Sales Forecasting

Submitted By :-Shweta Bhandari

• It is an estimate of sales during a specified future period which is tied to a proposed marketing plan and which assumes a particular set of uncontrollable and competitive forces.

• Starting point of short term (3 to 6 months), medium term (6 to 24 months), and long term planning.

• Short/medium term forecasting-basis for determining a company’s production schedule.

• Long term forecasting - useful in determining what new facilities, labor, and funding will be needed.

Sales Forecasting

Forecasting Process• The forecasting process is defined as the series of

decisions and actions taken by a business organization in: identifying the forecasting objectivesdetermining the independent and dependent

variablesdeveloping a forecasting procedure using the available data in the selected method to

estimate the sales in future

Sales Forecasting Process

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Sales Forecasting Methods

• The sales forecasting method is a procedure for estimating how much of a given product (or product line) can be sold if a given marketing program is implemented.

Qualitative methodsJury of Executive Opinion

Sales force opinion methodSurvey of buyer intentions

Jury of executive opinion This can be done in two ways:

1. By one seasoned individual (usually in a small company).

2. By a group of individuals, their responses are pooled into one forecast

• Best used when executives have a strong working knowledge of the area and other sources of data is hard to find

Jury of executive opinion – Variations

Delphi Technique- members of the jury never meet and make anonymous forecasts. The leader averages and returns a median or mean forecast to each member of the jury. Each member evaluates and revises the forecast until a consensus is met

The Nominal Group Technique is a face to face Delphi method, allowing group discussion

Jury of executive opinion – Variations

Factor Listing- when each member of the jury is required to list factors that will have a positive or negative impact. A consensus is then sought on the magnitude of each factor so a prediction can be made.

The Dialectical Inquiry method poses sub-groups to challenge the group’s findings with alternative scenarios.

Sales force compositeAlso known as “the grass-roots approach”. Individual salespersons forecast sales for their

territories Individual forecasts are combined and modified by the

sales manager to form the company sales forecast.Best used when a highly trained and specialized sales

force is used

Survey of buyer intentions Also called user’s expectations method It is a qualitative forecasting method that samples opinions

among groups of present and potential customers concerning their purchase intentions.

The survey method is based on the opinion of buyers and consumers.

More useful in industrial products than in consumer goods.

Quantitative methodsMarket Test

Trend ProjectionsExponential smoothening methodMoving AveragesRegression Analysis

Market Test

• A quantitative forecasting method that introduces a new product, price, promotional campaign, or other marketing variable in a relatively small test market location in order to assess consumer reaction.

Trend Projection

• A quantitative sales forecasting method that estimates future sales through statistical analyses of historical sales patterns.

• The least squares method is a formalization of the eyeball-fitting or graphical technique. It is used to mathematically project the trend line to the forecasting period with the time as the independent variable that influences the dependent variable i.e sales.

Trend projection

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Moving Averages Method

• Moving averages are used to allow for marketplace factors changing at different rates and at different times.

Moving Averages Method

Moving Averages MethodForecast with Moving Average

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Regression Analysis• Regression analysis is a statistical method used to

incorporate independent factors that are thought to influence sales into the forecasting procedure.

• Reveals average relationship between two variables and this makes possible estimation or prediction

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Naive 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

Exponential Smoothing• It is similar to the moving- average forecasting method

• The forecaster is allowed to vary the weights assigned to past data points

• The method is used to forecast only one period in the future

• Exponential smoothing techniques vary in terms of how they address trend, seasonality, cyclical and irregular influences

Next Year’s Sales = a (This Year’s Sales) + (1 – a) (This Year’s Forecast)

Jury of executive opinion

– Variations• Delphi Technique- members of the jury never meet and make anonymous

forecasts. The leader averages and returns a median or mean forecast to each member of the jury. Each member evaluates and revises the forecast until a consensus is met

• Factor Listing- when each member of the jury is required to list factors that will have a positive or negative impact. A consensus is then sought on the magnitude of each factor so a prediction can be made.

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F O R E C A S T

QUESTIONS TO ANSWER TO IMPROVE CHANCES OF HITTING THE FORECASTING BULL’S-EYE

One of the most frequently used forecasting methods is timeseries analysis.•Time series refers to the values of a variable arranged chronologically by days, weeks, months, quarters, or years.•Time-series analysis attempts to forecast future values of the time series by examining past observations.•The assumption is that the time series will continue to move as in the past.

The classical time series model takes the following form:Y = T * S * C * I

This approach to economic forecasting assumes that economic time series can be decomposed into four elements (T, S, C, I).

Time Series Analysis

Trend - T: A trend is relatively smooth long-term movements of a time series.

Seasonal variation - S: Fairly regular patterns that repeat each year. because of seasonal factors.

Cyclical variation – C: Medium term variation due to the effects of the business cycle.

Irregular variation - I: Due to unexpected or irregular occurrences, No trends or patterns.

Decomposition of a Time Series