Appendix 4Appendix 4

Developing ForecastsDeveloping Forecasts

ForecastForecast

A forecast is a prediction for a A forecast is a prediction for a future period.future period.

Key Considerations in Developing ForecastsKey Considerations in Developing Forecasts

Development of Useful Forecasts

What time periods should forecasts cover?

What types of forecastsare needed?

How often should the forecasts be prepared?

What factors need to beevaluated in developing

the forecasts?

What data are availablefor developing the

forecasts?

Who will be involvedin preparing the

forecasts?

How will the forecastsbe used?

What methods will be used to generate the

forecasts?What can be done toimprove the accuracy

of the forecasts?

Who will use the forecasts?

Forecasting by Sales ManagersForecasting by Sales ManagersTypes of ForecastsTypes of Forecasts

• Market PotentialMarket Potential – The best possible level of The best possible level of industry salesindustry sales in a given geographic in a given geographic

area for a specific time periodarea for a specific time period

• Market ForecastMarket Forecast– The expected level of The expected level of industry salesindustry sales given a specific industry given a specific industry

strategy in a given geographic area for a specific time periodstrategy in a given geographic area for a specific time period

• Sales PotentialSales Potential– The best possible level of The best possible level of firm salesfirm sales in a given geographic in a given geographic

area for a specific time periodarea for a specific time period

• Sales ForecastSales Forecast– The expected level of The expected level of firm salesfirm sales given a specific strategy in a given a specific strategy in a

given geographic area for a specific time periodgiven geographic area for a specific time period

Examples of Uses of Forecasts Examples of Uses of Forecasts by Sales Managersby Sales Managers

• Determining Salesforce SizeDetermining Salesforce Size• Designing TerritoriesDesigning Territories

• Assigning Salespeople to Assigning Salespeople to TerritoriesTerritories

• Allocating Sales Calls to Allocating Sales Calls to AccountsAccounts

• Designing Compensation Designing Compensation ProgramsPrograms

• Establishing Selling BudgetsEstablishing Selling Budgets• Establishing Sales QuotasEstablishing Sales Quotas

Sales ForecastSales ForecastMarket Potential Market Potential Market ForecastMarket Forecast

Sales PotentialSales Potential

Market PotentialMarket PotentialSales PotentialSales PotentialSales Forecast Sales Forecast

Sales ForecastSales Forecast

Sales ForecastSales Forecast

Sales ForecastSales Forecast

Sales Management Decision Area

Type of Forecast Normally Used

Forecasting ApproachesForecasting Approaches

Factors Affecting Company’sShare of Total Industry Sales

Forecast of General Economic and Business Conditions for the Country as a Whole

Market Potential for Relevant Industry

Sales Potential for Company as aPercentage of Industry Sales

Company Sales Forecast

Sales Managers’ Forecasts for Zones, Regions, Districts, Territories, and Accounts

Top-Down Approach

Company Sales Forecast

Combined into District, Region, and Zone Forecasts

Combined into Territory Forecasts

Salespersons’ Forecasts of Accounts

Bottom-Up Approach

Top-Down ApproachesTop-Down Approaches

• Company Forecasting MethodsCompany Forecasting Methods– Moving AveragesMoving Averages– Exponential SmoothingExponential Smoothing– Decomposition MethodsDecomposition Methods

• TrendTrend• CycleCycle• SeasonalSeasonal• Erratic EventsErratic Events

• Breakdown MethodsBreakdown Methods– Buying Power Index (BPI)Buying Power Index (BPI)

Sales & Marketing Management’sSales & Marketing Management’s

Buying Power Index (BPI)Buying Power Index (BPI)

BPI = (5I +3P + 2R)/10

I = % of U.S. Disposable Income (economic factor)P = % of U.S. Population (demographic factor)R = % of U.S. Retail Sales (distribution factor)

where:

For Lafayette, LA

I = 0.11% of U.S. Disposable IncomeP = 0.14% of U.S. PopulationR = 0.13% of U.S. Retail Sales

BPI = ((5*.11)+(3*.14)+(2*.13))/10BPI = 0.123%

where:

Estimate of Sales for Eating & Drinking Places in Lafayette, LA$243,842,859,000 * 0.00123 = $224,226,717

Bottom-Up ApproachesBottom-Up Approaches

• Survey of Buyer Intentions Survey of Buyer Intentions MethodMethod

• Jury of Executive Opinion Jury of Executive Opinion MethodMethod

• Delphi MethodDelphi Method

• Salesforce Composite MethodSalesforce Composite Method