sales Management Sales Forecasting
6. 07/06/10
Application of Forecasting
Forecasting has application in many situations:
1. Supply chain management - to make sure that the right product is at the
right place at the right time. Accurate forecasting will help retailers reduce
excess inventory and therefore increase profit margin. Accurate
forecasting will also help them meet consumer demand.
2. Weather forecasting, Flood forecasting
3. Transportation forecasting
4. Economic forecasting
5. Technology forecasting
6. Earthquake prediction
7. Product forecasting
8. Player and team performance in sports
9. Political Forecasting
10. Sales Forecasting
IILM-GSM
Selling & Sales Management Sales Forecasting
7. 07/06/10
Sales Forecasting
• Before the forecasting process begins, marketing, sales,
or other managers should determine how far ahead the
forecast should be done.
• Short-term forecasting is a maximum of three months
and is often effective for analyzing budgets and markets.
• Intermediate sales forecasting is between a period of
three months and two years and may be used for
schedules, inventory and production.
• Long term forecasting is for a minimum of two years
and is good for dealing with growth into new markets or
new products.
IILM-GSM
Selling & Sales Management Sales Forecasting
8. 07/06/10
Forecasting Process
The forecasting process is defined as the series of decisions
and actions taken by a business organization in:
Identifying the forecasting objectives
Determining the independent and dependent variables
Select the method to estimate the sales in future
IILM-GSM
Selling & Sales Management Sales Forecasting
9. 07/06/10
Develop forecasting
procedure
Forecasting Process
contd.
Select forecasting
analysis method
Comprehend total
forecasting procedure
Collect, collate,
gather and analyze
data
Determine
independent and
dependent variables
Present all the
assumptions about
data
Forecast objectives
Evaluate performance
results against the
forecasts
Make and finalize
the forecast
IILM-GSM
Selling & Sales Management Sales Forecasting
10. 07/06/10
Methods of Forecasting
1. Judgment based (Qualitative Methods)
• Jury of expert opinion (most common)
• Delphi method (2nd
most common)
• Sales force composite (3rd
most common)
1. Sales extrapolation (Quantitative Methods)
• Naïve Method (Simplest trend projection)
• Free Hand or Graphic Method
• Method of Semi-Average
1. Customer based
• Market Testing
• Market Surveys
Selling & Sales Management Sales Forecasting
IILM-GSM
11. 07/06/10
Judgment-based Forecasting: Qualitative
Jury of expert opinion (most common)
• In the Jury of executive opinion method of Sales
Forecasting, appropriate managers within the organization
assemble to discuss their opinions on what will happen to
sales in the future.
• Since these discussion sessions usually resolve around
experienced guesses, the resulting forecast is a blend of
informed opinions.
Selling & Sales Management Sales Forecasting
IILM-GSM
12. 07/06/10
Judgment-based Forecasting: Qualitative
Delphi Method (2nd
most common)
• A similar, forecasting method, which has been developed
recently is called the DELPHI Method. Delphi Method also
gathers, evaluates, and summarizes expert opinions as the
basis for a forecast, but the procedure is more formal than
that for the jury of executive opinion method.
• The Delphi Method has the following steps:
Selling & Sales Management Sales Forecasting
IILM-GSM
13. 07/06/10
Judgment-based Forecasting: Qualitative
Delphi Method (most common)- It has the following steps:
STEP 1 – In this method, A group of experts and A Delphi Coordinator will be
selected. (from the group of experts)
STEP 2 – Various Experts are asked to answer, independently and in writing,
a series of questions about the future of sales. A summary of all the
answers is then prepared. No expert knows, how other answered.
STEP 3 – Copies of summary are given to the Delphi Coordinator. (Individual
experts with the request to Coordinator that they modify their original
answers if they think it necessary.)
STEP 4 – The coordinator processes, compiles, and refers them back to the panel
members for revision, if any.
STEP 5 – This is a to-and-fro process continues for several rounds. (usually three).
The forecast is generated from all of the opinions and justifications.
Selling & Sales Management Sales Forecasting
IILM-GSM
The Delphi forecasts will be primarily median forecasts.
14. 07/06/10
Judgment-based Forecasting: Qualitative
Sales Force Composite (3rd
most common)
• The Sales Force Method is a sales forecasting technique
that estimates future sales by analyzing the opinions of
sales people as a group.
• Salespeople continually interact with customers, and from
this interaction they usually develop a knack for predicting
future sales.
• The sales force estimation method is considered very
valuable management tool and is commonly used in
business and industry throughout the world.
• This method can be further improved by providing sales
people with sufficient time to forecast and offering incentives
for accurate forecasts.
Selling & Sales Management Sales Forecasting
IILM-GSM
15. 07/06/10
Methods of Forecasting
1. Judgment based (Qualitative Methods)
• Jury of expert opinion (most common)
• Delphi method (2nd
most common)
• Sales force composite (3rd
most common)
1. Sales extrapolation (Quantitative Methods)
• Naïve Method (Simplest trend projection)
• Free Hand or Graphic Method
• Method of Semi-Average
1. Customer based
• Market Testing
• Market Surveys
Selling & Sales Management Sales Forecasting
IILM-GSM
16. 07/06/10
Naïve Method
The following formula shows how to adjust the naïve method to
account for a change in rate of sales levels. The formula is stated
this way:
Next Year’s Sales = This Year’s Sales X This Year’s Sales
Last Year’s Sales
IILM-GSM
Selling & Sales Management Sales Forecasting
Assume, for example, that sales for period 6 is to be forecasted.
