Sales Forecasting
Sales forecasting is the process of a company predicting what its future sales will be. This forecast is done for a particular period of time in the near future, usually the next fiscal year. Accurate sales forecasting enables a company to make informed business decisions. Sales forecasting is easier for established companies that have been operating for a few years than for newer companies. Established companies have years of sales records and can base their forecasts on that past sales data. Newly founded companies have to base their forecasts on less verified information, such as market research and competition analysis to forecast their future business.
Why is Sales Forecasting important?
Sales Forecasting gives insight on whether a company should expand, information about cash flow, and the ability to effectively manage its resources. Without forecasting, a company would be unsure of what inventory level to maintain, unsure on how it should allocate resources across the company, and it would have a hard time predicting future success. Forecasting sales is a crucial business practice, because in addition to helping a company allocate its internal resources effectively, having this data is important for acquiring investment capital. Often, investors want to know what a company’s future expected sales are before making an investment.
Chapter 1 introduction to sales and distribution managementNishant Agrawal
To understand evolution, nature and importance of sales management
To know role and skills of modern sales managers
To understand types of sales managers
To learn objectives, strategies and tactics of sales management
To know emerging trends in sales management
To understand linkage between sales and distribution management.
Sales Forecasting
Sales forecasting is the process of a company predicting what its future sales will be. This forecast is done for a particular period of time in the near future, usually the next fiscal year. Accurate sales forecasting enables a company to make informed business decisions. Sales forecasting is easier for established companies that have been operating for a few years than for newer companies. Established companies have years of sales records and can base their forecasts on that past sales data. Newly founded companies have to base their forecasts on less verified information, such as market research and competition analysis to forecast their future business.
Why is Sales Forecasting important?
Sales Forecasting gives insight on whether a company should expand, information about cash flow, and the ability to effectively manage its resources. Without forecasting, a company would be unsure of what inventory level to maintain, unsure on how it should allocate resources across the company, and it would have a hard time predicting future success. Forecasting sales is a crucial business practice, because in addition to helping a company allocate its internal resources effectively, having this data is important for acquiring investment capital. Often, investors want to know what a company’s future expected sales are before making an investment.
Chapter 1 introduction to sales and distribution managementNishant Agrawal
To understand evolution, nature and importance of sales management
To know role and skills of modern sales managers
To understand types of sales managers
To learn objectives, strategies and tactics of sales management
To know emerging trends in sales management
To understand linkage between sales and distribution management.
Recruiting, retaining, and managing the sales force; and managing the sales effort is the major function of any business. Sales is the only revenue generating operation and it needs to be carefully studied and understood to maximise results in today's globally competitive, Triple Bottom Line, world
Sales forecast is about estimating future sales.
Sales forecast is an estimated unit of sales in either rupees or number of units which could be sold for a specific period of time
Better sales forecasts
Enables a company to perform better
Make more informed decisions; and
Serves as a basis for determining the short run and the long term performance of a organization
Provide inputs for expected sales for a particular company or industry
In the narrow sense, the term ‘PURCHASING’ refers merely to the act of buying an item at a price.
Whereas, in broader sense, meaning of purchasing makes it a managerial activity, which goes beyond the simple act of buying.
Sales persons follow a sequence of activities while making a sale and these may be defined as different phases followed by salesperson.
A cycle start with prospect/potential customer identification, to converting him to a customer.
The sequential order of the steps may vary across selling situations
Recruiting, retaining, and managing the sales force; and managing the sales effort is the major function of any business. Sales is the only revenue generating operation and it needs to be carefully studied and understood to maximise results in today's globally competitive, Triple Bottom Line, world
Sales forecast is about estimating future sales.
Sales forecast is an estimated unit of sales in either rupees or number of units which could be sold for a specific period of time
Better sales forecasts
Enables a company to perform better
Make more informed decisions; and
Serves as a basis for determining the short run and the long term performance of a organization
Provide inputs for expected sales for a particular company or industry
In the narrow sense, the term ‘PURCHASING’ refers merely to the act of buying an item at a price.
