Planning, Sales Forecasting, and

Budgeting

SDM-Ch.3 1
 Strategic Planning

• Strategic planning is deciding about the

organisation’s long-term objectives and
strategies so as to achieve targeted profits
and growth in the face of continual
changing markets and environment.
• It includes strategic marketing and
strategic sales
• In a large organization with multi
products/businesses, planning is done at
three or four organisational levels,

SDM-Ch.3 2
 Planning In A Large Organisation
Organisational Organisation Structure Type of
Levels Planning

Corporate Corporate Office Corporate

Strategic
Planning (long
term)
SBU SBU SBU
‘A’ ‘B’ ‘C’
Division / Divisional /
Business Unit / SBU Strategic
SBU Planning(long
Product Product Product
term)
‘x’ ‘y’ ‘z’ Product
Product /functional/
Operational
Planning
(short term)

• For effective planning, operations, and control, each SBU is a

separate business with a manager, with its set of competitors
and customers, and functions as a profit/cost centre
• Short term ( one year plans ) for each product within
the business unit and within that , for each brand
SDM-Ch.3 3
 Role of Marketing in Organisational Planning
Type of Role of Marketing – Key Tasks Formal
Planning Name
• Corporate • Conduct Macro environmental • Corporate
strategic analysis marketing
planning •Provide strategic direction of which
businesses to grow, hold , divest, harvest
• Support customer orientation

• Divisional / • Conduct customer and competition • Strategic

SBU analysis, environment analysis ,SWOT marketing
Strategic •, develop competitive advantage, value
planning proposition, target markets to be served
• Product / • Evolve and implement marketing plan • Marketing
functional or including , target market, positioning, management
Operational marketing-mix strategy,
planning •And sales strategy

SDM-Ch.3 4
 Marketing and Sales Strategies
• Figure below shows how sales strategy is developed from marketing
strategy Sales
promotion
strategy
Product /
service
strategy
Target
Advertising
market
strategy
strategy
(Long- Promotion /
term) IMC* strategy

Marketing
Personal selling /
Strategy
sales strategy
Price
Marketing strategy
mix
strategy
(Short- Public relations &
term) Publicity strategy

Distribution
strategy
Direct marketing
strategy

SDM-Ch.3 * IMC: Integrated Marketing Communication 5

 Components of Sales Strategy
– Each firm first decides on target market segments to cater to.
• Next step Is the sales strategy and its components
• 1)Classification of accounts –
• Classify segments and if possible , individual customers into ABC class
based on sales and profit potential
• 2)Relationship strategy –
• Depends on seller’s decision (ABC class) and also buyer’s inclination
• Looks at future potential to decide /adapt .
 A)Transactional selling
 B)Value- added selling
 C)Collaborative/partnering relationship

SDM-Ch.3 6
 Components of Sales Strategy(contd)
• 3)Selling Methods- - Depends on relationship strategy used
 A)Stimulus response
 B)Formula method
 C)Need satisfaction
 D)Team selling
 E)Consultative selling/problem solving method
4)Channel Strategy- (will be explained in more detail in distribution
module )
 Various types of channels eg Company sales force, distributors and
dealers, telemarketing, internet ,franchise etc
• Choice of channel strategy depends on many factors-positioning,
,product , culture ( eg Dell in India)
• Also decide sales channel vs service vs delivery channel (may be same
or different )

SDM-Ch.3 7
 Developing Sales forecast
• Forerunner to all planning activities in an
organization
• All functions base their plans on sales
forecast.
• Accurate forecast prevents loss due to
overestimation ( eg Nike ) or loss of sales
opportunity / chaos due to
underestimation (eg Snapdeal online sale )
SDM-Ch.3 8
 Types of sales forecast

• A sales forecast is estimated units or rupees sales of a defined

entity for a specific future time period based on an assumed
marketing environment and a proposed marketing plan
• Sales forecast levels are defined by three factors
1) Product level (six levels )– All sales (Industry sales) ;company sales;
product line sales; product form; product variant sales ;product item
/SKU sales
2) Geographic level ( four levels ) – national , regional ,
territory(district/branch), customer
3) Time period (three levels ) -long term /range ;medium ;short
term/range

