Planning, Sales Forecasting

and Budgeting

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Planning, Sales Forecasting and Budgeting
At the end of this module, the learning outcomes are:
• Appreciate the role of strategic planning, marketing strategy and
marketing management
• To study the relationship between marketing strategy and sales
strategy.
• To understand the importance and concepts of sales forecasting.
• To understand the role and importance of sales budget.

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Planning, Sales Forecasting and Budgeting
Suggested Readings:
• Sales and Distribution Management by Havaldar and Cavale, 2nd
edition, Chapter 3.

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Planning, Sales Forecasting and Budgeting
Strategic Planning
• Relates to the organization’s long-term objectives and strategies.
• Long-term orientation.
• Happens at three levels.

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 Planning In A Large
Organisation
Organisational Organisation Structure Type of
Levels Planning

Corporate Corporate Office Corporate

Strategic
Planning

Division / SBU SBU SBU Business/ SBU

Business Unit / ‘A’ ‘B’ ‘C’ Strategic
SBU Planning

Functional /
Product Product Product Product Operational
‘x’ ‘y’ ‘z’ Planning

• For effective planning, operations, and control, a large multi-

product / multi-business firm divides its major products /
services into divisions / strategic business units ( SBUs)
• Each SBU has a separate business, a set of competitors and
customers, and a manager responsible for strategic planning,
performance, and control
Reliance
• SBU Oil/Petroleum
• SBU Jio
• SBU Retail
• We want to be top 3 in any business we get into
• Jio we want to have 50 cr by the year 2020
• Want to be leader
• Products, Pricing, Place, Promotion

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• Promotion
• Sales Strategy
• Hires Sales personnel
• For every geographical region of India

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Role of Marketing in Organisational
Planning
Type of Role of Marketing – Key Tasks Formal
Planning Name

• Corporate • Provide customer and competition • Corporate

strategic information marketing
planning • Support customer orientation

• Divisional / • Provide customer and competition • Strategic

SBU analysis marketing
Strategic • Develop competitive advantage, target
planning markets, value proposition, positioning

• Product / • Evolve and implement marketing plan • Marketing

functional or including marketing-mix strategy, and sales management/
Operational strategy Sales
planning Management
Planning, Sales Forecasting and Budgeting
Relationship between corporate strategy and sales strategy.
• Corporate strategy is translated into business strategy.
• Business strategy is translated into marketing strategy.
• A marketing strategy is translated into sales strategy.

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Marketing Strategy
• Marketing Objectives
• Segmentation
• Target Market
• Positioning
• Marketing Mix
• Promotion
• Sales

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

Distribution
strategy
Direct marketing
strategy

* IMC: Integrated Marketing Communication

Planning, Sales Forecasting and Budgeting
Components of sales strategy
• Classifying market segments and individual customers within a target
segment
• Relationship strategy
• Selling Methods
• Channel Strategy

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Planning, Sales Forecasting and Budgeting
Relationship strategy
• Level of relationship would depend on the profit potential from the
customer.
• Will vary from transactional to collaborative.

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Planning, Sales Forecasting and Budgeting
Relationship strategy
• Classifying market segments and individual customers within a target
segment
• All customers are not equal
• 80/20 rule
• 20% of the customers provide 80% of the profit.
• Sales personnel provide differential treatment to customers based on
their profit potential.

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Planning, Sales Forecasting and Budgeting
Selling Methods
• Will depend on the type of customer and stages of the buying
process.
• Purpose is to create awareness or get repeat orders.

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Planning, Sales Forecasting and Budgeting
Channel Strategy
• Use of direct versus indirect channel.
• Whether customers will be handled by own sales force, outside sales
force or middlemen.

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Planning, Sales Forecasting and Budgeting
Sales Forecasting
• Critical input for the entire organization.
• Determines revenues, costing
• Fix plant capacities
• Human resources planning.
• Stakeholders constantly monitor this parameter.

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Planning, Sales Forecasting and Budgeting
Terms used in Sales forecasting
• Market demand
• Market (or industry) forecast (or market size)
• Market potential
• Company demand
• Company sales potential
• Company sales forecast
• Sales budget

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Planning, Sales Forecasting and Budgeting
Market demand
• for a product or service is the estimated total sales volume in a
market (or industry) for a specific time period in a defined marketing
environment, under a defined marketing program or expenditure.
• Market demand is a function associated with varying levels of
industry marketing expenditure.

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Planning, Sales Forecasting and Budgeting
Market (or industry) forecast (or market size)
• is the expected market (or industry) demand at one level of industry
marketing expenditure

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Planning, Sales Forecasting and Budgeting
Market potential
• is the maximum market (or industry) demand, resulting from a very
high level of industry marketing expenditure, where further increases
in expenditure would have little effect on increase in demand

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Planning, Sales Forecasting and Budgeting
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 a assumed marketing environment

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Planning, Sales Forecasting and Budgeting
Company demand
• is 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

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Planning, Sales Forecasting and Budgeting
Company sales potential
• is the maximum estimated company sales of a product or service,
based on maximum share (or percentage) of market potential
expected by the company

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 Basic Terms
(Continued)
Sales forecasting concepts

Fig. Market Demand Functions

Market demand

Market Potential

Market Forecast
Market Minimum

Industry marketing expenditure

Planning, Sales Forecasting and Budgeting
Sales budget
• is the estimate of expected sales volume in units or revenues from the
company’s products and services, and the selling expenses.
• It is set slightly lower than the company sales forecast, to avoid
excessive risks

