10. SALES FORECASTING
Who is affected by it?
Ops – raw materials, support for existing products,
warehousing, production equipment
Finance – inventory, all finance statements and
expectations, Wall Street Guidance
Marketing – mix variables drive forecast and are
effected by it, etc.
Sales force – budgets, territory sized and # of reps,
sales support, customer service
HR – hiring in Ops, Mktg, Sales, all parts of the
company,
R&D – existing product support, new product
investments ($ and direction of investment)
All budgets across the company flow from sales budget
11. Functional area
Forecast
Too high Too low
Production excess output, unsold
products
inadequate output to meet
customer demand
Inventory overstock understocks
Finance idle cash cash shortage
Promotion wasted expenditures insufficient expenditures to
cover the market
Distribution costly, insufficient to sell
excess products
inadequate to reach market
Pricing reductions to sell excess
products
price increases to allocate
scarce products
Sales force too many salespeople, high
selling costs
too few salespeople, market
not covered
Customer
relations
money wasted on unneeded
activities, resulting in lower
profits
unsatisfactory due to out-of-
stock products
Profits lower unit profits since
expenses are high
lower total profits because
market not covered
Impact of Erroneous Sales Forecasts
14. Quantitative Sales Forecasting Techniques
Regression Analysis: Predicting sales based on the
relationship between past sales and one or more variables
Simple Regression: relationship between 1 independent
variable and 1 dependent variable (sales)
Multiple Regression: shows strength of relationships
between multiple independent variables and dependent
variable (sales)
Caution 1: no one has yet been able to create a formula
that guarantees accurate output
Caution 2: correlation does NOT equal causation
15. Other Sales Forecasting Techniques
Market Tests
Making a product available in the marketplace and
measuring purchases and consumer responses
Test full mix on limited scale
Search for test markets that look like your
national target, but on smaller scale
16. Assumptive Reasoning (Chain Ratio)
Break a problem down into “knowable” parts,
then rebuild it using reasonable assumptions for
those parts
17. Market Share-Based Forecast
1. Determine the market size
a) Actual best; potential if actual is unknown
2. Determine the market share you will obtain
a) Excellent justification of share figure(s)
b) “We think…” is insufficient
3. Translate share into units and dollars
Market share is after-the-fact calculation;
measures success of marketing plan and
execution
18. Business Plan Sales Forecasting
Exhibit #2: Market Quantification
Year
Tot Mkt
Potential (#
Customers)*
Mkt Growth
Projection**
Market
Share***
Product
Annual Unit
Sales
Unit Price or
Weighted ASP
Annual $ Revenue
Year 1
Year 2
Year 3
Year 4
Year 5
* How did you determine your market potential? Identify key sources and assumptions
** Actual market or market potential. How did you determine the growth projection(s)? Identify key sources and assumptions
*** How did you determine your market share? Indicate key sources and assumptions
**** How did you determine your unit forecast? Indicate key sources and assumptions