Whereas, in broader sense, meaning of purchasing makes it a managerial activity, which goes beyond the simple act of buying.
Sales persons follow a sequence of activities while making a sale and these may be defined as different phases followed by salesperson.
A cycle start with prospect/potential customer identification, to converting him to a customer.
The sequential order of the steps may vary across selling situations
FORECASTING DEMAND AND MEASUREMENT BY JEET PAREKH IIT BHU.
Market measuring and forecasting requires an analysis of the market with an aim of expressing it in quantitative (numeric) quantities both present and in the future.The quantitative measurement and forecasting of the market, together with its qualitative characteristics, are used as a basis for decision making by marketing management.Once the research is complete, the company must measure and forecast the size, growth, and profit potential of each market opportunity
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A critical component of board governance is overseeing the organization and determining its strategic direction. Strategic planning is more than a work plan for the organization. Learn how organizations can benefit from the strategic planning process itself, how to identify the right facilitator, and specific tools for implementation and accountability.
logical study about the market plan, the course of action to be taken. It related with the market aspects of the project in terms of satisfying the customer need
What a Media Planner needs to know
Situation Analysis
Marketing Strategy Plan
Competitive Media Expenditure Analysis
Analysing the Data
International Competitive Analysis
Managing Media Planning and Buying
Sources of Marketing Data
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2. What is forecasting?
Forecasting is a tool used for predicting
future demand based on past demand
information.
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3. Why is forecasting important?
Demand for products and services is usually uncertain.
Forecasting can be used for…
• Strategic planning (long range planning)
• Finance and accounting (budgets and cost controls)
• Marketing (future sales, new products)
• Production and operations
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4. What is forecasting all about?
Demand for Mercedes E Class
Time
Ja
n
Fe
b
Mar Apr Ma
y
Jun Jul Aug
Actual demand (past sales)
Predicted demand
We try to predict the
future by looking back
at the past
Predicted
demand
looking back
six months
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5. From the March 10, 2006 WSJ:
Ahead of the Oscars, an economics professor, at the request of
Weekend Journal, processed data about this year's films
nominated for best picture through his statistical model and
predicted with 97.4% certainty that "Brokeback Mountain"
would win. Oops. Last year, the professor tuned his model until
it correctly predicted 18 of the previous 20 best-picture awards;
then it predicted that "The Aviator" would win; "Million Dollar
Baby" won instead.
Sometimes models tuned to prior results don't have great
predictive powers.
What’s Forecasting All About?
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6. The Measures of Market Demand
Potential
Market
Penetrated
Market
Target
Market
Available
Market
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7. Potential Market: PM is the set of consumers who
profess a sufficient level of interest in a market offer
Available Market: AM is a set of consumers who
have interest, income, and access to a particular offers
Target Market: TM is The part of the qualified
available market the company decides to pursue.
Penetrated Market: PM is the set of consumers who
are buying the company’s product2/13/2014 Babasabpatilfreepptmba.com 7
9. Vocabulary for Demand Measurement
Market demand- Marketing opportunities is to estimate
total market demand in defined geographical area, time,
environment and marketing program.
Market forecast-
Market potential- Expected market demand
Company demand
Company sales forecast
Company sales potential
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11. Measuring Current Market Demand
Marketers will want to estimate three different
aspects of current market demand
o Total market demand
o Area market demand
o Actual sales and market shares
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12. Estimating Total market demand
Q = n x q x p
Where,
Q = total market demand
n = number of buyers in the market
q = quantity purchased by an average buyer per year
p = price of an average unit
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13. Estimating Area Market Demand
Companies face the problem of selecting
the best sales territories and allocating
their marketing budget optimally among
these territories.
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14. Two major methods are available
o Market buildup method –Calls for identifying
all the potential buyers in each market and
estimating their potential purchases. used
primarily by business goods firms
o Market-factor index method – used primarily
by consumer goods firms.
