Sales Forecasting

Presented By:
Dr. Sayak Gupta, Ph.D
Assistant Professor
Department of Management
Netaji Subhas University
 Sales Forecasting
Forecasting: Prediction or Estimation of Future
Sales Forecast Means: Estimation of Sales in future.
 Process of estimating future revenue by predicting the
amount of product or services a sale unit will sell in the
next week, month, quarter, or year.
 Sales Unit may be an individual salesperson, a sales
team, or a company.
 Definition
According to Philp Kotler
“Sale Forecasting is the expected level of sales of the
company based on a chosen marketing plan and
assumed marketing environment.”
 Types of Sales Forecasting:
There are two types of forecasting:
1. Short-term forecasting
2. Long-term forecasting

1. Short-Term Forecasting: This type of forecasting can be

defined when it covers a period of three months, six
months or one year. Generally, the last one is most
preferred. The period is dependent upon the nature of
business. If the demand fluctuates from one month to
another, forecasting may be done only for a short
period.
 Purpose of Short-Term Forecasting:
1. To adopt suitable production policy so that the problem
of overproduction and short supply of raw material,
machines etc. can be avoided. ‘
2. To reduce the cost of raw materials, machinery etc.
3. To have proper control of inventory.
4. To set the sales targets.
5. To have proper controls.
6. To arrange the financial requirements in advance to
meet the demand.
2. Long-Term Forecasting: The forecasting that covers a
period of 5, 10 and even 20 years. The period here also
depends upon the nature of business, but beyond 12
years, the future is assumed as uncertain. But in many
industries like petroleum refinery, paper making
industries, a long term forecasting is needed as the total
investment cost of equipment is quite high.
Purpose of Long-Term Forecasting:
1. To plan for the new unit of production or expansion of
existing unit to meet the demand.
2. To plan the long-term financial requirements.
3. To train the personnel so that man-power requirement
can be met in future.
 Benefits of Sales Forecasting
1. Provide a forecast of Raw Material (Inventory
Control)
2. Production Planning
3. Human Resource Planning
4. Helps businesses to estimate their costs and
revenue
5. Determining the growth and long term investment
programs
 Methods of Sales Forecast
1. Consumer Survey (Survey of Buyer Expectation)
2. Sales Force Opinion Method/Sales Force Composite
Method
3. Survey of Expert’s Opinions
4. Delphi Method
5. Historical Analogy Method
6. Regression Analysis
 1. Consumer Survey (Survey of Buyer
Expectation)
 Known purchasers of a product are asked to predict
their requirements for a given future period.
 Sample of potential consumers is surveyed, to know
how much of the product they would buy at a given
price during a specified future time period.
 It may be complete Enumeration survey or Sample
Survey.
Advantages:
1. Forecasts comes straight from the customer
himself and hence more reliable.
2. It gives ready made forecast user-wise and
user industry-wise.
 2. Sales Force Opinion Method/Sales
Force Composite Method
In this method, the forecasting is done by the sales
force. Each salesman develops the forecast of his
respective territory, the territory wise forecasts are
consolidated at each branch area/regional level and the
aggregate of al these forecasts is taken as the corporate
forecast. It is a Grass-root method.
Advantages:
1. Salesman are closest to the customers and are
able to judge their minds and thus the market
more accurately.
2. Forecasts developed by this method have greater
stability and reliability because of the largeness of
the sample.
3. Forecast derived by this method could be easily
and meaningfully broken down territory-wise,
product-wise, customer-type wise and month-
wise etc.
4. Coordination by the field sales management
becomes more meaningful when the forecasts are
made by the sales force and integrated by the
filed sales management.
 3. Survey of Expert’s Opinions
 Survey of Expert’s Opinions, the specialized group of people
in the concerned fields, from both inside and outside the
organization, are approached and asked to give their opinions
on sales trend.
 The Survey of Expert’s Opinions is the most common method
of sales forecasting, employed by the organizations. This
method is also based on the judgment of experienced people
but is different from the jury method.
 In the case of a jury method, the group of executives within
the organization are gathered to forecast the sales, whereas,
in the case of the Survey of Expert’s Opinions, the experts
from both inside and outside the organization are
approached to give their estimates on sales. This is a
comprehensive sale forecasting method that helps in
developing the overall industry sales forecast, while the jury
method is restricted to the company sales forecast.
 4. Delphi Method
 Derived from Greek Name Oracle of Delphi
 This method is very much similar to the executive opinion
method. However, the significant difference between both
the methods is that in Delphi method members of the
panel do not meet or discuss with each other face to face
in any committee or meeting.
 Every individual takes an individual decision from their
place and send their decision to the co-ordinator by way of
post or e-mail. Then, the co-ordinator summarizes the
opinion of all experts and prepare a report by considering
all the opinions.
 However, this method does not end up here. The report
prepared by co-ordinator is again sent to all the executives
to review and compare their opinion. But, this time with
the report of other members’ viewpoint and are requested
to send their fresh opinion again.
If any executive after comparing opinions, feels to
change their opinion with proper research, they can
change and again send a fresh report to the co-
ordinator.
This process continues until the desired result of
forecasting is achieved, i.e., opinions of all experts
individually match or nearby matches with each other’s
opinion. So, the forecasting will be more accurate.
Advantages:
1. It is effective when past data is absent.
2. It does not require experts to meet in person.
3. It is extremely useful for the forecast of new
technology or new product.
 5. Historical Analogy Method
This is used for forecasting the demand for a product or
service for which there is no past demand data.
Sometimes, the product may be new, but the
organization might have marketed other products
earlier with features similar to those of the new
product. So, the marketing personnel may use the
historical analogy between the two products and derive
the demand for the new product using the historical data
for the earlier product.
An approach to sales forecasting in which the past sales
results of a similar product are used to predict the likely
sales of a similar new product.
Analogy: A comparison between one thing and another,
typically for the purpose of explanation and clarification.
The past sales results of a similar product are used to
predict the likely sales of a similar new product.
 6. Regression Analysis
 Regression analysis is one of the simplest mathematical
techniques for sales forecasting.
 The aim of regression analysis is to identify the factor that
influence or are closely associated with the changes in sales.
When a single independent variable is used it is called as
simple regression. The use of two or more independent
variable is multiple regressions.
 A linear regression line equation is written in the form of:
Y = a + bX
where X is the independent variable and plotted along the x-
axis
Y is the dependent variable and plotted along the y-axis
The slope of the line is b, and a is the intercept (the value of
y when x = 0)
There are three major steps in forecasting sales
through regression analysis:
1. Identify variables casually related to company sales.
2. Determine or estimate the values of these variables
related sales.
3. Derive the sales forecast from these units.