sales budgeting methods

Sales Forecast

Objective

Draw up sales forecast and budget

for year …….

Sales Forecast defined

• The Sales Forecast is the expected level of company sales based on a chosen marketing plan and an assumed marketing environment

• A sales forecast is a prediction based on past sales performance and an analysis of expected market conditions

• It's a self-assessment tool that uses past and current sales statistics to intelligently predict future performance.

• Sales forecasting involves predicting the amount people will purchase, given the product features and the conditions of the sale

Benefits of sales forecasting

• Enhanced cash flow• Knowing when and how much to buy• In-depth knowledge of customers and the products they order• The ability to plan for production and capacity• The ability to identify the pattern or trend of sales• Determine the value of a business above the value of its

current assets• Ability to determine the expected return on investment • See how well you are stacked against industry average

Company Wide Benefits

• Increased revenue• Increased customer retention• Decreased costs• Increased efficiency

Factors that affect sales forecasting

• Market Potential/Size• Market Share• Sales contracts that won't be renewed• New sales contracts that are on the horizon• Industry analysts' predictions for growth or shrinking in your

market segment• Economic analysts' predictions for the increased or decreased

buying power of consumers in your market• Political changes that could affect government contracts• Direct and indirect competition• Consumer earnings

Forecasting Techniques

• Historical Data– Prior Period– Moving Average– Decomposition

• Manager’s Judgment• Executive Judgment

Forecasting Methods

1. For predictable /stable monthly Sales– Sales Forecast=Past Sales+%age of inflation

2. For cyclical Monthly Sales– Suppose, for instance, that a short-term forecast is being made for the

month of December. For some past years now sales in December have totalled 15% of annual sales. During the same period, August sales have averaged 10 percent of annual sales.

– Sales during the previous August wN10,000,000ere N10,000,000. – N10,000,000 / .10 = N100,000,000(estimated annual sales) – Projected sales for December will be 15% of N100,000,000(or

N15,000,000). – Sales for other months can be forecast in the same way.

Forecasting Methods cont’d

3. Annual Sales Forecast– Last Years’ Sales (N100,000,000)– Guaranteed contracts (N5,000,000)– Projected Growth for next year (10%)

– Sales forecast= 5,000,000+ 100,000,000+10%X 100,000,000=115,000,000

DATA COLLATION & ANALYSIS

How close to the truth do you want to come sir?

Data Needed

• Economic Environment of Business– PEST

• Products and Services• Business Model

– OTC & MRC

• Market Segments– Industries Served

• Last 3 years revenue– By Product– By Segment– By Industry

Data Needed

• Next year growth drivers– By Product– By Segment– By Industry

• Sales Opportunity funnel– By Product– By Segment– By Industry

• Risk Analysis– By Product– By Segment– By Industry/Clients

FORECASTING

Femi Olaiyafemi@redwdood-consulting.com