SALES FORECASTING & BUDGETING

1. 1
Sales Forecasting
& Budgeting
K.SASHI KUMAR
B.Sc,.M.B.A
Sree Vidyanikethan institute of management, tirupati,
Andhra Pradesh.

2. 2
Sales Forecast
 It is estimate of a company’s sale for a specified
future period.
 Sales forecasting provides the starting point for
assumptions used in various planning activities.
 It is used for the short-term financial control
systems. The financial budget is dependant upon
the sales forecast for the projected revenue figures.

3. 3
 Human resource executives use sales forecasts
to project staffing needs, financial executives use
it in establishing and controlling operating and
capital budgets, and production manager uses it
to schedule purchasing and production to control
inventories.
 It is thus a very vital planning task for any
organization.

4. 4
Sales Forecasting Concepts
There are 5 levels of concern in sales forecasting:
(a) Market Potential
(b) Sales Potential
(c) Actual Sales Forecasts
(d) Sales Quotas
(e) Sales Budgets

5. 5
 Market Potential – it is the highest possible expected
industry sales of a good or service in a specified market
segment for a given time period.
 Sales Potential – refers to an individual firms market share of
the market potential, where market share is defined as the
percentage of market controlled by a particular company or
product. It is the maximum sales a firm can hope to obtain.

6. 6
 Sales Forecasts – is the sales estimate the company actually
expects to obtain, based on the market conditions, company
resources, and the firms marketing plan. The sales forecast is
less then the sales potential since it is based on realistic set of
circumstances.
 Sales Quota – is a sales goal assigned to a sales person,
region or a team. They are usually derived from the sales
forecasts. Sales goals and objectives sought by management.
 Sales Budgets – a management plan for the expenditures to
accomplish sales goals.

7. 7
Product Life Cycle
Important sales planning and control tool; it projects the changes in a
products sale/profits that occurs over time.
 Introduction stage –There is no historical sales record and new
products have a high failure rate, so it very important to prepare
realistic estimate of potential sales, based on thorough marketing
research.
 Growth stage – if the product gains market acceptance.
Sophisticated mathematical models are used here to project
market share and estimate sales.
 Maturity and Decline stage – traditional forecasting techniques
are appropriate. Historical data can be analyzed statistically to
project sales.

8. 8
Sales Forecasting Procedures
There are basically 3 steps in sales forecasting process:
1. Preparing a forecast for general economic
conditions
2. Preparing a forecast of industry sales
3. Preparing a forecast of the product or company
sales

9. 9
1. Forecasting General Economic Conditions
It is measuring the GDP, which is the value of goods
and services produced within a country during a
given year.
Some of the others factors are;
stock market fluctuation, personal income, level of
employment, consumer price index etc. These data
are usually available from government or trade
associations.

10. 10
2. Estimating Industry Sales
Small firms often rely on industry estimates
available from trade associations and government
sources.
In other cases more sophisticated quantitative
techniques are used to determine.
Large organizations have economist and analysts
who provides support and information for sales
forecasts.

11. 11
3. Estimating Company and Product Sales
Forecasting methods can be classified as either
qualitative or quantitative.
Qualitative methods rely upon subjective opinions or
judgments, where as Quantitative technique applies
statistical methods.

12. 12
Qualitative Methods
(1) Jury of executive opinion:
Panel charged with developing a sales forecast. The
group has executives from different departments like
marketing, sales, marketing research, finance,
production, operations etc.
Each member is asked to provide an estimate of
future sales with written justification. The opinions
are then pooled and analyzed at group meetings.
The advantage is its simplicity, but might take too
much time of the executives involved.

13. 13
(ii) Delphi Technique
 Group of experts used to make long-range projections.
 Issues like future direction of business conditions,
business activities, technology, new product
development, and market conditions.
 These experts are kept apart from each other so that
their opinions are established independently.
 They prepare individual forecasts, which are then
compiled and then given back to them for a second
round of projections.
 This process continues until a consensus forecast of
the future emerges. The Delphi technique has the
advantage of eliminating the group pressures of a
typical committee meeting.