SDM-Ch.3 9
 Basic Terms Used in Sales Forecasting
 Market demand- is a function showing the estimated total sales volume
in a market (or industry) for a product or service, for a specific time
period in a defined marketing environment, under varying levels of
industry marketing expenditure..
 Market potential- is the best possible or maximum estimated sales of a
given product or service for the entire industry in a given market for a
specified period of time , resulting from highest level of industry
marketing expenditure, where further increases in expenditure would
have little effect on increase in demand
 Market (or industry) sales forecast (or market size) is the expected market
(or industry) demand ,in a given market at one specific level of industry
marketing expenditure in a given time period
 Market minimum is the base market demand that exists without
marketing expenditure ie becos of lag effect , necessity , habit product
 Expansible demand vs non expansible demand ( eg HIV aids drugs )

SDM-Ch.3 10
 Basic Terms (Continued)
.

Fig. Market Demand Functions

Market demand

Market Potential

Market Forecast
Market Minimum

SDM-Ch.3 Industry marketing expenditure 11

 Basic Terms (Continued)
 Company demand is a function that shows the company’s
estimated share of market demand for a product or service at
alternative levels of the company marketing efforts (or
expenditures) in a specific time period
 Sales potential or Company sales potential is the best possible or
maximum estimated company sales of a product or service, based
on maximum share (or percentage) of market potential expected
by the company
 Again there will be company base demand (minimum) without
mktg expenditure eg due to brand loyalty,lag effect of brand
advertising.
 Sales forecast or Company sales forecast is the estimated company
sales of a product or service, based on a chosen (or proposed)
marketing expenditure plan, for a specific time period, in an
assumed marketing environment

SDM-Ch.3 12
 Forecasting Approaches
Firms may develop forecasts internally or buy forecasts from outside sources
like planning commission reports , market research firms , Centre for Indian
Economic Research (CIER),Centre for monitoring Indian economy (CMIE )
•Two basic approaches:
• Top-down or Break-down approach
• Bottom-up or Build-up approach
•Some companies use both approaches to increase their confidence in the
forecast

SDM-Ch.3 13
 Steps followed in Top-down / Break-down
Approach
• For each SBU, Head Sales and Mktg forecasts relevant
external environmental factors
• Estimate industry sales or market potential
• Calculate company sales potential = market potential x
company share (factors for high /low share ??? )
• Decide company sales forecast (lower than company sales
potential (factors for actual difference ???)
• Then break down the forecast for each region, area district,
territory, salesman, individual customer (done based on
market potential of the geographic area (see slide 16)

SDM-Ch.3 14
 Steps followed in Bottom-up / Build-up
Approach

• Salespersons estimate sales expected from their customers

• 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, modification and
approval

SDM-Ch.3 15
 Market potential of a smallest
control unit ( Geographic
area/SKU)
• Market build up method –used in B2B.. Identify all potential buyers
in each market & estimating their potential purchases (based on some
norm e.g. lathes per hundred employees or lathes per Rs. 1 million
sales). and addup upwards
• Multi factor index method – used in B2C.
• Cannot use first method as numbers of individuals and households is
large.
 Can use existing market indices or develop own market indices
based on assumptions.
 Existing market indices
a) RK Swamy – BBDO Guide for urban markets uses 18 variables.
MICA Rural Market Ratings for rural markets uses 6 variables.
b) Developing own market indices

SDM-Ch.3 16
 MULTIPLE FACTOR BUYING POWER INDEX
Step 1.
Identify factors that influence sale of detergent eg income , population, retail sales
Step 2.
Determine importance weight of each factor in influencing the sales
eg population explains 40% of sales, income 30%, retail sale s 30%
Step 3.
Calculate percentage of existence of each factor ,in each market say blore V/s
existence in total (All India )
e.g. Blore has 0.7% of India’s population ,1% of disposable income and 0. 9% of
All India retail sales
Step 4.
BPI of Blore = 0.4 X ( 0.7) + 0.3 X (1)+ 0.3x (0.9)=0.85

