Developing Sales Developing Sales Forecasts Forecasts

Sales ForecastsSales Forecasts

Objectives:Objectives: Determining sales force size.Determining sales force size. Designing territories.Designing territories. Establishing sales quotas and sales Establishing sales quotas and sales

budgets.budgets. Determining sales compensation levels.Determining sales compensation levels. Evaluating sales person performance.Evaluating sales person performance. Evaluating prospective accounts.Evaluating prospective accounts.

Types of ForecastsTypes of Forecasts

Dimensions:Dimensions:

Product levelProduct level.( industry sales, company .( industry sales, company sales, product line sales, product form sales, product line sales, product form sales)sales)

Geographical areaGeographical area.( country, region, .( country, region, territory)territory)

Time periodTime period. (Short, Medium, Long). (Short, Medium, Long)

Types of ForecastTypes of Forecast Market PotentialMarket Potential

The best possible level of industry sales in a The best possible level of industry sales in a given geographic area for a specific period.given geographic area for a specific period.

Market ForecastMarket Forecast The expected level of industry sales in a given The expected level of industry sales in a given

geographic area for a specific periodgeographic area for a specific period Sales PotentialSales Potential

The best possible level of firm sales in a given The best possible level of firm sales in a given geographic area for a specific periodgeographic area for a specific period

Sales Forecast Sales Forecast The expected level of industry sales in a given The expected level of industry sales in a given

geographic area for a specific periodgeographic area for a specific period

Top-Down and Bottom-UpTop-Down and Bottom-UpForecasting ApproachesForecasting Approaches

Top-DownTop-Down Developing forecasts at the business unit Developing forecasts at the business unit

level then breaking it down into zone, level then breaking it down into zone, region, district, territory and account.region, district, territory and account.

Bottom-UpBottom-Up Developing forecast for different accounts, Developing forecast for different accounts,

then combine account forecasts into then combine account forecasts into territories, district , and company territories, district , and company forecasts.forecasts.

Moving Averages MethodMoving Averages Method

Simple and straightforward.Simple and straightforward. Calculating the average company sales for Calculating the average company sales for

previous years then dividing it on the previous years then dividing it on the number of years involved.number of years involved.

The company sales forecast for next year The company sales forecast for next year is the average of actual company sales for is the average of actual company sales for the past X years.the past X years.

Sales forecast for the next year =Sales forecast for the next year =

actual sales for the past 4 years /number of actual sales for the past 4 years /number of years (4)years (4)

Moving Averages MethodMoving Averages Method

The most popular method for short The most popular method for short and medium range forecast.and medium range forecast.

Not accurate if sales vary Not accurate if sales vary substantially different from year to substantially different from year to year or if there are major differences year or if there are major differences in business environment.in business environment.

Suited for large no. of products.Suited for large no. of products. Good for products with stable sales.Good for products with stable sales.

Moving Averages MethodMoving Averages Method

Require large amounts of historical Require large amounts of historical data.data.

Assign equal weight to each year ia Assign equal weight to each year ia a disadventage.a disadventage.

Exponential SmoothingExponential Smoothing

A type of modified moving average A type of modified moving average method method

but the company sales in the most but the company sales in the most recent year are weighted differently.recent year are weighted differently.

The critical aspect is determining the The critical aspect is determining the weight for this year.weight for this year.

Examine different weights for historical Examine different weights for historical sales data to determine which weight sales data to determine which weight would have generated the most would have generated the most accurate sales forecast in the past.accurate sales forecast in the past.

Exponential SmoothingExponential Smoothing

Simple to use and understand.Simple to use and understand. Gives more weight to recent year.Gives more weight to recent year. Requires little data.Requires little data. Good accuracy for short term forecast.Good accuracy for short term forecast. Searching for the appropriated weight Searching for the appropriated weight

takes time.takes time. Poor for medium and long range Poor for medium and long range

forecast.forecast.

Decomposition MethodDecomposition Method Trend Trend

e.g. 5% growth in sales due to increase in e.g. 5% growth in sales due to increase in population.population.

CycleCycle e.g. Recession cycle -10%e.g. Recession cycle -10%

SeasonalSeasonal e.g. 4e.g. 4thth Q sales is higher by 25% Q sales is higher by 25%

Erratic eventsErratic events e.g. increased tension in the middle east -5%e.g. increased tension in the middle east -5%

Conceptually sound but it requires Conceptually sound but it requires complex statistical approaches.complex statistical approaches.

