Sales Planning Sales Forecasting, Territories and Quotas

What is Sales Forecast

• The Sales Forecast (or Company Sales Forecast) is the
expected level of company sales for a specific period of time
based on a chosen marketing plan and an assumed marketing
environment
Sales Forecasting

• Sales forecast has a role as a forerunner to all planning

activities in an organization:
• Production for setting up production capacity and planning
production
• Finance for raising cash for investment & operations and for profit
planning
• Purchase for planning their purchases
• Human Resources for manpower planning
• Sales Forecasting is the responsibility of Sales & Marketing
Managers
• Accuracy in Sales Forecast is important because all functions
base their plans on such forecasts
 Market Demand
• Estimating total Market Demand is the first step in evaluating marketing
opportunities
• Market Demand is the total volume that would be bought
For a product, By a defined customer group, In a defined geographical area
Sales Forecasting

In a defined time period, In a defined marketing environment,

Under a defined marketing expenditure program
• Market demand is not a fixed number, but rather a function of the stated
conditions
 Market Demand Functions
MARKET Market potential is the limit approached by market demand as industry
POTENTIAL marketing expenditures approach infinity for a given marketing
environment. Lower the product-penetration percentage, ownership, or
use of a product, the higher the market potential
Sales Forecasting

MARKET The Market Demand corresponding to actual industry marketing

FORECAST expenditure is called the Market Forecast. The market forecast shows
expected market demand, not maximum market demand

COMPANY Company Demand is the company’s estimated share of market demand

DEMAND at alternative levels of company marketing effort in a given time period.
It depends on how the company’s products, services, prices, and
communications are perceived relative to the competitors’

COMPANY Company Sales Potential is the sales limit approached by company

SALES demand as company marketing effort increases relative to that of
POTENTIAL competitors

COMPANY The Company Sales Forecast is the expected level of company sales
SALES based on a chosen marketing plan and an assumed marketing
FORECAST environment.
 Sales Forecasting Approaches

• Two basic approaches:

Sales Forecasting

• Top-down or Break-down approach

• Bottom-up or Build-up approach

• Some companies use both approaches to

increase their confidence in the forecast
 Top-Down or Break-Down Approach

• Forecast relevant external environmental factors

Sales Forecasting

• Estimate industry sales or market potential

• Calculate company sales potential = market potential
x company share
• Decide company sales forecast (lower than company
sales potential because sales potential is maximum
estimated sales, without any constraints)
 Bottom-Up or Build-Up Approach

• Salespersons estimate sales expected from their

customers
Sales Forecasting

• Area / Branch managers combine sales forecasts

received from salespersons
• Regional / Zonal managers combine sales forecasts
received from area / branch managers
• Sales / marketing head combines sales forecasts
received from regional / zonal managers into
company sales forecast, which is presented to CEO
for discussion and approval
 Sales Forecasting Methods
Survey of Buyers’ Composite of Sales
Expert Opinion
Intentions Force Opinions
• Because buyer • When buyer • Companies can also
What People Say?

behaviour is so interviewing is obtain forecasts from

Sales Forecasting

important, periodic impractical, the experts, including

surveys of consumer company may ask its dealers, distributors,
buying intentions are each sales suppliers, marketing
conducted representatives to consultants, and
• Gives more market estimate how much trade associations
information, can each current and • Companies
forecast new and prospective customer periodically survey
existing products will buy in future. dealers for their
• Good accuracy • Sales representatives forecasts of short-
• Some buyers’ might be pessimistic term demand
unwilling to respond or optimistic, or they • Dealer estimates are
might go from one subject to the same
extreme to another strengths and
because of a recent weaknesses as sales
setback or success force estimates
 Sales Forecasting Methods

Market-Test
Method
What People Do?
Sales Forecasting

• When buyers do not

plan their purchases
carefully or experts
are not available or
reliable, a direct-
market test is
desirable
• Used for new or
modified products
• Good accuracy
• Minimizes risk of
national launch
 Sales Forecasting Methods

What People Have Done? Past-Sales Analysis

• Sales forecasts can be developed
on the basis of past sales
Sales Forecasting

• Time-series analysis consists of

projecting sales into the future
through the analysis of historical
relationships between time and
sales. Some of the methods are:
• Trend Projection
• Moving Average
• Exponential smoothing
• Statistical demand analysis
consists of measuring the impact
level of each of a set of causal
factors (income, marketing
expenditures, price) on the sales
level
 What is a Sales Budget

• It includes estimates of sales volume and selling expenses

• Sales volume budget is derived from the company sales forecast –
generally slightly lower than the company sales forecast, to avoid
excessive risks
Sales Budget

