MANUEL V GALLEGO FOUNDATION COLLEGES, INC.

INSTITUTE OF ACCOUNTANCY AND BUSINESS

SALES MANAGEMENT MGT

317
SALES MANAGEMENT (MGT317)

MODULE 3: PLANNING, SALES FORECASTING AND BUDGETING

This module talks about strategic planning and how it helps achieve targeted profits and
growth in the changing market and environment. It shows the ways on how to prepare
strategic plans oriented on marketing and sales and how it is directly linked to the
customers and competitors.

INTENDED LEARNING OUTCOMES:

1. Prepare strategies that are directly linked to strategic marketing and sales focused
on individual customers.
2. Use forecasting methods.
3. Develop sales budget.

Strategic Planning
- Includes making decisions about the company’s long-term objectives and strategies.
- The top management is usually in charge in preparing these and are further
developed down the management levels.
- Planning is done at three organizational levels:
1. Corporate Strategic Plan
2. Divisional and/or business unit strategic plans
3. Product function plans

Corporate Strategic Planning

Corporate strategic planning is developed at the company’s headquarters (CHQ) to guide the
whole organization. The planning process includes four steps:

1. Developing the corporate mission and objectives.

2. Defining strategic business units (SBUs).
3. Allocation of resources to SBUs.
4. Developing corporate strategies to fill the strategic planning gap.

Business Unit (SBU) Strategic Planning

Business unit strategic planning is done by the head of the business unit by developing long-term
missions, objectives and goals, and strategies in the changing environment. The strategic planning
process at SBU includes the following eight steps:

1. Defining the business unit’s mission.

2. Scanning the external environment. (OT)
3. Analysis of the internal environment. (SW)
4. Developing long-term objective and goals.
5. Formulating strategies for achieving the objectives and the goals.
6. Preparing the program or action plans from the strategies.
7. Implementing the strategies and action plans.
8. Monitoring results and taking corrective actions.

Product/Operational Planning

Product/Operational Planning is done for each product within a business unit. It plans the specific
procedures or systems required at lower levels of the organization. Operational managers normally
develop plans for short periods of time. They focus on routine tasks such as sales, production,
material purchase, recruiting people and dispatching goods. Functional plans for departments are
developed by functional managers.

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 MANUEL V GALLEGO FOUNDATION COLLEGES, INC.
INSTITUTE OF ACCOUNTANCY AND BUSINESS

SALES MANAGEMENT MGT

317
ROLE OF MARKETING AND SALES IN STRATEGIC PLANNING

Since strategies are formulate at different levels, marketing and sales also impact them at different
levels.

1. Marketing and Sales at the Corporate Level – the function of marketing is to provide
information on competition and customers and to advocate customer orientation and
basic value of being customer-centric which should be integrated in the long-term
strategy. The corporation must consider all forces related to marketing since
marketing and sales is where most of customer interaction and exposure to the
market environment, macro and micro, happens.

2. Marketing and Sales at the Business Level – here, marketing is involved by helping
develop long-term business strategies including competitive advantage by providing
analysis of customers and competitors, to develop segmentation, targeting and
positioning strategies and to take product-line decisions. The lower level
management is expected to be knowledgeable of the immediate customer-base that
they cater. This means that since there are large organizations that have many
SBUs, it is expected that the implementation of strategies must be tailored to the
level of customer needs. Corporate strategies are expected to cover long-term plans
but marketing and sales helps modify tactics in the SBU level.

3. Marketing and sales at the Functional Level - marketing helps develop, coordinate,
allocate budget and implement the strategies from the higher levels. Since there are
different functions, the goal in functional levels is to smoothly transition from the
different Ps of marketing and to be properly assigned to areas that need to manage
and implement these Ps.

MARKETING PERSONAL SELLING STRATEGIES

The major components of marketing strategy and position of personal selling (or sales) strategy
within the marketing strategy are (a) target market strategy and (b) marketing-mix strategy. This
includes evaluating various market segments and deciding how many and which market segments
to target.