So, If Indian detergent industry forecast is Rs 112 billion for 2018-19 , then blore
mkt potential will be 0.85 % of 112 =0.95 billion

SDM-Ch.3 1717
 Sales Forecasting Methods/techniques

Qualitative Methods Quantitative Methods

• Executive opinion • Moving averages

• Delphi method • Exponential smoothing
• Salesforce composite • Decomposition
• Survey of buyers’ • Naive / Ratio method
intentions
• Test marketing • Regression analysis
• Econometric analysis

SDM-Ch.3 18
 Qualitative Forecasting
••Executive
Executive opinion
••Delphi
opinion
Delphi technique
technique
Methods
••Sales
Sales force
force composite
composite method
method

1.
1. Qualitative
Qualitative 2.
2.
Judgment
Judgment forecasting
forecasting Counting
Counting
methods
methods methods
methods methods
methods

•• Survey
Survey of
of customers’
customers’ buying
buying intentions
intentions
•• Test
Test marketing
marketing

SDM-Ch.3 19
 Executive opinion method
• Most widely used(86% of companies)
• Discussions and average of all top executives’ individual
opinion.
• Opinions may be based on experience , judgement or
intuition or supported by forecasting methods
• Advantages: Quick forecast, less expensive, popular among
small/mid sized companies
• Disadvantages: Subjective, ,unscientific ,no breakdown into
subunits
• Accuracy: fair; time required: short to medium (1 – 4 weeks)

SDM-Ch.3 20
 Delphi method
• Delphi technique-developed by Rand corporation. Similar to executive
opinion.
• Difference is the members of committee do not meet and discuss.
• The panel selected from inside/outside the company-Company
managers, consultants, intermediaries, and trade associations
• Includes a coordinator who gets forecasts separately from experts,
summarizes the forecasts ,and gives summary report to experts, who are
asked to make round of another prediction; the process is repeated till some
consensus is reached
• Advantages: Objective, forecast accurate, useful for new
product/technology, both long term and short-term forecasting possible
• Disadvantages: difficulty in getting experts, no breakdown into subunits,
and time required: long (2/3 months)

SDM-Ch.3 21
 Salesforce composite method
 Example of bottom-up or grass-roots approach
• Company sales forecast is total of each salespersons’ sales
estimates
• Advantages: Used in B2B . Accurate as salesmen are closest to
market and have better insights, Also buys their involvement . Also
breakdown into subunits possible.
• Disadvantages: Optimistic or pessimistic forecasts, if
untrained .May deliberately underestimate Also salesman may
be disinterested
• Also medium to long time required
• Accuracy: fair to good (if trained)

SDM-Ch.3 22
 Training salesmen for better
forecasting
• To encourage better forecasting, companies –
1)Train salespersons on forecasting process and
methods
2),Share information on their past forecast vs
actual
3)Share info on company assumptions of outlook,
proposed marketing plan, etc
4)Salesperson and immediate sales supervisor
independently work out sale estimates . They then
meet , discuss and reconcile . The same process is
followed at other levels

SDM-Ch.3 23
 Survey of Buyers’ Intentions Method
• Asking existing and potential customers about their
intentions to buy the company’s products and services on
purchase probability scale
• Questionnaire may contain other relevant questions
• Though qualitative method , will become quantitative
when probability sampling techniques are used and multi
variate statistical analysis is done
• Advantages: useful in industrial, consumer durables and
new products Gives more market information. Inexpensive,
fast, good accuracy only when few customers
• Disadvantages: some buyers’ unwilling to respond, may be
overoptimistic, customers may mislead. Expensive when
consumers are large in numbers.
• time required is long (3-6 months), medium to high cost

SDM-Ch.3 24
 Test Marketing Method
• Methods used for consumer market testing: full blown, controlled,
and simulated test marketing
• Full blown- Choose two to six representative cities ,introduce full
promotional campaign, test for 2-12 months depending on repurchase
cycle ,dealer and buyer surveys ,and decision taken based on trial and
repurchase rates .
• Controlled test markets –company hires a research firm, gets a panel of
stores in specified geographic locations ,distributes and promotes
there. Both full blown and controlled expose the new product to
competitors
• Simulated test marketing – 30-40 shoppers are selected based on their
familiarity/preferences with product category ,called in closed
environment ,are shown commercials or press ads of well known
products along with new product , given money, asked to buy and
interviewed . This method does not expose new product to
competition .

