Sales Forecasting Basics

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Sales Forecasting for all !

The Creation of Adam : a painting by Michelangelo,
on Sistine Chapel's ceiling

The God appeared to be an anatomically accurate picture of
the human brain.

Forecasting is Science as well as an Art

But, Forecasts can go wrong!

This is the reality!

640K ought to be enough for anybody…
Bill Gates on memory, 1981
Even Bill Gates can go wrong!

Sometimes , the Forecast is always right…
all it needs is a bit of common sense

Here is a Forecast that is always right…

The Paradox of Forecasting
Month’s sale is
difficult to predict
Long range plan is
easy to make

So, What is a Forecast ?

It’s not Crystal gazing

The premise : The near future is going to be like the past

Now , a small test……

Test 1 : What is the Sales Forecast for Dec ?
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800
900
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0
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Ja...

Is your answer 1,200 ?
That’s Right…

Test 2 : What is the Sales Forecast for Dec?
2000
1900
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1400
1300
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0
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2...

Is your answer 900 ?
Right again! Good going…

Test 3: What is the Sales Forecast for Dec ?
100
200
300 300
400
500
600 600
700
800
900
0
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500
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800...

Is your answer 900 ?
Keep it up!

Test 4 : What is the Sales Forecast for Dec ?
100
50
200
100
300
150
400
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500
250
600
0
100
200
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500
600
700
Jan...

Is your answer 300 ?
That’s Right! Keep it up!

Test 5 : What is the Sales Forecast for July ?
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400...

Is your answer 600?
That’s Great!

Test 6 : What is the Sales Forecast for Dec ?
300
900
0
100
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400
500
600
700
800
900
1000
Oct Nov Dec

Is your answer 600-700-800 ?
Not sure ….Difficult .. isn't it ?

What is the learning ?
More the data, its easy to forecast !
If there is a pattern…its easy to forecast !
If there is seas...

Forecasting : 3 Simple Factors
Use these 3 factors to
forecast the sales
Season
Time series
Trend

Time Series and Patterns in Time series
 Time Series: The repeated observations of demand for a
service or product in the...

Horizontal Trend
Seasonal Cyclical
Time Series and Patterns in Time series

Forecasting : 3 Simple Factors
Use these 3 factors to
forecast the sales
Season
Time series
Trend
Time Series: The repeate...

Easy to Forecast !
More the data .. More predictability..
Better Forecasts
Not Sure!

Forecasting : 3 Simple Factors
Use these 3 factors to
forecast the sales
Season
Time series
Trend
A trend is a movement in...

Trend lines in charts
• A trend is a movement in a particular direction
• A trend line is a straight line connecting multi...

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0
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Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov...

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Jan Feb Mar Apr May Jun Jul Aug Sep Oct N...

Creating Trend line in excel : Step 1
 Select the graph and
right click
 Select Add Trend line

 A window opens with types
of trend line to select from 6
Options
 Select the default option for
trend line – Linear
 C...

You can see the trend line now
Creating Trend line in excel : Step 2(Contd.)

Formatting Trend line in excel : Step 3
 Right click on the trend line to
format it.
 Select style, color and weight of
...

Formatting Trend line in excel : Step 3 (contd.)
 Right click on the trend line to
format it.
 Select style, color and w...

Forecast Options - Trend line in excel : Step 4

 By using this forecast Option you
can extend the trend line
forward or backward to the
number of periods as desired
 He...

 You can Observe that the trend line got extended in to the future by 6 periods
 This denotes if this trend continues, t...

 By clicking “display equation on
Chart” and display r-Squared
value on chart, you will be able
to display them on the gr...

 This is the equation generated by excel that holds
the mathematical relationship of Sales and months.
Equation and R Squ...

Equation
 This is the equation generated by excel that holds
the mathematical relationship of Sales and months.
 This eq...

 This is the R-Squared value for this trend line.
R Squared value

 This is the R-Squared Value for this trend line.
 This value denotes the reliability of the sales
projections.
 R squa...

Take a look at the trend of sales and R Squared value

R Squared value = 1
 Here the R Squared Value is 1.
 Just take a look at the sales progress.
 With every passing month,...

Take a look at the Equation.. It is y=100x
 This means Y, the next month sales (13 th Month
sales)
 y= ((100)*13) that e...

Now that you know what is R Squared value,
It’s Time to understand Correlation
By the way, r is called Correlation Coeffic...

You need not remember these Hi-Fi terminology
It’s good enough to understand that if R Squared value is
near value of 1, t...

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0
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Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec
...

2000
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0
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Jan Feb Mar Apr May Jun Jul Aug Sep Oct N...

In both the examples, There is a very good correlation between the
months progress and sales progress
With every month inc...

This is also a perfect Correlation!
The R Squared value , if measured must be 1 !!

Some time ago, Wal-Mart decided to combine the data
Once combined, the data was mined extensively and many
correlations ap...

Those queries revealed that, between 5pm and 7pm,
customers tended to co-purchase beer and diapers.

It seems , they found out that parents who wants to babysit
and also watch football and drink beer do not want to be
distu...

62
Wal-Mart moved
the beer next to
the diapers and
beer sales went
up.

Trend line types
1. Logarithmic
2. Polynomial
3. Power
4. Exponential
5. Moving Average

 Do Remember, that for
every trend line type you
select, you will get different
equation and R Squared
value
Equation and...

Rule of thumb to use type of Trend line
1.Linear trend line : Use it if data values are increasing
or decreasing at a stea...

2. Logarithmic trend line : Useful when the rate of
change in the data increases or decreases quickly
and then levels out....

3. Polynomial trend line : Used when there are data
fluctuations like the sales following seasonal trends
Rule of thumb to...

4. Power trend line : Use with data that has values that
increase at specific rate at regular intervals.
Rule of thumb to ...

5. Exponential trend line : Use when data values
increase or decrease rates that are constantly
increasing.
Rule of thumb ...

6. Moving average trend line : Use it when uneven
fluctuations are in data values
Rule of thumb to use type of Trend line

Best fit Trend line
• We have learnt that if R2 Value is near to 1, the reliability of
trend line is better.
• So, now we ...

Forecasting : 3 Simple Factors
Use these 3 factors to
forecast the sales
Season
Time series
Trend

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Measuring Seasonality is simple
Sales Year 1 Year 2 Year 3 Year 4 Year 5 Year 1 Year 2 Year 3 Year 4 Year 5 5 Year Avg.
Ja...

So, these three factors can help us forecast
Use these 3 factors to
forecast the sales
Season
Time series
Trend

Here is a tool I created for you… using all 3 factors
Please download it in the downloads section or click the link below
...

Pharma Factors to consider
• Price variations – Better to forecast on units than
value
• Sales Closings and Incentives – C...

Easiest Forecasting Method
with new Microsoft Excel

Select the data , click forecast and Create

Voilà! ,forecast values with graphs!

Thank you

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