INTEGRATED MARKETING COMMUNICATIONS

The strategic integration of communication tools like advertising, sales promotion, publicity, public
relations and direct marketing to achieve most cost-effective tools that meets communication
objectives by ensuring message consistency, clarity and sales impact.

To do this the following may be considered:

1. Assign a communications head.

2. Building a database for measuring marketing communications.
3. Continuous training for communication officers.

SALES STRATEGY

Sales managers are responsible for strategic decisions at the customer, meaning that strategies
should be developed for specific customers. This may be achieved by considering:

1. Classification of Accounts
2. Relationship Strategy
3. Selling Methods
4. Channel Strategy

CLASSIFICATION OF ACCOUNTS

Accounts may be classified according to their level of sales and profit potential.

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 MANUEL V GALLEGO FOUNDATION COLLEGES, INC.
INSTITUTE OF ACCOUNTANCY AND BUSINESS

SALES MANAGEMENT MGT

317
1. Class A – high sales and profit potential.
2. Class B – medium sales and profit potential.
3. Class C – low sales and profit potential, including prospective customers and
customers who have good relationship with competitors.

RELATIONSHIP STRATEGY

TRANSACTION RELATIONSHIP

Shows less loyalty to suppliers or retailers. They switch depending on costs. Customers who
have low sales and profit potential are offered with low prices, less services and low
commitments.

VALUE-ADDED RELATIONSHIP

For customers with medium sales and profit potential. The focus of sales people is on
complete understanding of present and future problems or needs of the customer, and offering
better solutions or meeting those needs better than the competitors.

COLLABORATIVE RELATIONSHIP

The aim is to build long-term and mutually satisfying relations. The foundations of
collaborative relationship is commitment and trust. This includes joint problem solving, multiple
connections and integration of business processes of two companies.

SELLING METHODS

The selection of the selling method for a specific type of relationship is an important part to
strategic sales. For class A customers team selling method or consultative selling is advised. For
Class B, would be-need satisfaction, consultative selling or problem solving is recommended. For
class C, stimulus-response is applied.

CHANNEL STRATEGY

The selection of suitable sales channel may be decided by a buyer or seller. If the selling
organizations has made available channels for the buying firm, sales channel facilitates an easier
selling process. If the sales channel provided by the selling firm is not convenient for the buyer, the
selling firm may not make sales.

SALES BUDGET

The sales budget has two components:

1. Sales revenue budget – the estimated sales volume or revenue from the company’s
products and services, derived from sales forecast.
2. Selling expense budget – estimated expenses of the sales force.

SALES QUOTA

It is a sales goal set for a marketing unit over a specific period of time. This is set based on
forecasts.

DEVELOPING SALES FORECAST

The purpose of sales forecast is to plan and achieve the forecasted sales in an effective manner.
Sales forecast are used by other functions like manufacturing, finance, purchasing and human
resources. The sales forecast serves as the forerunner for planning activities and is responsible for
the future actions of the organization.

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 MANUEL V GALLEGO FOUNDATION COLLEGES, INC.
INSTITUTE OF ACCOUNTANCY AND BUSINESS

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FORECASTING APPROACHES

1. Top-down - the forecast is developed at the SBU level. The head of sales/ marketing then breaks down
the company sales forecast according to region, district, territory and individual customer quotas.
1.1. Market-build up method – identify existing and potential business buyer in the
geographical territory followed by finding out their potential purchases. Finally, an
add-up of the business potential of all the buying firms are integrated.
1.2. Multiple- Factor Index method – identify factors and influence of a product or
service. This may involve population and income. Weights are assigned to come-
up with a forecast.
2. Bottom-up – starts with the company’s area or branch managers asking its salespersons to estimate or
forecast the sales in their respective territories. Salespeople are given guidance by their managers to
get information from existing and potential customers on the estimated purchases of the company’s
product services for the specified future time period. These are added to the forecasts of the top
management.

