Sales Forecasting

Submitted By :-
Shweta Bhandari
 Sales Forecasting
• It is an estimate of sales during a specified future period
which is tied to a proposed marketing plan and which
assumes a particular set of uncontrollable and competitive
forces.
• Starting point of short term (3 to 6 months), medium term
(6 to 24 months), and long term planning.
• Short/medium term forecasting-basis for determining a
company’s production schedule.
• Long term forecasting - useful in determining what new
facilities, labor, and funding will be needed.
 Forecasting Process
• The forecasting process is defined as the series of
decisions and actions taken by a business organization
in:
 identifying the forecasting objectives
 determining the independent and dependent
variables
 developing a forecasting procedure
 using the available data in the selected method to
estimate the sales in future
Sales Forecasting Process
 Forecasting process
F o r e ca s t D eter m in e D ep en d en t a n d D e v elo p F o r eca s t
O b ject iv e I n d ep en d en t V a ria b les P r o ced u r e

S elect F o r eca st
A n a ly sis M eth o d
E v a lu a t e R es u lt s
v er s u s F o r eca s t
T o ta l F o r eca st
P r o ced u r e

M a k e a n d F in a liz e P r esen t A ssu m p tio n s G a th er a n d A n a ly z e

F o r eca s t a b ou t D a ta D a ta

5
 Sales Forecasting Methods
• The sales forecasting method is a procedure for
estimating how much of a given product (or product
line) can be sold if a given marketing program is
implemented.
Qualitative methods
Jury of Executive Opinion
Sales force opinion method
Survey of buyer intentions
 Jury of executive opinion
This can be done in two ways:
1. By one seasoned individual (usually in a small
company).
2. By a group of individuals, their responses are pooled
into one forecast
• Best used when executives have a strong working
knowledge of the area and other sources of data is
hard to find
 Jury of executive opinion
– Variations
Delphi Technique- members of the jury never meet
and make anonymous forecasts. The leader averages
and returns a median or mean forecast to each
member of the jury. Each member evaluates and
revises the forecast until a consensus is met
The Nominal Group Technique is a face to face
Delphi method, allowing group discussion
 Jury of executive opinion
– Variations
Factor Listing- when each member of the
jury is required to list factors that will have a
positive or negative impact. A consensus is
then sought on the magnitude of each factor so
a prediction can be made.
The Dialectical Inquiry method poses sub-
groups to challenge the group’s findings with
alternative scenarios.
 Sales force composite
 Also known as “the grass-roots approach”.
 Individual salespersons forecast sales for their
territories
 Individual forecasts are combined and modified by the
sales manager to form the company sales forecast.
 Best used when a highly trained and specialized sales
force is used
 Survey of buyer intentions
 Also called user’s expectations method
 It is a qualitative forecasting method that samples opinions
among groups of present and potential customers
concerning their purchase intentions.
 The survey method is based on the opinion of buyers and
consumers.
 More useful in industrial products than in consumer goods.
Quantitative methods
Market Test
Trend Projections
Exponential smoothening method
Moving Averages
Regression Analysis
 Market Test
• A quantitative forecasting method that introduces a new
product, price, promotional campaign, or other marketing
variable in a relatively small test market location in order
to assess consumer reaction.
 Trend Projection
• A quantitative sales forecasting method that estimates future sales
through statistical analyses of historical sales patterns.

• The least squares method is a formalization of the eyeball-fitting or

graphical technique. It is used to mathematically project the trend line
to the forecasting period with the time as the independent variable that
influences the dependent variable i.e sales.
 Trend projection
O b s e r v e d S a le s F o re c a s t S a le s
600

500

400 T re n d
L in e
300
S a le s

200

10 0

0
19 8 4 19 8 5 19 8 6 19 8 7 19 8 8 19 8 9 19 9 0
T im e
 Moving Averages Method
• Moving averages are used to allow for marketplace factors
changing at different rates and at different times.
Moving Averages Method
 Moving Averages Method
Forecast with Moving Average

75

70
Actual
65
Sales

Moving average
60
Forecast
55

50
1 2 3 4 5 6 7 8 9 10 11 12 13
Time
 Regression Analysis
• Regression analysis is a statistical method used to
incorporate independent factors that are thought to
influence sales into the forecasting procedure.
• Reveals average relationship between two variables and
this makes possible estimation or prediction
L in e a r R e la tio n s h ip C u r v ilin e a r R e la tio n s h ip
S a le s

S a le s

0 0
P o p u la tio n P o p u la tio n
(A ) (B )
 Naive Method
• The following formula shows how to adjust the naïve
method to account for a change in rate of sales levels. The
formula is stated this way:
Next Year’s Sales = This Year’s Sales X This Year’s Sales
Last Year’s Sales
 Exponential Smoothing
• It is similar to the moving- average forecasting method
• The forecaster is allowed to vary the weights assigned to
past data points
• The method is used to forecast only one period in the
future
• Exponential smoothing techniques vary in terms of how
they address trend, seasonality, cyclical and irregular
influences

Next Year’s Sales = a (This Year’s Sales) +

(1 – a) (This Year’s Forecast)
 Jury of executive opinion

– Variations
• Delphi Technique- members of the jury never meet and make anonymous
forecasts. The leader averages and returns a median or mean forecast to each
member of the jury. Each member evaluates and revises the forecast until a
consensus is met
• Factor Listing- when each member of the jury is required to list factors that
will have a positive or negative impact. A consensus is then sought on the
magnitude of each factor so a prediction can be made.
QUESTIONS TO ANSWER TO IMPROVE CHANCES OF HITTING
THE FORECASTING BULL’S-EYE

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 Time Series Analysis
One of the most frequently used forecasting methods is time
series analysis.
•Time series refers to the values of a variable arranged
chronologically by days, weeks, months, quarters, or years.
•Time-series analysis attempts to forecast future values of the
time series by examining past observations.
•The assumption is that the time series will continue to move as
in the past.

The classical time series model takes the following form:

Y=T*S*C*I
This approach to economic forecasting assumes that economic
time series can be decomposed into four elements (T, S, C, I).
 Decomposition of a Time Series
Trend - T: A trend is relatively smooth long-term movements of a
time series.
Seasonal variation - S: Fairly regular patterns that repeat each
year. because of seasonal factors.
Cyclical variation – C: Medium term variation due to the effects of
the business cycle.
Irregular variation - I: Due to unexpected or irregular
occurrences, No trends or patterns.