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15. Market-Factor Index Method
Identifies market factors that correlate with market potential
and combines them into weighted index.
A manufacturer of men’s dress shirts wishes to evaluate its
sales performance relative to market potential in several major
market areas.
Total national potential $2 billion per year.
The company current nationwide sales are $140 million, about
7% of the total potential market.
Its sales in New York are $1,100,000.
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16. The buying power index (BPI) for a specific area is given by
BPI = .2 x percentage of national population in the area
.5 x percentage of effective buying income in the area
.3 x percentage of national retail sales in the area
New York should account for .5935 percent of the nation’s total
potential demand for dress shirts.
Total potential equals $2 billion x .005935 = $11,870,000.
Company’s sales (NY) $1,100,000/$11,870,000 = 9.3 percent.
Which is quite high than company national share i.e. 7 percent.
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17. Actual sales and market shares
Actual industry sales taking place in the
market.
Identifying competitors and estimating
their sales.
Then company can evaluate its
performance
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18. Estimating Future Demand
Sales Force
Opinions
Market Test
Method
Past Sales
Analysis
Buyer’s
Intentions
Expert
Opinions
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19. Common Sales Forecasting
Techniques
Based On: Methods
What people say Surveys of buyers’ intentions
Composite sales force opinions
Expert opinion
What people do Test markets
What people have
done
Time-series analysis
Leading indicators
Statistical demand analysis
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20. Survey of Buyers’ Intentions
One way to forecast what buyers will do is to ask them directly.
Surveys are especially valuable if the buyers have clearly
formed intentions, will carry them out, and can describe them to
interviewers.
Purchase probability scale
Do you intend to buy an automobile within the next six months?
0 .1 .2 .3 .4 .5 .6 .7 .8 .9 1.0
No Slight Fair Good Strong For certain
chance
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21. Composite of Sales-force Opinions
The company typically asks its salespeople to
estimate sales by product for their individual
territories.
It then adds up the individual estimates to arrive at an
overall sales forecast.
Salespeople are biased observers. They may
understate demand so that the company will set a low
sales quota.
After participating in the forecasting process, the
salespeople may have greater confidence in their
quotas and more incentive to achieve them.2/13/2014 Babasabpatilfreepptmba.com 21
22. Expert Opinion
Experts include dealers, distributors, suppliers,
marketing consultants, and trade associations.
Dealer estimates are subject to the same
strengths and weaknesses as salesforce
estimates.
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23. Delphi method
Experts may be asked to supply their
estimates individually, with the company
analyst combining them into single estimate.
Finally, they may supply individual estimates
and assumptions that are reviewed by a
company analyst, revised, and followed by
further rounds of estimation
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24. Test Marketing
Where buyers do not plan their purchases carefully
or where experts are not available or reliable, the
company may want to conduct a direct test market.
A direct test market is especially useful in
forecasting new-product sales or established
product sales in a new distribution channel or
territory.
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25. Time-Series Analysis
Breaking down past sales into its trend, cycle, season,
and erratic/unpredictable components, then
combining these components to produce a sales
forecast.
Trend is the long-term, underlying pattern of growth
or decline in sales resulting from basic changes in
population, capital formation, and technology.
Cycle captures the medium-term, wavelike movement
of sales resulting from changes in general economic
and competitive activity.
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26. Conti…
Season refers to a consistent pattern of sales
movements within the year.
Erratic events include fads, strikes, snow
storms, earthquakes, fires, and other
disturbances.
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27. Statistical Demand Analysis
A set of statistical procedures used to discover the most
important real factors affecting sales and their relative
influence.
The most commonly analyzed factors are prices, income,
population, and promotion.
Q = f(X1, X2, … ,Xn), where sales Q is dependent
Using multiple regression technique, various equation forms
can be statistically fitted to the data in the search for the best
predicting factors and equation.
Soft-drink company: Q = -145.5+6.46X1–2.37X2
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