ELEMENTS OF A GOOD FORECAST

William J. Stevenson lists a number of characteristics that are common to a good forecast:

Accurate—some degree of accuracy should be determined and stated so that comparison can be made to
alternative forecasts.
Reliable—the forecast method should consistently provide a good forecast if the user is to establish some
degree of confidence.
Timely—a certain amount of time is needed to respond to the forecast so the forecasting horizon must allow for
the time necessary to make changes.
Easy to use and understand—users of the forecast must be confident and comfortable working with it.
Cost-effective—the cost of making the forecast should not outweigh the benefits obtained from the forecast.

STEPS IN THE FORECASTING PROCESS

1. Qualitative
2. Quantitative

Qualitative forecasting techniques are generally more subjective than their quantitative counterparts.
Qualitative techniques are more useful in the earlier stages of the product life cycle, when less past data exists
for use in quantitative methods. Qualitative methods include the Delphi technique, Nominal Group Technique
(NGT), sales force opinions, executive opinions, and market research.

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 MANUEL V GALLEGO FOUNDATION COLLEGES, INC.
INSTITUTE OF ACCOUNTANCY AND BUSINESS

SALES MANAGEMENT MGT

317

QUALITATIVE FORECASTS

1. The Delphi technique.

2. Nominal group technique.
3. Sales force opinions.
4. Executive opinions.
5. Market research.

DELPHI TECHNIQUE

- The Delphi technique uses a panel of experts to produce a forecast. Each expert is asked to provide a
forecast specific to the need at hand. After the initial forecasts are made, each expert reads what every other
expert wrote and is, of course, influenced by their views. A subsequent forecast is then made by each expert.
Each expert then reads again what every other expert wrote and is again influenced by the perceptions of the
others. This process repeats itself until each expert nears agreement on the needed scenario or numbers.

Nominal Group Technique

- Nominal Group Technique is similar to the Delphi technique in that it utilizes a group of participants,
usually experts. After the participants respond to forecast-related questions, they rank their responses
in order of perceived relative importance. Then the rankings are collected and aggregated. Eventually,
the group should reach a consensus regarding the priorities of the ranked issues.

Sales Force Opinions

- The sales staff is often a good source of information regarding future demand. The sales manager may ask
for input from each sales-person and aggregate their responses into a sales force composite forecast. Caution
should be exercised when using this technique as the members of the sales force may not be able to
distinguish between what customers say and what they actually do. Also, if the forecasts will be used to
establish sales quotas, the sales force may be tempted to provide lower estimates.

EXECUTIVE OPINIONS

- Sometimes upper-levels managers meet and develop forecasts based on their knowledge of their areas of
responsibility. This is sometimes referred to as a jury of executive opinion.

MARKET RESEARCH

In market research, consumer surveys are used to establish potential demand. Such marketing research
usually involves constructing a questionnaire that solicits personal, demographic, economic, and marketing
information. On occasion, market researchers collect such information in person at retail outlets and malls,
where the consumer can experience—taste, feel, smell, and see—a particular product. The researcher must be
careful that the sample of people surveyed is representative of the desired consumer target.

Quantitative Forecasts:

Quantitative forecasting techniques are generally more objective than their qualitative counterparts.
Quantitative forecasts can be time-series forecasts (i.e., a projection of the past into the future) or forecasts
based on associative models (i.e., based on one or more explanatory variables). Time-series data may have
underlying behaviors that need to be identified by the forecaster.

Quantitative Forecasts:

In addition, the forecast may need to identify the causes of the behavior. Some of these behaviors may be
patterns or simply random variations. Among the patterns are:
• Trends-which are long-term movements (up or down) in the data.
• Seasonality-which produces short-term variations that are usually related to the time of year, month, or
even a particular day, as witnessed by retail sales at Christmas or the spikes in banking activity on the
first of the month and on Fridays.
• Cycles- which are wavelike variations lasting more than a year that are usually tied to economic or
political conditions.
• Irregular variations - do not reflect typical behavior, such as a period of extreme weather or a union
strike.
• Random variations - which encompass all non-typical behaviors not accounted for by the other
classifications.

