The document discusses various methods for sales forecasting. It describes qualitative methods like jury of expert opinion and Delphi method which rely on expert judgments. Quantitative methods like naive method, moving averages, and exponential smoothing use past sales data to project future trends. Customer-based methods involve market testing of new products and surveying potential buyers to directly assess future demand. The goal of sales forecasting is to estimate future revenues in order to optimize supply chain management, production planning, and profitability.

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By :
Prof. Amit Kumar

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“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

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IILM-GSM
Selling & Sales Management

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Contents
• Sales Forecasting & Application
• Forecasting Process
• Popular Methods of Forecasting
1. Judgment based- Qualitative
2. Sales extrapolation- Quantitative
3. Customer based
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Selling & Sales Management Sales Forecasting

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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.
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Selling & Sales Management Sales Forecasting

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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
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Selling & Sales Management Sales Forecasting

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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

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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
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Selling & Sales Management Sales Forecasting

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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
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Selling & Sales Management Sales Forecasting

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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
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IILM-GSM

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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

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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:
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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.

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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
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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

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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
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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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Free Hand or Graphic Method
Free Hand Graphic Method
0
5
10
15
20
25
30
1 2 3 4 5 6 7 8 9 10
Years
Sales Series1
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Selling & Sales Management Sales Forecasting
Year Sales
1 20
2 22
3 24
4 21
5 23
6 25
7 23
8 26
9 25

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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
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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
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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.
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Selling & Sales Management Sales Forecasting

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Customer-based Forecasting Methods
• Does not assume future will follow on past
– Appropriate for dynamic markets / new products
• Market Testing
• Market Surveys
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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.
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• Result from a test market are extrapolated to make
prediction about future sales.

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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.
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Selling & Sales Management Sales Forecasting