Definition: Sales Potential

Sales potential is the estimated market share that company expects to capture in
a market in a stipulated time period after entering the market. Sales potential
results are very important for a company in determining whether to enter a
market or not depending on the estimated profitability from sales potential.
Importance of Sales Potential

Sales potential generally means how much one product could be sold. Sales
potential means total quantity of a particular brand that could be sold in a
market instead of all the brands of a particular product category. It is actually a
process by which a business / company predict the future market demand. This
includes all the direct costs so that it will be easy to estimate profits. Before
sales potential forecasting the sales, there are certain assumptions that need to
be considered. Those are – either market share will grow or shrink by certain
percentage, need of increasing sales force, location advantages, and increase in
product’s prices, change in technology, competition, and government
regulations. Sales potential forecast can be short term as well as long term.

Advantages of Sales Potential

Sales Potential has several advantages, some of which are written below:

1. Sales Potential helps in producing right quantity at the right time which in
turn helps company in reducing losses.

2. Helps the management to determine the expected revenue out of the business.

3. Also helps in determining an approximate quantity of raw materials and labor

force required.

4. Sales Potential gives a good driving start to the business in terms of decision
making.

5. Helps in proper planning to achieve required targets.

Disadvantages of Sales Potential

Some disadvantages of sales potential are:

1. Consumer’s buying behavior can’t be predictable and are irregular as there

are many alternatives available in the market.

2. Sales potential forecast may sometimes give inaccurate results because of

technological disruptions and coming up of mega trends.

Difference Between Market Potential Vs Sales Potential

While defining market and sales potential, both of the concepts takes into
consideration both the needs and demands of the customer. Market Potential is
the total quantity of all brands of a same product category that could be sold.
Sales Potential differs from Market potential as it only considers the total
quantity of a particular brand instead of all the brands that could be sold in the
market.

For example, if there are two brands - Brand X and Brand Y. Customers who
are very much loyal to Brand X would be market potential estimate for Brand Y
but would not be their sales potential estimate and vice versa. So, there is no
guarantee that sales potential estimates will be equal to market potential
estimates. Mostly sales potential estimates are calculated from market potential
estimates. So in order to calculate sales potential estimates, one needs to know
market potential estimate.

Examples of Sales Potential

Coca Cola sales potential forecast is combination of various factors like

historical data, social and economic parameters, seasonal variations, occasions,
festivals and ceremonies. They do have weekly reviews so as to adjust monthly
forecasts. Ion Mostly the forecast is done region-wise and are further
fragmented into cities, towns and villages. They analyze regional and submarket
demand and supply and take into consideration macroeconomic conditions
before forecasting. They build their decisions in order to maximize returns and
minimize risks. Hence, estimating sales potential helps coca cola in getting a
huge market share and the company is able to cater to the demands of a huge
population.

Hence, this concludes the definition of Sales Potential along with its overview.