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Sales forecasting

Firms want to increase sales in the present and future markets to maximize their profits. The forecasts help the firm retain or increase its share of goods in the market “The sales forecast is a prediction of expected sales, by product and price, for a number of months or years. ‘ This is done irrespective of the size of the firms. 

Various techniques of sales forecasting are as follows:

(a) Jury of executive opinion method:

In this method, an estimate of sales is made by the top executive. They may work (i) independently or (ii) jointly, taking into consideration the opinion of other managers. Thus, experienced executives make intelligent estimates by anal sing the factors affecting sales. This method of sales forecast is easy and top executives do not require intensive knowledge of statistical methods for making forecasts.

(b) Sales force composite method or the grass-root method:

In this method. Sales forecasts are made but people who sell the goods. Salesmen of different areas collect the figures of expected sales compile them and forecasts are reviewed by regional managers of these areas. They are further reviewed by district managers and finally by the head-office sales manager. This method of forecast is effective since forecasts are made by people closest to the market in the sales promotion activities and forecasts are also cross examined and reviewed by sales managers at higher levels.

(c) User’ expectation method:

In this method, rather than making forecasts on their own, companies’ salesmen go to the consumers to know their expectations about their products. There may be different responses of consumers but a large sample of consumers can help companies make some kind of forecasts about what consumers/users expect the firms to sell. This method is effective where the market is known to business concerns.

(d) Statistical methods:

Sales forecasts are based upon statistical methods like trends, correlation and mathematical models
(i) Trend analysis assumes that past trends will continue in future unless disturbed by the environmental factors. The impact of these factors should be taken into consideration while making forecasts. For example, if sales have always increased by 15% over last year’s sales, this trend shall continue in future unless some unpredictable changes (not accounted for by the forecaster) affect this forecast.

(ii) Correlation analyses find the degree of correlation between two variables. For example, the degree of increase in GNP, National Income or consumers’ income on sales can be found by the ethos of corer elation. This can be found for the current year or forecaster can use lag periods to find the impact of earlier years’ variables on sales of the current year.

(e) Deductive Methods:

 This method assumes that past cannot predict future. It rests on subjective judgments for making sales forecasts. Forecasts are based on facts and their relationships and run into a mathematical model. As Koontz and Weihrich put it, “ the state of the forecasting is such that an independent, and often apparently intuitive, appraisal of the sales picture by and intelligent and experienced brain is still an input that no forecaster should overlook.”

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