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TIME SERIES FORECAST VARIATIONS:

Naïve Approach

Among the time-series models, the simplest is the naïve forecast. A naïve forecast simply uses the actual
demand for the past period as the forecasted demand for the next period. This, of course, makes the
assumption that the past will repeat. It also assumes that any trends, seasonality, or cycles are either reflected
in the previous period's demand or do not exist. An example of naïve forecasting is presented in Table 1.
As you can see, the forecasts are simply the actual demand from the previous month.

Averaging

Another simple technique is the use of averaging. To make a forecast using averaging, one simply takes the
average of some number of periods of past data by summing each period and dividing the result by the number
of periods. This technique has been found to be very effective for short-range forecasting.

Variations of averaging include the moving average, the weighted average, and the weighted moving average.
A moving average takes a predetermined number of periods, sums their actual demand, and divides by the
number of periods to reach a forecast.

Moving Average:

For each subsequent period, the oldest period of data drops off and the latest period is added. Assuming a
three-month moving average and using the data from Table 1, one would simply add 45 (January), 60
(February), and 72 (March) and divide by three to arrive at a forecast for April:
45 + 60 + 72 = 177 ÷ 3 = 59 and so on

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Remember that we do not use decimals because actual products cannot be divided. They are numbered as
units.

Weighted Average:

A weighted average applies a predetermined weight to each month of past data, sums the past data from each
period, and divides by the total of the weights. If the forecaster adjusts the weights so that their sum is equal to
1, then the weights are multiplied by the actual demand of each applicable period. The results are then
summed to achieve a weighted forecast. Generally, the more recent the data the higher the weight, and the
older the data the smaller the weight.

Weighted Average Example:

Use the following weights. .1 , .2 , .3 , .4

1. To do this, remember that weight should total 1. .4+.3+.2+.1 = 1

2. After identifying weights, the lowest weight would be the oldest data, so we use 60 as .1, we do not use 45
because the weight is only divided into 4, meaning 45 is the 5th oldest date, thus disregarding it.
3. Multiply the other weights to other data and then add. We will arrive at 53.8 as our forecast for June.

Weighted Moving Average:

Forecasters may also use a combination of the weighted average and moving average forecasts. A weighted
moving average forecast assigns weights to a predetermined number of periods of actual data and computes
the forecast the same way. As with all moving forecasts, as each new period is added, the data from the oldest
period is discarded.

Weighted Moving Average Example:

Using 3-month average with a weight of .5, .3 and .2

Exponential Smoothing

A more complex form of weighted moving average is exponential smoothing, so named because the weight
falls off exponentially as the data ages. Exponential smoothing takes the previous period's forecast and adjusts
it by a predetermined smoothing constant, ά (called alpha; the value for alpha is less than one) multiplied by
the difference in the previous forecast and the demand that actually occurred during the previously forecasted
period (called forecast error).

Exponential smoothing is expressed formulaically as such:

New forecast = previous forecast + alpha (actual demand − previous forecast)

F = F + ά(A − F)

Exponential smoothing requires the forecaster to begin the forecast in a past period and work forward to the
period for which a current forecast is needed. A substantial amount of past data and a beginning or initial

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 MANUEL V GALLEGO FOUNDATION COLLEGES, INC.
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forecast are also necessary. The initial forecast can be an actual forecast from a previous period, the actual
demand from a previous period, or it can be estimated by averaging all or part of the past data.
However, the accuracy of the initial forecast is not critical if one is using large amounts of data, since
exponential smoothing is "self-correcting." Given enough periods of past data, exponential smoothing will
eventually make enough corrections to compensate for a reasonably inaccurate initial forecast.

