4.05 Part IIIForecasting sales for a marketing plan. SEM2

Define the following terms:

Sales forecastTop-down approachBottom-up approachJury of executive opinionDelphi techniqueSales force compositeSurvey of buyer intentions

Sales ForecastPrediction of what a firm’s

sales will be during a specific future time period. Rely on Research

Forecasts help determine…◦How much to buy◦What new items to offer◦How many workers are needed◦What prices to charge◦Whether promotion is needed

Forecasting sales for marketing plans is important because the forecast is used as a standard of measurement

Also known as the breakdown approach

Bottom Down/Up Approach

ForecastingQuantitative Forecasting

◦Based on the results of gathering and analyzing all kinds of numerical market data

◦Economic trends, population changes, consumer spending, industry forecasts, etc.

Qualitative Forecasting ◦Based on expert opinion or personal

experience ◦Predictions based on what they have seen in

the past as well as current economic observations

Accurate forecasts for individual products

Higher sales totalsInexpensive to useProvides detailed information

Sales Force

Survey of Buyer Intentions• Reasonably accurate forecasts • Easy to control costs• Outside information available

Let’s develop a sales forecast using the following data: 

Sales from last year: $1,300,000 Sales from two years ago: $1,550,000 Other data gathered: The population in the company’s area is forecasted to

increase by 0.5%. The employment rate is forecasted to decrease by 3%. A new competitor has joined the market and is supported

by a heavy advertising campaign. This competitor is expected to take 5% of the company’s sales.

1. Since we already have our data, we can jump right into step two of the sales forecasting process, which is to determine the amount by which sales increased or decreased. To do this, we need to subtract the sales for two years ago from last year’s sales ($1,300,000 - $1,550,000 = $2 50, 000). Since our answer is negative, our sales decreased by $250,000. 

2. Next, determine the percent of decrease by dividing our answer by the sales for two years ago (-$250,000 / $1,550,000 = -0.16 = -16%). The sales decreased by 16%. 

Let’s develop a sales forecast using the following data: 

 3. Now, we need to add outside predictions of increases in sales to the

calculated decrease in sales. In this case, the only outside prediction of a sales increase is a 0.5% increase in population, so our calculation would be -16% + 0.5% = -15.5%.

4. Following this step, we need to subtract the outside predictions of decreases. These predictions are a forecasted 3% decrease in employment and an estimated 5% decrease in sales due to a new competitor (-15.5 % - 3% - 5% = -23.5%). Sales are forecasted to drop by 23.5%. 

5. Finally, convert the final forecast percentage into a dollar figure. Multiply the percent of decrease by last year’s sales (23.5% X $1,300,000 = $305,500). Finally, subtract your answer from last year’s sales, since sales are forecasted to decrease ($1,300,000 - $305,500 = $994,500).

6. So, our sales forecast for the coming year is $994,500.

Example #1Sales from last year: $105,000Sales from two years ago:

$100,000Other data:

◦Economy is expected to grow by 2% in the coming year.

◦Number of consumers in your area is expected to increase by 5%.

◦A new competitor is expected to reduce your sales by 5%.

Example #2Sales from last month: $1,200Sales from two months ago: $800Other data gathered:The number of consumers in your

trading area is expected to increase by 2%.

A new competitor is expected to reduce your sales by 8%.