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Planning, Sales Forecasting and Budgeting
Forecasting Approaches

• 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

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Planning, Sales Forecasting and Budgeting
Top-down or Break-down approach
• Based on macro environmental factors
• Estimate industry trends
• Fortunes of the overall industry
• 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)

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Planning, Sales Forecasting and Budgeting
Bottom-up or Build-up approach
• Starts at the lowest hierarchical level.
• Ask sales personnel to provide forecast.
• 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
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 Sales Forecasting
Methods
Qualitative Methods Quantitative Methods

• Executive opinion • Moving averages

• Delphi method • Exponential smoothing
• Salesforce composite • Decomposition
• Survey of buyers’ • Naïve / Ratio method
intentions
• Test marketing • Regression analysis
• Econometric analysis
Planning, Sales Forecasting and Budgeting
Qualitative methods
Executive opinion
• Based on the opinion of sales personnel
• Quick forecasting and low cost are advantages
• Highly subjective.

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Planning, Sales Forecasting and Budgeting
Delphi Method
• Based on opinion of the experts
• Each expert has its own opinion.
• Listen to opinion of other experts
• Revised opinion.
• Advantages: objective, good accuracy
• Disadvantages: getting experts, no breakdown into subunits, time
required: medium (3/4 weeks) to long (2/3 months)

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Planning, Sales Forecasting and Budgeting
Salesforce composite
• Sales personnel estimate future sales in their respective areas.
• Collated and consolidated at each level.
• Advantages: Salespeople are involved, breakdown into subunits
possible
• Disadvantages: Optimistic or pessimistic forecasts, medium to long
time required

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Planning, Sales Forecasting and Budgeting
Survey of buyers’ intentions
• Procedure involves asking customers about their intentions to buy the
company’s products and services.
• Appropriate for high value and low volume products.
• Advantages: gives more market information, can forecast new and
existing products, good accuracy.
• Disadvantages: some buyers’ unwilling to respond, time required is
long (3-6 months), medium to high cost

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Planning, Sales Forecasting and Budgeting
Test Marketing
• Methods used for consumer market testing: full blown, controlled,
and simulated test marketing
• Methods used for business market testing: alpha and beta testing

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Planning, Sales Forecasting and Budgeting
Quantitative Methods
• Moving averages
• Based on past data
• Procedure is to calculate the average company sales for previous years
• Moving averages name is due to dropping sales in the oldest period and
replacing it by sales in the newest period
• Advantages: simple and easy to calculate, low cost, less time, good accuracy
for short term and stable conditions
• Disadvantages: can not predict downturn / upturn, not used for unstable
market conditions and long-term forecasts
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Planning, Sales Forecasting and Budgeting
Exponential Smoothing method
• The forecaster allows sales in certain periods to influence the sales forecast more
than sales in other periods
• Equation used:
Sales forecast for next period=(L)(actual sales of this year)+(1-L)(this year’s sales
forecast), where (L) is a smoothing constant, ranging greater than zero and less
than 1
• Advantages: simple method, forecaster’s knowledge used, low cost, less time,
good accuracy for short term forecast
• Disadvantages: smoothing constant is arbitrary, not used for long-term and new
product forecast
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Planning, Sales Forecasting and Budgeting
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

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Planning, Sales Forecasting and Budgeting
Naive / Ratio Method
• Assumes: what happened in the immediate past will happen in
immediate future
• Simple formula used.
• Advantages: simple to calculate, low cost, less time, accuracy good
for short-term forecasting
• Disadvantages: less accurate if past sales fluctuate.

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Planning, Sales Forecasting and Budgeting
Regression Analysis method
• It is a statistical forecasting method
• Process consists of identifying causal relationship between company
sales (dependent variable, y) and independent variable (x), which
influences sales
• If one independent variable is used, it is called linear (or simple)
regression, using formula; y=a+bx, where ‘a’ is the intercept and ‘b’ is
the slope of the trend line

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Planning, Sales Forecasting and Budgeting
Regression Analysis method
• In practice, company sales are influenced by several independent
variables, like price, population, promotional expenditure. The
method used is multiple regression analysis.
• Advantages: Objective, good accuracy, predicts upturn / downturn,
short to medium time, low to medium cost
• Disadvantages: technically complex, large historical data needed,
software packages essential

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Planning, Sales Forecasting and Budgeting
Econometric Analysis Method
• Procedure includes developing many regression equations representing
(i) relationships between sales and independent variables which
influence sales, and (ii) interrelationships between variables. Forecast is
prepared by solving these equations
• 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
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Planning, Sales Forecasting and Budgeting
How sales personnel improve forecasting?
• Do not rely on one method.
• All methods will not be suitable.
• A range of sales forecast is developed.
• Use of technology aided tools is on the rise.
• Interpretation of sales personnel is critical.

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Planning, Sales Forecasting and Budgeting
Sales Budget
• It is an estimate of sales volume and selling expenses.
• Company sales forecast is the critical input for the same.
• generally slightly lower than the company sales forecast, to avoid
excessive risks.
• Estimate of various expenses.
• Detailed break up of revenue and expenditure.

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Planning, Sales Forecasting and Budgeting
Sales Budgeting methods
• Percentage of Sales method.
• Executive judgement method.
• Objective and task method

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Tesla
• Electric Cars
• Concept
• Charging stations
• Test Drive
• Explain/training involved
Objective and Task method

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