Exponential smoothing requires the forecaster to begin the forecast in a past period and work forward to the
period for which a current forecast is needed. A substantial amount of past data and a beginning or initial
forecast are also necessary. The initial forecast can be an actual forecast from a previous period, the actual
demand from a previous period, or it can be estimated by averaging all or part of the past data.

Some heuristics exist for computing an initial forecast. For example, the heuristic N = (2 ÷ ά) − 1 and an alpha
of .5 would yield an N of 3, indicating the user would average the first three periods of data to get an initial
forecast.

*A heuristic technique, or a heuristic, is any approach to problem solving or self-discovery that

employs a practical method that is not guaranteed to be optimal, perfect or rational, but which is
nevertheless sufficient for reaching an immediate, short-term goal.

However, the accuracy of the initial forecast is not critical if one is using large amounts of data, since
exponential smoothing is "self-correcting." Given enough periods of past data, exponential smoothing will
eventually make enough corrections to compensate for a reasonably inaccurate initial forecast.

The sensitivity of forecast adjustment to error is determined by the smoothing constant ά or alpha. The closer
its value to zero, the slower the forecast will be to adjust to forecast errors, meaning it has greater smoothing.
The closer the value of alpha is to 1, the greater the sensitivity and the lesser the smoothing.

Exponential Smoothing Example:

Initial Forecast = 50, alpha of .7

We end at June since there is no information on the actual demand of June

An initial forecast of 50, and an alpha of .7, a forecast for February is computed as such:
New forecast (February) = 50 + .7(45 − 50) = 41.5
This process continues until the forecaster reaches the desired period. In Table 4 this would be for the month
of June, since the actual demand for June is not known.

SALES BUDGET

- This consists of expected volume of sales and selling expenses. The sales budget is
broken down into (1) product-wise quantities, (b) territory-wise quantities and (c)
customer-wise and salespeople-wise quantities. The sales budget includes a detailed
estimate of sales and revenue as well as selling expenditure.

The selling expenditure budget consists of the selling-expense budget and the sales department
administrative budget involved in selling.

The selling-expense budget includes expenditure for personal activities such as commissions and
salaries.

The administrative budget of sales include the salaries of administrative heads and staff as well as
operating expenses.

METHODS USED FOR DECIDING SALES EXPENDITURE BUDGET

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PERCENTAGE OF SALES METHOD

Sales and marketing managers use this method by multiplying the sales volume budget by various
percentage of each category of expenses. The sales manager may decide these percentages based
on the past experiences or on the basis of marketing and sales plans.

EXECUTIVE JUDGMENT METHOD

The sales manager uses his judgment to decide the budgeted selling expenses for each category.

OBJECTIVE AND TASK METHOD

The first step is to look at the sales volume objective to be achieved during the budget period. Then
based on the marketing and sales strategies, the tasks or actions are decided that are required to be
carried out in order to achieve the objectives. Estimation of costs are done to carry out tasks. Review
is done for the feasibility of the task and budget.

SALES BUDGET PROCESS

1. Review situation
2. Communication
3. Subordinate Budgets
4. Approval of the Sales Budget
5. Dissemination of Budget

LEARNING ACTIVITIES:
1. Lecture discussions via zoom meeting, Self-managed learning

Guide questions:
1.1 Who is in charge in strategic planning?
1.2 How are strategies laid-out in different levels?
1.3 How is marketing and sales related to a company’s strategies?
1.4 What are the requirements in preparing budget?
1.5 Why is the budget a major factor that affects operations?

ASSESSMENT:

Essay
1. How can a sales manager develop a strategy for individual customer?

Based on a product or service idea. Prepare a strategic sales plan that contains the following:

1. Corporate Mission and Vision

2. Branch Mission and Vision
3. Operations and Marketing Strategies
4. Forecast
5. Budget Allocation
6. Monitoring and Evaluation Tool

References

 Sales and Distribution Management (Havaldar, Cavale, 2011)

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