What is a Sales Forecast?

Level of sales a single organization expects to achieve based on a chosen market strategy and

an assumed competitive environment.

A forecast is not only an estimate of what

consumers demand will be for certain products,

but how much of them the firm can produce and sell at certain prices, and how its competitors & customers will respond to those prices.

Forecasted Sales reflect

1. 2.

The size of the target market. The marketing mix chosen for the target market.

3.

The assumed number of competitors and competitive intensity in the target

market.

Market and sales forecasting

1. The sales and market forecasts provide the basis for all subsequent planning and decision making. 2. Forecasting indicates what will happen in a given environment if a specific set of decisions and actions is implemented with no subsequent changes.

Forecast characteristics
Based on historical information from which projections can be made. Look forward over a specific, clearly defined time period. Make clearly specified assumptions, uncertainty characterises the future. since

Market Forecast refers to the estimates of future sales of a companys products in the market Sales forecasting is very popular in industrially advanced countries where demand conditions are always uncertain than the supply conditions

REASONS FOR UNDERTAKING SALES FORECASTS

Key decisions derived from sales forecasting include:

Employment levels required Promotional mix Investment in production capacity

TYPES OF FORECASTING

Macro forecasting is concerned with forecasting markets in total. This is about determining the existing level of Market Demand and considering what will happen to market demand in the future. Micro forecasting is concerned with detailed unit sales forecasts. This is about determining a products market share in a particular industry/ organization and considering what will happen to that market share in the future.

The selection of which type of forecasting to use depends on several factors:

(1) The degree of accuracy required if the decisions that are to be made on the basis of the sales forecast have high risks attached to them, then it stands to reason that the forecast should be prepared as accurately as possible. However, this involves more cost (2) The availability of data and information - in some markets there is a wealth of available sales information (e.g. clothing retail, food retailing, holidays); in others it is hard to find reliable, up-to-date information

(3)The time horizon that the sales forecast is intended to cover. For example, are we forecasting next weeks sales, or are we trying to forecast what will happen to the overall size of the market in the next five years? (4) The position of the products in its life cycle. For example, for products at the introductory stage of the product life cycle, less sales data and information may be available than for products at the maturity stage when time series can be a useful forecasting method.

Sales forecasts can be based on three types of information:

(1) What customers say about their intentions to

continue buying products in the industry

(2) What customers are actually doing in the market (3) What customers have done in the past in the market

PURPOSES OF SHORT-TERM FORECASTING

Appropriate production scheduling Reducing cost of purchasing Raw Materials. Determining appropriate price policy Setting sales targets and establishing controls and incentives Evolving a suitable promotional program Forecasting short-term financial requirements

PURPOSES OF LONG-TERM FORECASTING

Planning of a new unit or expansion of an existing unit Planning of long-term financial requirements Planning of man-power requirements

Forecasting methods

METHODS OF SALES FORECASTING

Survey of Buyers Intentions Opinion Poll and Survey Method Collective Opinion Analysis of Time Series and Trend Projections Use of Economic Indicators Controlled Experiments Judgmental Approach

The four stage approach to forecasting (Wolfe 1966)

Sales analysis

Marketing costs and profitability analysis

Making a Sales Forecast

Sales Forecast is a function of: 1. Market potential (M) 2. Proportion of market you are Targeting (T) 3. Extent of market Coverage (C) 4. Number of Units expected to sell per customer during the year (U) 5. Average Price per unit (P) Sales Forecast = M x T x C x U x P

Making a Sales Forecast

Example
Total number of potential buyers = 1 Lks. Target Market (25%) Market Coverage (75%) Units purchased per year (20) Average Price (10 Rs.) Forecasted Sales = x 0.25 = x 0.75 = x 20 = x 10 Rs. = 37.5 Lks.

Qualitative targets

The Relationship of Forecasting to Budgets

Sales Forecasts Sales Budget

Revenue Budget Production Budget
Sales & Administration Expenses Budget Factory O/H Budget Expenses

Direct Labor Budget

Revenue Budget Cost of Goods Sold Budget

Budgeted P/L Statement

Budgeted Balance Sheet

Budget

Functional organisation

Product organisation

Regional organisation

Matrix organisation

The marketing control process

Examples of marketing performance evaluation methods

Sales analysis.

Costs and profitability analysis.

Sales analysis

Marketing costs and profitability analysis