Sales Forecasting is the projection of customer demand for the goods and services over a period of time. In other words, it is the process that involves the estimation of sales in a physical unit that a company expects within a plan period.
There are a variety of methods available to the firm for forecasting sales or demand of a company; these are listed below:
Sales Forecasting Methods
- Jury Method
- Survey of Expert’s Opinions
- Delphi Method
- Sales Force Composite Method
- End-use Method
- Market Share Method
- Substitution Method
- Market Test
- Analytical and Statistical Methods
- Market Survey Method
The future is uncertain, and the sales cannot be predicted with certainty, and hence the management must study the following factors that influence the sales forecast:
The general economic conditions Viz inflation and a recession that has a considerable impact on the sales. The manager must study thoroughly about the political, economic, social, technological changes to forecast sales more accurately. Here, the past market trends, consumer’s preferences, national income, disposable personal income, etc. must be considered before projecting the sales for the successive period.
The demographics of consumers such as age, sex, education, occupation, income, etc. must be given due consideration before projecting the demand for certain goods and services. The social groups such as family or peers also influence the purchase behavior of an individual. Thus, all these factors must be studied carefully before estimating the sales for a given period.
There are several competitors in the market that deals in similar kinds of products and services. Thus, the marketing team must study their pricing strategy, product design, technological improvements, promotional schemes, advertising campaign, etc. very carefully so as to meet the competition. Also, the firm must keep a close watch on the new entrant, who can alter the market share of the existing firms significantly.
The changes within the firm can also affect the sales. Such as changes in the advertising campaigns, promotional schemes and pricing policy can bring a significant change in the sales figure. Thus, the management is required to study every change in relation to its effect on the overall sales of the firm.
Thus, the sales forecasting is a backbone of marketing that provides not only the sales figure but also helps the management to identify the customer’s needs, tastes, and preferences. It also helps in exploring the market opportunities that could be matched with the company’s marketing efforts.
A sales budget estimates the sales in units as well as the estimated earnings from these sales. Budgeting is important for any business. Without a budget companies can’t track process or improve performance. The first step in creating a master company while budget is to create a sales budget.
Management carefully analyzes economic conditions, market competition, production capacity, and selling expenses when developing the sales budget. All of these factors play an important role in the company’s future performance. Basically, the sales budget is what management expects to sell and the revenues collected from these sales.
Marketing campaigns can include billboards, advertisements, magazine articles and banner ads, but it’s up to the sales team to get the stuff out the door. To accomplish this goal, sales teams can do all the usual things — cold calling and networking, sending letters and inviting executives to events — but even these efforts sometimes don’t win the target accounts. At such times, sales quotas can come in handy. Suddenly, sales revenues or sales units, and closing deals and driving revenue move to the top of every salesperson’s agenda.
Salespeople and sales territories must deliver on revenue or volume targets that they’re beholden to. Usually, these sales quotas are the volume of goods a salesperson’s customers must buy or the sales revenues that his efforts must generate on a monthly, weekly or daily basis. In turn, a company assesses the salesperson’s performance according to his tendency to hit or exceed the quota on a consistent basis. The sales quota can be determined in part by information, such as the prior period’s territory sales numbers, the salesperson’s salary multiplied by some factor or a prior year’s goal multiplied by an annual growth rate. The type of quota a company selects is determined in part by the market and the product.
It’s common to base a sales quota on the sales volume or sales revenue for a customer, product line, region, period of time or some combination thereof. In many cases, a company that sells a product with a high unit price implements a sales volume quota on a daily, monthly or quarterly basis. If a company sells low-priced products, the business might put in place a sales revenue quota. Quotas also can be set for a group of products, such as men’s clothing or computer products. Sales volume goals fail to measure either the profit generated by a particular sales person or his productivity.
Gross margin or gross profit also serves as a basis for a sales quota for a branch, a group of products or a salesperson. A gross margin quota is calculated by deducting the cost of goods sold from the sales revenue; a gross profit quota is calculated by subtracting selling expenses and the cost of goods sold from sales revenue. A problem with profit-based sales quotas is that sales personnel have no control over prices or manufacturing costs, each of which affects gross margin. In addition, to boost the probability of achieving a gross profit-based quota, a salesperson may cut back on expenses, which can affect her sales negatively.
A company may base a sales quota on a combination of a sales forecast for a particular geographic area and historic sales data. For example, assume that region A was responsible for 25 percent of the prior year’s sales and the sales forecast for the current year is $150,000. The current quota for region A might be 25 percent of $150,000 or $37,500.