14. 14
(iii) Sales Force Composite
 Forecasts arrived at by combining salespersons
estimates of expected sales for their respective
territories.
 Field sales people should be motivated to accept
sales quotas when they know that the information
they supplied played a major role in forecasting.
 A major disadvantage is that sales people might be a
poor judge of future sales level or market conditions.
They can have bias opinions as well.

15. 15
(iv) Survey of Buyer’s Intention
Forecast survey of a limited and well-defined
group of buyers. This is when the potential
customers are well defined and limited in number,
such as industrial products.
Disadvantage is that a customer might not always
do what they say and they plan to do. Secondly
customer-buying behavior might alter in response
to change in the operational environment.

16. 16
Quantitative Methods
 Continuity Extrapolation – technique that attempts to
project the last increment of sales change into the
future.
 Time series analysis – projection of the average
increment of sales change into the future. A time
data series is determined by four basic elements of
sales variations (a) trends or long run changes (b)
cyclical changes (c) seasonal variations (d)
unexpected factors. Most form of times series
analysis use a moving average to analyze and
project sales.

17. 17
 Exponential smoothing – a weighted average time
series analysis. Actual sales of recent periods are
weighted more heavily then the average sales of
earlier periods.
 Regression and correlation analysis – aim of
regression analysis is to identify factors that
influence, or are closely associated with changes in
sales. A simple regression is a forecasting technique
using only one independent variable. While multiple
regressions uses two or more independent variables.

18. 18
Sales Budgeting
Estimating future levels of revenue, selling
expenses, and profit contributions of the
sales function.

19. 19
Types of Budget
Financial statement that outlines firms intended actions
and the resulting cash flow consequences. Most sales
budgets covers a period of one year, but they are often
broken down into quarterly or even monthly targets.
 Sales budget – projection of revenue computed from
forecast unit sales and average prices.
 Selling expenses budget – approved amount that the
department will spend to obtain the revenues projected in
the sales budget.
 Profit budget – merged sales budget and the selling
expense budget to determine gross profit.

20. 20
Major Types of Selling Expense Budgets
 Affordable methods – management determines what to
spend on selling after accounting for the cost of good sold
and the desired profit level.
 Percentage of sales method – the funding level is found
by multiplying the sales revenue by a given percentage.
Budgeting is based on anticipated rather then historical
revenue.
 Competitive parity method – sales budgeting method
based on the competitive practices in an industry. They
refer to either a specific competitor or the industry
average.

21. 21
 Objective and task method – budget allocation is based on
the objective of the firm, tasks necessary to achieve those
objectives, and the expenses related to those tasks. It is
known as zero-based budgeting.
 Bidding system – in this the sales function competes with
other functions for limited funds available on the basis of
payoffs.
 Return on investment (ROI) – some sales managers have
begun to use this financial management concept to chose
between alternative courses of action. ROI is determined by
dividing net income by total assets employed to earn the
income.

22. 22
Sales Budgeting Procedures
1. Situational Analysis – sales managers have to look at the magnitude of
past differences between budgeted and actual figures and the reasons for these
differences.
2. Identification of Problems and Opportunities the actual potential threat
and challenges has to be assessed and addressed to determine the
probabilities of occurrence their impact.
3. Development of Sales Forecast – manager is equipped to forecast sales,
using one of the various methods. Projections are made about the anticipated
levels of sales by territory, product or type of account. It is expressed both in
units and dollars.
4. Formulation of Sales Objectives – once the forecast has been developed,
sales force has to be told what sales target to strive and what objectives to
pursue.
5. Determination of Sales Tasks – sales manager and sales force have to
carry a broad array of sales activities, ranging from recruitment to evaluation,
and from prospecting to after sales service.

23. 23
6. Specification of Resource Requirement – the resources that will be
required to implement the specified activities and achieve the objectives.
7. Completion of Projections – here all the input and requests from various
units of the sales function are assembled and tied into a comprehensive
package.
8. Presentations and Review –present and defend its sales budget proposal
to the management.
9. Modification and revision – sales managers have to engage in a series
of compromise sessions. Here the sales targets and budgets might be
adjusted by the higher management, reflecting both to the needs of the
corporation and the true potential of the marketplace.
10. Budget approval – final levels are eventually approved and authorized
for both the sales and the selling expense budgets. Here onwards budgets
are reviewed periodically looking at the on going market conditions and other
external forces.

24. THANK YOU
24