• Selling expenses budget consists of personal selling expenses

budget and sales administration expenses budget
• Sales budget gives a detailed break-down of estimates of sales
revenue and selling expenditure
Purposes of the Sales Budget
• Planning
• Coordination
• Control
 What is a Sales Territory
• A Sales Territory consists of a group of present and
potential customers assigned to an individual sales
person, a group of sales persons, a branch, a dealer, a
Sales Territories

distributor or a marketing organization at a given

period of time
• A profitable sales territory is one which has a number
of potential customers that are willing to buy the
category of products sold under the firm’s brand name
• Territories are defined on the basis of geographical
boundaries in many organizations
• Sales territories help in better sales planning and
effective operational control
 Benefits of Sales Territories
• Ensures better market coverage, effective utilization
of the sales force, and efficient distribution of
workload among salespeople
Sales Territories

• Helps evaluate the performance of salespeople

• Controls over the direct and indirect cost of sales
function
• Optimum utilization of sales time by salespeople
• Enhances employees’ morale
• Helps managers to better control and monitor sales
and evaluate programmes
 Designing Sales Territories
• Select a Control Unit (Geographical Territorial Base)
• Find location and potential of present and prospective
customers within control unit
• Decide basic territories by using Build-up or Break-down
Sales Territories

method
• Develop Final Territories
Build-Up Method
• Decide customer call frequencies
• Calculate Total customer calls in each
control unit
• Estimate workload capacity of a
salesperson
• Make Tentative Territories so as to
equalize workload of salespeople
Break-Down Method
• Estimate Company Sales Potential for
Total Market
• Forecast Sales Potential for each
Control Unit
• Estimate Sales Volume Expected from
each Salesperson
• Make tentative territories so as to
equalize sales potential of territories
 Assigning Salespeople to Sales Territories
• On the basis of relative ability of salespeople which is
evaluated on following factors:
• Product knowledge, Market knowledge, Past Sales
Sales Territories

Performance, Communication Skills, Selling Skills

• On the basis of salesperson’s effectiveness in a
territory decided by:
• Comparing Social, Cultural, and Physical
Characteristics of the salesperson with those of
the territory
• Objective is to match Salesperson to the Territory
 Management of Territorial Coverage
• How a Salesperson should cover the assigned territory. It
includes:
• Routing: A travel plan used by a salesperson for making
customer calls in a territory. It results in:
Sales Territories

• Reduction in travel time and cost

• Improvement in Territory Coverage
• Scheduling Salespeople’s time by specifying call norms for
different customers, based on sales and profit potentials,
and also for prospective customers
• Management of Salesperson’s time efficiently and
productively
• Using Time-Management Tools like laptops and mobile phones
• Providing support staff for prospecting and qualifying leads,
technical support
• Use of computerised support systems: CRM, ERP
 Procedure for Setting up a Routing Plan
• Identify current and prospective customers on a territory map
• Classify each customer into high, medium, or low sales
potential
Sales Territories

• Decide call frequency for each class of customers

• Build route plan around locations of high potential customers
• Commonly used routing patterns are:

Base C1
(B)
B
B
C5 C4 C3 C2

Straight line / Hopscotch Clover Leaf

Circular
 What are Sales Quotas
• Sales quotas are sales goals or targets set by a company for its
marketing / sales units for a specific time period
• Marketing / sales units are regions, branches, territories,
salespeople, and intermediaries
Sales Quotas

• Generally, company sales budget is broken down to sales

quotas for various marketing units
• Objectives of Sales Quotas
• To use quotas as performance standards or performance
goals
• To control performance
• To motivate people by linking quotas to compensation plans
• To identify strengths and weaknesses of the company
 Types of Sales Quotas
• Sales Volume Quotas stated in:
• Rupees or
• Units
• Financial Quotas in terms of:
Sales Quotas

• Gross Margin
• Net Profit
• Expenses
• Activity Quotas such as:
• Call Frequency
• Payment collection
• Cold canvasing
• Combination Quotas
 Principles of Setting Sales Quotas
• Set Quotas as per the SMART (Specific, Measurable,
Attainable, Realistic, Timely) guidelines
• Ensure salespeople understand quotas
• By allowing salespeople to participate in the process
Sales Quotas

• By continuous feedback to salespeople on their

performance compared to quotas
• Have flexibility in administering quotas
• Change quotas in cases of major changes in market
demand or company strategies
• Use monthly or quarterly quotas for incentives and annual
quotas for performance evaluation
• Select a few quotas that have relationships with marketing
environment and sales situations
 Methods for Setting Sales Quotas

• Companies use more than one of the

following methods to increase their
confidence in sales quotas
Sales Quotas

• Territory market potential and Company’s

Estimated Market Share
• Past year sales or average of past few year’s
sales and adding a arbitrary percentage
depending upon expected market growth
• Senior Executive’s Judgment
• Salespeople’s Estimates
• Fit with the Compensation plan