Sales Forecasting: Sales Forecasting Is The Process of Estimating What

SALES FORECASTING
Sales Forecasting is the process of estimating what

your business’s sales are going to be in the future.
Sales forecasting for an established business is easier
than sales forecasting for a new business; the
established business already has a sales forecast
baseline of past sales.
Types of forecasting
There are two major types of forecasting, which can be broadly described as macro
and micro:
Macro forecasting is concerned with forecasting markets in total. This is about

determining the existing level of Market Demand and considering what will
happen to market demand in the future.
Micro forecasting is concerned with detailed unit sales forecasts. This is about
determining a product's market share in a particular industry and considering
what will happen to that market share in the future.
.
The selection of which type of forecasting to use depends on several factors:
(1) The degree of accuracy required - if the decisions that are to be made on the basis of the
sales forecast have high risks attached to them, then it stands to reason that the forecast
should be prepared as accurately as possible. However, this involves more cost
(2) The availability of data and information - in some markets there is a wealth of available
sales information (e.g. clothing retail, food retailing, holidays); in others it is hard to find
reliable, up-to-date information
(3) The time horizon that the sales forecast is intended to cover. For example, are we
forecasting next weeks' sales, or are we trying to forecast what will happen to the overall size
of the market in the next five years?
(4) The position of the products in its life cycle. For example, for products at the
"introductory" stage of the product life cycle, less sales data and information may be
available than for products at the "maturity" stage when time series can be a useful
forecasting method
How to develop a Sales Forecast
There are Three basic Methods of forecasting Sales for
new start businesses
Value Based - in other words what the business has to
sell
Market Based - in other words what the business
could sell
Resource Based - in other words what the business can
produce to sell
Value Based Sales Forecast
This is calculated by dividing the estimated Annual
Overheads by the Gross Profit Margin as a percentage -
this will then tell you what the 'breakeven' sales figure
is for your business.
ANNUAL OVERHEADS/ GPM% = BREAK EVEN
OVERHEAD EXPENSES
General: Resource consumed or lost in completing a process but which does
not contribute directly to the end-product. Also called burden cost.
 overhead cost or overhead expense refers to an ongoing expense of operating a business
(also known as Operating Expenses - rent, gas/electricity, wages etc)

Selling Price - Direct Cost /Selling Price x 100 = GPM%
( GROSS PROFIT MARGIN PERCENTAGE)
A direct cost is a cost that is directly attributable to the manufacture of a product (or
provision of a service).
A good example of a direct cost is the cost of the materials needed to make a product. The
usage of the materials is directly related to the manufacture of the product.
In general, the point at which gains equal losses. – BREAK EVEN POINT
the point at which cost or expenses and revenue are equal: there is no net loss or gain


Market Based Sales Forecast
This is a Sales Forecast based on the results of the Market Research that you
have carried out,
For Example: Imagine you are opening a Restaurant / Diner and you have
identified your customer profile. You now approach them and ask:
How often do you eat out?
On average how much do you spend on a meal?
Then you have worked out:
How many clients, who fit your customer profile, live in your area?
How often will your product be bought?
How much can you charge for your product?
From this you can estimate the total number of sales per week / month / year
for your business. This figure must be safely above the Value Based Sales
forecast (otherwise you cannot sell as much as you have to, and you will go
broke)
Resource-Based Sales Forecast
The next step, once you have determined your break‐even point, is to
determine the maximum revenue your business can achieve given the
present resources.
The resource‐based sales forecast is concerned with the limitations of
your available resources to produce the goods or services you sell.
For a service or consulting type of venture, your resources are limited
by the number of hours you (and your employees) can work. If you
manufacture a product, find the maximum number of units that can
be produced by the machinery and staff you will have at startup.
If you are in retail, your limitations will be based on your available cash
to stock and restock the shelves and the anticipated inventory turnover
rate.
Annual Sales Forecasts
A good starting point for any company conducting an annual forecast is the prior year's
sales.
Let's say in the last year, for example, Company X, a clothing manufacturer, has sales of
1000000 rs. We will make several assumptions in determining Company X's sales for the
current year.
First, the company expects all of its current customer contracts to be renewed, and they
expect to land a new contract worth Rs 100,000.
Finally, we are assuming apparel industry experts' predictions of 10 percent market growth
in the current year are accurate. The sales forecast calculation would be as follows:
Last year sales = 1,000,000
Value of new contract in the current year = 100,000
Total projected sales = 1,100,000
Projected market growth = 10%
Current year sales projection = 1,100,000 (10%) = 110,000
110,000 +100000 + 1,000,000 = Rs 1,210,000
Monthly Forecasts
In the event that monthly variations over a period of years have been
small, another method of forecasting can be based on the distribution
of sales by months.
Suppose, for instance, that a short-term forecast is being made for the
month of October.
For the past several years, sales in October have totaled 12.5 percent of
annual sales.
During the same period, August sales have averaged 10 percent of
annual sales. Sales during the previous August were Rs 10,000, 10,000 /
0.1 = 100000 (estimated annual sales)
Projected sales for October will be 12.5 percent of 100000 (or 12500).
Sales for other months can be forecast in the same way.

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SALES FORECASTING

Sales Forecasting is the process of estimating what

Macro forecasting is concerned with forecasting markets in total. This is about

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