SDM-Ch.3 25
 Test Marketing Method(contd)

Both consumer and industrial product companies do product testing

internally and externally

In industrial products called alpha testing( internal ) and beta testing

(outside with customers)
Advantages of test marketing –useful for new product forecasting . good
accuracy, minimizes risk of national launch

Disadvantages of test marketing - in full blown and controlled test

marketing , sabotage by competitors possible ,If repurchase long, difficult
for company to wait, also costly method

SDM-Ch.3 26
 Quantitative methods
Moving Average Method
• Calculate the average company sales
for previous years by dropping sales
in the oldest period and replacing it
by actual sales in the newest period
• In stable market, a short two or
three year average is useful. If firm is
in industry with cyclical variations
,then moving average should use data
equal to length of cycle or longer
averaging period .
SDM-Ch.3 27
 Moving Average Method

SDM-Ch.3 28
 Moving average method
(contd)
Advantages: simple and easy to calculate, low cost, less time, good
accuracy for short term and medium term forecasts and in stable
conditions
Disadvantages: can not predict downturn / upturn in mkt hence not used
for unstable market conditions and long-term forecasts
.Also historical data is needed .hence not possible for new products

SDM-Ch.3 29
 Exponential Smoothing Method
• Equation used:
Sales forecast for next year=(L)(actual sales of this year)+(1-L)
(this year’s sales forecast),
where (L) is a smoothing constant, or probability weighing
factor , ranging greater than zero and less than 1
The forecaster decides the value of L based on review of past
sales data, knowledge/intuition of conditions in forecasted
period
eg If L is high,(0.7 or 0.8) it means it allows most recent
periods of actual sales to influence the sales forecast, more
than sales in earlier periods .

SDM-Ch.3 30
 Exponential Smoothing Method
(contd)
• Advantages: Simple method, forecaster’s knowledge used, low
cost, less time, good accuracy for short term forecast. Also
useful method when sale data have a trend or seasonal
pattern and allows immediate response to upturn/downturn
in sales
• Disadvantages: smoothing constant is somewhat arbitrary,
not useful for long-term and new product forecast

SDM-Ch.3 31
Decomposition Method
 Process includes breaking down the company’s previous periods’
sales data into components like trend, cycle, seasonal, and
erratic events. These components are recombined to produce
sales forecast
 Advantages: Conceptually sound, fair to good accuracy, low cost,
less time
• Disadvantages: complex statistical method, historical data
needed, used for short-term forecasting only

SDM-Ch.3 32
 Decomposition method

SDM-Ch.3 33
 Naive / Ratio Method

Is a time series method of forecasting which is

based on
Assumption that : what happened in the immediate past will
happen in immediate future
Simple formula used:
Actual sales of this year
Sales forecast for next year  Actual sales of this year 
Actual sales of last year

SDM-Ch.3 34
 Naive / Ratio Method (contd)

 Advantages: simple to calculate, low cost, less time, requires

less data ,accuracy good for short-term forecasting .
• Disadvantages: less accurate if past sales fluctuate
considerably, also cannot be used for long term forecast and
new products
• Naïve assumption that what happened in the immediate
past will happen in immediate future

SDM-Ch.3 35
 Regression Analysis Method
• It is a statistical forecasting method
• Involves identifying causal relationship between company sales
(dependent variable, y) and independent variable (x), which
influences sales.
• Scatter diagram to show relationship. Relationship can be linear
positive ( eg sales and promotional expenditure )linear negative (
sales and price ) or curvilinear ( sales and sales calls).
• If one independent variable is used, it is called linear (or simple)
regression, using least squares formula ,best fitting line y=a+bx,
where ‘a’ is the intercept and ‘b’ is the slope of the trend line .
Trend line can be extended to project sales in future .
• If many independent variables , then multiple regression
analysis using SPSS,SAS
• In practice, company sales are influenced by several independent
variables, like price, population, promotional expenditure.
SDM-Ch.3 36
 Regression Analysis Method(contd)
• Advantages: Objective, short to medium time,
low to medium cost, high forecasting
accuracy ,if relationship between variables is
stable, predicts upturn / downturn
• Disadvantages: technically complex, large
historical data needed, software packages
essential, may be costly and time consuming

