Types of Sales Forecasting
Importance of Sales Forecasting
- Supply and demand for the products can easily be adjusted, by overcoming temporary demand, in the light of the anticipated estimate and regular supply is facilitated.
- A good inventory control is advantageously benefited by avoiding the weakness of understocking and overstocking.
- Allocation and reallocation of sales territories are facilitated.
- It is forward planning as all other requirements of raw materials, labour, plant layout, financial needs, warehousing, transport facility etc., depend in accordance with sales volume expected in advance.
- Sales opportunities are searched out on the basis of the forecast, and thus the discovery of selling success is made.
- It is a gear, by which all other activities are controlled as a basis of forecasting.
- Advertisement programmes are beneficially adjusted with full advantage to the firm.
- It is an indicator to the department of finance as to how much and when finance is needed, and it helps to overcome difficult situations.
- It is a measuring rod by which the efficiency of the sales personnel or the sales department, as a whole, can be measured.
Factors Influencing a Sales Forecasting
A sales manager should consider all the factors affecting the sales while predicting their firm's sales in the market. An accurate sales forecast can be made if the following factors are considered carefully :
1. General economic condition
It is essential to consider all economic conditions relating to the firm and the consumers. The forecaster must see the general economic trend-inflation or deflation, which affect the business favourably or adversely. A thorough knowledge of the economic, political and the general trend of the business facilitates to build a forecast more accurately.
Products like wearing apparel, luxurious goods, furniture, vehicles, the size of population by its composition customers by age, sex, type, economic condition etc., have an Important role to determine the sales volume.
3. Industrial behavior
Markets are full of similar products manufactured by different firms, which compete among themselves to increase the sales. As such, the pricing policy, design, advanced technological improvements, promotional activities etc., of similar industries must be carefully observed. A new firm may come up with products to the markets and naturally affect the market share of the existing firms.
4. Changes within the firm
Future sales are greatly affected by the changes in pricing, advertising policy. quality of products etc. A careful study in relation to the changes in the sales volume may be studied carefully. Sales can be increased by a price cut, enhancing advertising policies, increased sales promotions, concessions to customers etc.
The required information must be collected on the basis of period short run, medium run or long run forecasts.
Types of Sales Forecasting
Approaches to forecasting techniques and procedures vary from firm to firm. There are many methods. A firm may manufacture the products or distribute the products.
The following are the various methods of sales forecasting:
- Jury of Executive Opinion.
- Sales Force Opinion.
- Test Marketing Result.
- Consumer's Buying Plan.
- Market Factor Analysis.
- Expert Opinion.
- Econometric Model Building.
- Past Sales (Historical Method).
- Other Factors.
1. Jury of executive opinion
This method of sales forecasting is the oldest. One, or more of the executives, who are experienced and have good knowledge of the market factors make out the expected sales. The executives are responsible while forecasting sales figures through estimates and experiences. All the factors-internal and external are taken into account.
2. Salesforce opinion
Under this method, salesmen or intermediaries are required to make out an estimate sales in their respective territories for a given period. Salesmen are in close touch with the consumers and possess good knowledge about the future demand trend.
3. Test marketing result
Under the market test method, products are introduced in a limited, geographical area and the result is studied. Taking this result as a base, sales forecast is made. This test is conducted as a sample or pre-test basis in order to understand the market response.
4. Consumer's buying plan
Consumers, as a source of information, are approached to know their likely purchases during the period under a given set of conditions.This method is suitable when there are few customers This type of forecasting is generally adopted for industrial goods. It is suitable for industries, which produce costly goods to a limited number of buyers - wholesalers, retailers, potential consumers, etc. .A survey is conducted on face to face basis or survey method. It is because changes are constant while buyer behaviour and buying decisions change frequently.
5. Market factor analysis
A company's sales may depend on the behaviour of certain market factors. The principal factors which affect the sales may be determined. By studying the behaviours of the factors, forecasting should be made. Correlation is the statistical analysis which analyses, the degree of extent to which two variables fluctuate with reference to each other.The word 'relationship' is of importance and indicates that there is some connection between the variable under observation. In the same way, regression analysis, is a statistical device, which helps us to estimate or predict the unknown value of one variable from the unknown values of another variable.
6. Expert opinion
Many types of consultancy agencies have entered into the field of sales. The consultancy agency has specialised experts in the respective field. This includes dealers, trade associations, etc. They may conduct market research and possess readymade statistical data. Firms may make use of the opinions of such experts. These opinions may be carefully analysed by the company and a sound forecasting is made.