Also assume that this year’s sales, period 5, equaled Rs. 5,50,000
and that last year’s sales, period 4, were worth Rs. 4,00,000. Thus
the nest year’s sales forecast equals Rs. 7,56,250.
Method is applicable if trends are stable or are changing in a
relatively consistent manner.
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Method of Semi-Averages
In this method available data are divided into two parts, usually with
equal number of years on both the parts
Year Sales
1993 102
1994 105
1995 114
1996 110
1997 108
1998 116
1999 112
The average of the first three years will be:
102+105+114 321
----------- = -------- = 107
3 3
Similarly, for the last three years,
108 + 116 + 112 336
---------------------- = --------- = 112
3 3
IILM-GSM
Selling & Sales Management Sales Forecasting
19. 07/06/10
The 3-yearly moving average can be computed with the
following formula:
a+b+c b+c+d c+d+e d+e+f
--------- , ----------- , ---------- , --------- , ………….
3 3 3 3
Method of Moving Averages
IILM-GSM
Selling & Sales Management Sales Forecasting
20. 07/06/10
Exponential Smoothing Method contd.
Next Year’s Sales = a (This Year’s Sales) + (1 – a) (This Year’s
Forecast)
While using this method, a probability-weighting factor, or
smoothing constant, is selected arbitrarily. This factor is usually
between 0.1 to 0.5. This value determines how sensitive the
forecasting values will be to recent changes in sales.
The forecasting equation is:
If sales change consistently, the smoothing constant would be small
to retain the effect of earlier data. Rapid changes call for a large a.
IILM-GSM
Selling & Sales Management Sales Forecasting
21. 07/06/10
Customer-based Forecasting Methods
• Does not assume future will follow on past
– Appropriate for dynamic markets / new products
• Market Testing
• Market Surveys
Selling & Sales Management Sales Forecasting
IILM-GSM
22. 07/06/10
Market Testing
• Test marketing is one of the popular methods for
measuring acceptance of new products.
One market is called a ‘test market’ where the product is
marketed without any promotional campaign. A similar
market is selected as ‘control market’ where the product
is sold with promotional campaign.
The difference in sales between both the market is a measure
of the effectiveness of the sales promotion campaign.
IILM-GSM
Selling & Sales Management Sales Forecasting
• Result from a test market are extrapolated to make
prediction about future sales.
23. 07/06/10
Market Survey
• Market survey of buyer’s expectations.
• The survey of buying intensions involve the selection of a
sample of potential buyers and getting information from
them on their likely purchase of the product in future.
• Generally in B2B market, forecasting depends on the
demand pattern of their B2B buyers.
IILM-GSM
Selling & Sales Management Sales Forecasting
Editor's Notes
To arm or prepare in advance of a conflict
The part of the arm between the wrist and the elbow.
Forecasting can be used in Supply Chain Management to make sure that
The first step is determine the objectives…which can be explained in the terms of rupees sales, unit sales, or the number of salespeople hired.
Suppose for the next quarter of 2011 ..Sony company is forecasting a revenue of 100 millions, might be their competitor faorecasting of 10000 units of LCDs, or suppose camony is thinking to expand their business and lookig for hiring new employyess in the sales department…but actually how many new hire required is somewhat based on the forecasting.
Then look for dependent and independent varibales…. Like dependent variable like units or in rupee sales and independent variables are the market factors that influence the dependent varibales..like DEP variable like 10000 Units = F ( Various market factors like price, population and personal income and demand, competition, marketing environment like no of customers, purchasing power ability or their income ..so many factors)
A combination of market factors develop a market index. If 2009 is the base year, it would have a n index of 100. if 2010 market index drops to 75, sales are expected to be down 25%, if 2011 has a market index of 125, sales could increase by 25%.
Informal way
Simpleset to use..appropriate managers within the org and sometimes also dealers, distributors or marketing consultants going to participate…
The output not always show a group opinion…might be in favor of few members so the validity of this method is questionalble.
More formal process in compare to jury of expert opinion…in this also we have group of experts…one is going to be act as a delphi coordinator
Delphi is a place in ancient greece from where the famous experts..liuke aristotle and other greec scientists belongs..might be in that sence here
A Delphi Coordinator will be selected from the group of experts…median is a middle number…out of 2,3,5..median is 3
We have sen in our case..semax which sales forklifts..usus this method
Draw a free line with hand freely ..that gives the trend
In case of even no of years it works well.in case of odd no of years , the middle year is omitted.
Now the two points, 107 and 112 , shall be plotted to their corresponding middle years, i.e 1994 and 1998
By joining these two points, we get the trend line, which can be extended to get future values.
Assume that this year sales were Rs 50000 and this year’s forecast was Rs 40000.
Assume a was given a value of 0.2. the forecast for the next year…..42000.
Market survey of buyer expectations..selection of a sample of potential buyers and getting information from them on their likely purchase of the product in future.distributing the samples..generally in B2B market…forecasting depends on the demand pattern of their B2B buyers.