Decomposition MethodDecomposition Method

Simple to understand.Simple to understand. Takes into consideration several Takes into consideration several

important factors.important factors. Requires large amount of data.Requires large amount of data. Not so good for long range Not so good for long range

forecasts.forecasts.

Breakdown MethodBreakdown Method

Market Factor Method is used to Market Factor Method is used to break the company forecast down break the company forecast down into zone, region or district level.into zone, region or district level.

The Buying Power Index BPIThe Buying Power Index BPI BPI = ( 5I+2P+3R )/10BPI = ( 5I+2P+3R )/10

I % of personal income in the areaI % of personal income in the area P %of population in the areaP %of population in the area R % of retail sales in the areaR % of retail sales in the area

The Survey of Buyers The Survey of Buyers Intentions MethodIntentions Method

Asking individual accounts about their Asking individual accounts about their purchasing plans for a future periods and purchasing plans for a future periods and translate it into account forecast through mail translate it into account forecast through mail or phone surveys or personal interviews.or phone surveys or personal interviews.

Based on customers buying plans.Based on customers buying plans. Inexpensive method if customer base is small.Inexpensive method if customer base is small. Intentions frequently do not translate in actual Intentions frequently do not translate in actual

purchases.purchases. Some firms do not want to disclose their Some firms do not want to disclose their

intentions.intentions.

The Jury of Executive The Jury of Executive Opinion MethodOpinion Method

Team based approach.Team based approach. Inside executive use their expert Inside executive use their expert

knowledge to forecast sales to individual knowledge to forecast sales to individual accounts then discussed until consensus is accounts then discussed until consensus is reached.reached.

More accurate long range forecasts than More accurate long range forecasts than individually based approaches.individually based approaches.

Requires excessive amount of managers Requires excessive amount of managers time.time.

Managers are far from the marketplace.Managers are far from the marketplace.

The Jury of Executive The Jury of Executive Opinion MethodOpinion Method

Not suitable for firms with large Not suitable for firms with large number of products.number of products.

Influential people may dominate the Influential people may dominate the process.process.

People far from the market do not People far from the market do not have the market sense.have the market sense.

The Delphi MethodThe Delphi Method

A structured type of jury executives method.A structured type of jury executives method. Selection of panel of managers.Selection of panel of managers. Each member submit anonymous forecast for Each member submit anonymous forecast for

each account.each account. Summary is sent to each panel member with Summary is sent to each panel member with

reasons for lowest and highest forecast to reasons for lowest and highest forecast to review and send again anonymous forecast .review and send again anonymous forecast .

Process is repeated until reaching a Process is repeated until reaching a consensusconsensus

The Delphi MethodThe Delphi Method

No group or committees meetings.No group or committees meetings. Receive inputs from others in Receive inputs from others in

isolated environments.isolated environments. Allow mind changing.Allow mind changing. Participants are selected based on Participants are selected based on

their willingness.their willingness. Takes long time to accomplish and Takes long time to accomplish and

reach a consensus.reach a consensus.

The Sales Force The Sales Force Composite MethodComposite Method

Sales people provide forecast for their Sales people provide forecast for their accounts on specially designed forms or accounts on specially designed forms or via computers.via computers.

Sales people are provided with detailed Sales people are provided with detailed information about their accounts and information about their accounts and feedback concerning accuracy of their feedback concerning accuracy of their previous feedback.previous feedback.

It uses input from persons closed to It uses input from persons closed to actual markets.actual markets.

Enhance sales force morale.Enhance sales force morale.

The Sales Force The Sales Force Composite MethodComposite Method

Provide detailed forecast by product, Provide detailed forecast by product, account and territory.account and territory.

Sales people may underestimate Sales people may underestimate their forecasts.their forecasts.

Can take their time from the field.Can take their time from the field. S.R. may lack the impact of the S.R. may lack the impact of the

economy knowledge.economy knowledge.

Forecasting Methods,Forecasting Methods,General RemarksGeneral Remarks

Bottom up approaches are more Bottom up approaches are more popular than the top down popular than the top down approaches.approaches.

Selection of forecast method depends Selection of forecast method depends on the forecasting period.on the forecasting period.

Each method has certain advantages Each method has certain advantages and disadvantages.and disadvantages.

Most firms use multiple forecasting Most firms use multiple forecasting methods.methods.

Selection of Forecasting Selection of Forecasting MethodMethod

Accuracy.Accuracy. Ease of use.Ease of use. Data requirements.Data requirements. Familiarity with method.Familiarity with method.