SDM-Ch.3 37
 Econometric Analysis Method
• Procedure includes developing many regression
equations representing (i) relationships between
sales and independent variables which influence
sales, and (ii) interrelationships between
independent variables.
• Computers and software packages are used
• Advantages: Good accuracy of forecasts of economic
conditions and industry sales
• Disadvantages: need expertise & large historical
data, medium to long time, medium to high cost

SDM-Ch.3 38
 How to Improve Forecasting Accuracy?
 Sales forecasting is an important & difficult task
 Following guidelines may help in improving its accuracy
• Use multiple (2,3) forecasting methods
• Select suitable forecasting methods, based on application,
cost, and available time
• Use few independent variables / factors ( prevent
duplication ) , based on discussions with salespeople &
customers
• Establish a range of sales forecasts – minimum,
intermediate, and maximum
• Use computer software forecasting packages

SDM-Ch.3 39
 Sales budget
• Sales budget is a conservative detailed estimate of expected sales volume/sales
revenue and expected selling expenses .
• It is derived from the company sales forecast .
• Conservative estimate is mainly useful for production , purchasing and cash flow
dept
• Sales budget are set lower than sales forecast to avoid excessive risk
• Sales budget has two parts-
1) Sales volume/sales revenue budget –broken down product/ territory/customer
/sales person wise quota during yearly , qtrly and monthly budget period .
2) Selling expenditure budget – consists of
A) Salesforce selling expense budget ( direct selling expenses like salaries,
commissions, incentives) ,and other sales force expenses( like travel, boarding
,lodging, entertainment to customers )
B) Sales department administrative budget ( salaries of territory sales managers ,
sales supervisors , secretaries and office staff, plus operating expenses like rent,
power ,supplies , office equipment , general overheads. )
SDM-Ch.3 40
 Methods for sales expense budget
allocation

• Sales budget helps in planning , coordination and

control
• Methods used are
• Affordability method
• Percentage of sales method
• Competitor parity method
• Executive judgement method
• Objective and task method
SDM-Ch.3 41
 Sales budget process
• Review situation-past performance and
marketing environment changes
• Head of sales communicates about budget
preparation in writing to all field sales mgrs.
Including formats ,guidelines , assumptions
,timelines
• Preparation of subordinate budgets
• Approval of sales budget
• Shared with other depts.
SDM-Ch.3 42
 Sales quota
Sales quota -it is the sales performance goal set
for a marketing unit(sales person, branch,
region,distributor,dealer ) for a specified period
of time. .

Sales quota are set on the basis of company

sales forecast

And set at higher level than sales forecast .

SDM-Ch.3 43
 Key Learnings

• Strategic planning is deciding about the organization’s long-

term objectives and strategies
• Strategic marketing has a role at divisional or strategic
business unit (SBU) level of strategic planning by providing
market information and developing competitive advantage,
target markets, value proposition
• Sales strategy is developed from marketing strategy through
marketing-mix and promotional strategies
• Components of sales strategy includes classification of market
segments / customers, relationship strategy, selling methods,
& channel strategy

SDM-Ch.3 44
 Key Learnings (Continued)
• Two basic approaches of forecasting are: top-down (or
breakdown), and bottom-up (or build-up)
• Sales forecasting methods are broadly classified as:
qualitative and quantitative
• Qualitative methods include executive opinion, delphi
method, salesforce composite, survey of buyers’ intentions,
test marketing
• Quantitative methods consist of moving averages,
exponential smoothing, decomposition, naïve/ratio,
regression analysis, econometric analysis
• Sales budget gives a detailed estimates of sales volume and
selling expenses. Its purposes are planning, coordination, and
control

SDM-Ch.3 45