Sales forecasting – the starting point


Sales forecasting relates to providing estimates of market trends and company sales possibilities in the target markets.

Sales Forecasting Methods

1. Jury method/ Executive opinion method (a) Top jury method. (b) Percolated jury method.
2. Survey of expert’s opinions.
3. The Delphi method.
4. Sales force composite method.
5. User expectation or End-use method or Survey of buyers’ intentions.
6. Market share method.
7. Substitution/Replacement method.
8. Market tests/Test marketing.
9. Analytical and Statistical methods.
10. (a) Simple projection method(b) Extrapolation method (c) Moving averages method (d) Exponential smoothing(e) Time series analysis (f) Regression analysis (g) complex econometric models
11. Market survey method.

Sales forecasting serves as the starting point for all activities of the firm and gives direction to all activities. It helps the firm to decide which produces are to be continued, which ones are to be dropped, which ones are to be added and which need modification.

It enables the firm to identify its precise position in the market, this in turn, facilitates optimum utilization of resources, optimum penetration of markets, and optimum gains from marketing opportunities.

Sales forecasting forms the backbone of marketing. It provides not only the numbers regarding sales, but also vital clues regarding customers’ tastes, preferences and needs. Only with proper sales forecasting can the firm meaningfully handle its marketing planning and marketing strategy formulation. Only with sales forecasting again, can the firm fine tune its marketing objectives. And, only with sales forecasting can it develop its budgets. The sales forecast is the foundation for all marketing decisions—decisions on physical distribution, promotion, sales force and pricing. For example, in physical distribution, transportation and warehousing plans hinge on sales forecast. Similarly, in the matter of sales force, the decision as to how many salesman must be employed, depends on the sales forecast; sales compensation plans too depend on it; so too, the structuring of sales territories. In short, the entire marketing mix, i.e. product, price, promotion, and distribution, revolves around the sales forecast.

Period Range of demand/Sales forecasts

One can group demand forecasts into three types on the basis of time frame of the forecast.

· Short-range forecast.
· Long-range forecast
· Perspective planning forecast.

Short-range forecast helps in the year-to-year business/marketing planning. Such forecasts are usually made for one year and reviewed monthly, quarterly or half yearly. They are used for projecting cash flow of the enterprise and for planning various marketing activities like personal selling, advertising and warehousing. They are also used for planning the functions outside marketing, such as production, manpower and materials.

Long-range forecast facilitates investment decisions at the time of starting a new industrial unit or while attempting expansion or diversification. Since industrial investment is often irrevocable and the pay-off period extends over a long term, demand forecasting for a longer–term, say five to ten years will be essential for investment decisions. The margin of error may be relatively higher in such long-term forecasts. Yet, they would help the planning purpose. Sometimes, one comes across a still longer-term forecast, say for 15 or 20 years. Such forecasts are normally used for the purpose of perspective planning.

The above is more theoretical oriented but the current trends are making the Sales management in the companies to be vigilant and alert. It will be more practical if a short term forecasting say up to a year or two is made and only a broad outline forecasting say for medium span may be up to 5 years. This should be because of the fast changing market trends, customers likes and dislikes, competition, superior products and more innovative customer friendly schemes. The sales forecasts close to realistic may benefit the companies in higher market penetration.