Sales forecasting involves estimating future sales over a specified period under a predetermined marketing plan. It is important for business planning and resource allocation. There are several methods for sales forecasting including survey methods that obtain expert opinions, mathematical methods using statistical analysis of historical data, and operational methods based on production capacity. Accurate sales forecasting considers factors like general business conditions, market trends, and the company's marketing plans. However, forecasts have limitations since the business environment and consumer behavior can change unpredictably.

1. Sales Forecasting
(UNIT III)

2. Definition
According to Henry Fayol : To foresee means both to assess the
future and make provision for it.
According to WJ Stanton : “Sales forecasting is an estimate of sales
during some specified future period of time and under a
predetermined marketing plan of the firm.”

3. Features
Estimate of sales
Predicting future
Projection for budgeting and planning purpose
For single or entire product line
Short term or long term
Considers environmental factors
Rational human behaviour
Result of demand forecasting

4. Importance and Objects
Foundation of planning
Allocation of resources
Key factor in business operation
Basis of sales planning
Major role in success
Help in profitability
Help in purchasing
Help in production planning
Help in strategy formulation

5. Conti….
Estimate of future sales
Encourage research and development
Better inventory control
Sales inventory control
Sales quota determination
Better financial planning
Better human resource planning
Facilitate distribution channels
Basis for establishing new industrial unit
Expansion of business

6. Sales forecasting period
Short term forecasting
 To know the short term fluctuations
 Estimation of inventory requirement
 To determine sales quota
 Estimation of manpower need
 Estimation of working capital

7. Medium term forecasting
 It is for 1 to 5 years
 Business budgeting
 To determine dividend policy
 To determine financial planning
Long-Term forecasting
 To establish a new factory
 Search and development activities
 Long term production planning
 Capacity utilization

8. Factors influencing the sales forecast
General business conditions- taxation, pricing, bank credit etc.
Changing market conditions
Conditions within the industry
Internal policy
Marketing plans
Foreign trade conditions.

9. Procedure of Sales Forecasting
 Determination of goals
 Determination of the factors affecting sales
 Selection of technique
 Collection of data
 Analysis the market potential
 Forecasting of sales
 Converting industry forecasting to company
 Sales forecasting
 Preparing operational programme & budget
 Derivation of sales volume objectives.
 Evaluation of revision of forecast.

10. Methods and Techniques of Sales Forecasting
1. Survey Method
2. Mathematical Method
3. Operational Method

11. Survey Method : Opinions of experts, sales people, executive and customers.
A) Executive opinion : Obtaining the views of top executive regarding future sales.
Merits:
Oldest and simplest technique
Quick and easy to do
Good for small, medium size and young firms.
Inclusion of competition and economic climate.
Demerits:
Unscientific
Time consuming
Difficult to teach this method
Increases the workload of key executives.

12. Prudent Manager Forecasting
It is a variation of first method where a company asked to assume the position of purchaser from
a customer’s point of view.
Delhi Method : It begins with a group of knowledgeable individual, who give their opinion for
estimating future sales. Sales each person makes a prediction without knowing how others in the
group have responded.
Merits
Innovative
Combine judgement
It prevents from influencing
Demerits
Lack of necessary information

13. Sales composite
Collecting and estimate from each salesperson, they expect to sale in future. Also knows as grass root approach.
Merits
Confidence in forecasting
Accuracy
Most Useful
Bottom-up approach
Utilizes the knowledge of salesman.
Demerits
Time consuming
Lack of experience
Over-estimate and under estimate

14. Detecting differences in figures method-
The salesperson produces figures for his product and the area manager produces figures for the
salesperson’s territory then they meet and discuss about their differences in figures.
Survey of wire intentions- Contacting potential customers and questioning them about whether or
not they would purchase the purchase at the price asked.
Merits:
Information obtained directly from the customers
Demerits:
Time consuming
Expensive
Large sample is required
Inaccuracy in information.

15. Product testing and test marketing
When new product launches in market. It is difficult to do sales forecasting on the basis of provisions
sales figures. Then few samples of the product are provided to the potential users before hand and
noting their reactions by asking them the weaknesses of the product.
Merits:
Direct interactions
Cost saving due to small number of samples
Demerits:
Time consuming
Poor evaluation of product.

16. 2. Mathematical Method: (Mathematical & Statistical Technique )
Moving Average Technique – Predict that sales in the coming period will be equal to sales in the
last period.
Merits:
Easy to compute
Easy to apply
Demerits:
Unreliable
Difficult to study the impact of factors that will be arise in future but were not present in past.

17. Exponential smoothing model : It represents a weighted sum of all past numbers with the
heaviest weight placed on the most recent data.
Merits:
Determine the degree of sales with confidence
Demerits:
It is useful for short range sales only.
Regression Analysis: Sales total are plotted for each past time period. It determines and measure
the association between company sales and other variables.

18. Projection of past sales: To set the sales forecast as current year actual sales can be made by
adding a set percentage of last year sale or moving average for several past years.
Time Series Analysis: Statistical procedure for studying historical sales data including long term
trend, cyclical changes, seasonsal variations and irregular fluctuations.
Merits: Useful for long term forecasting
Demerits: Difficult to predict and analyse
Market Factor Analysis: Future demand is related to the behaviour of certain market forces or
factors.
Correlation – Association between potential sales and market factors affecting its sale.
Z (zee) Chart – It shows the monthly sales and cumulative sales.

19. Operational Method - Information about the companies capacity and financial requirements.
Must Do Calculation – Based on the sales volume needed to generate sufficient cash to cover fixed
and variable cost. Management may forecast the sales volume on the basis of profit goal.
Capacity Based Forecast – The owner of the company develops this method according to the capacity
of production.
Econometric Model Building – It represent a set of relationship among sales and different demand
determining independent variables (Durable goods)
Other Techniques –
Leading Indicators – To define and establish a linear regression relationship between some
measurable variables.
Simulation – It is a process of analysis to arrive at forecasting.
Diffusion model : When a new product is introduced in market (Which is not extension/redesign of
old product)

20. Limitations of sales forecasting
Changes in business environment
Change in consumer behaviour
Lack of accurate data
Based on assumptions
Uncertain growth rate
Expensive method
Mathematical complexity
Lack of expert and qualified forecasters
Influence of psychological factors
Lack of sales history.