We are all familiar with the term “forecasting”. We have often heard it being used with weather. A similar forecasting exists in Sales, however it is not to determine the atmospheric weather, but to try and predict the sales climate for the future. It is called Sales Forecasting.
Sales forecasting enables companies to estimate future sales, so that they can take adequate business decisions and set up performance expectations. Some of the important parameters that are considered while aiming for an accurate Sales Forecasting are past sales record trends, economic trends, customer sentiment and competitor analysis.
Established companies can get a near-accurate prediction on future sales based on their years’ worth of past business records. However, newly-founded companies have to rely on less dependable sources like market research and competitive intelligence. In addition to helping a company predict the future of sales, a Sales Forecasting also helps a Sales Manager decide how to manage his workforce, organize the cash flow for his team and allocate the internal resources effectively.
To start the forecasting, a Sales manager first creates a team of senior officials, who were involved in the sales of the product and asks them to report whether a product value is on growth or decline.
In this, there are several steps that a Sales Manager follows, which are −
Let us now discuss regarding all the above-mentioned steps in detail.
The senior executives forecast sales figures through survey estimates and experiences. All the factors are categorized as either “internal” or “external”. This is a committee-like approach and is favored by those people, who have experience in the line of sales forecasting.
This method includes feedback on estimated sales from the sales-people or mediators operating in their respective territories for a fixed time duration. The reason this is done is to tap customer sentiment.
These salespersons deal with customers regularly and possess vast amount of information about the future demand. Their sales estimates are processed, modified, and integrated into the final sample for the whole market for a fixed time period.
The market test method involves introducing a list of products in some limited geographical area and then analysing the result carefully. Using this result as a foundation, sales forecast report is made. This test is done as a sample-run or on a pre-test basis in order to understand the client or customer response.
Consumers are the main source of information. So this method studies their buying patterns to recognize their favourable purchases during a time period under a set of conditions. This method is ideal for those places, where there are fewer customers and is adopted especially for industrial goods.
It is suitable for those industries that can produce expensive goods to a less number of buyers- such as wholesalers, retailers, potential consumers etc. Surveys are periodically carried out on face-to-face method.
Sales of a company totally depends on the performance of certain market factors. The key factors that affect the sales are identified and by analysing and correlating the behaviours of all these factors, sales forecasting is done.
Correlation is the statistical analysis that determines the degree of extent through which two mutually-complementing variables vary.
The passage of time has seen many consultancies too trying their luck in the field of sales. A typical consultancy agency has experienced experts for each and every respective field. These experts may include several dealers, trade associations, etc. They carry out all the market researches and have readymade statistical data. All the reviews of such experts are also made available to different firms.
Economic Model-building employs a mathematical approach of study that is used to forecast sales. This method is helpful in the sales of strong goods and involves two sets of variables, which are called as independent and dependent. Using these variables, equations are drawn to represent a set of relationships.
A record of past sales over the years also is an excellent source for accurate sales forecasting. This method of forecasting involves statistical and quantitative analysis. According to some experts, today’s sales activities are directly proportional to tomorrow’s sales activities. In other words, last year’s sales extend into this year’s sales.
In addition to all these above mentioned methods, some companies also use statistical methods, which is a normalized version of different data and analyses. It is considered to be a much better technique of sales forecasting because its consistency is higher than that of other techniques.