Sales Management

Sales Forecasting

Topic 13

Sales Forecasting

• What is it?• Why do it?• Qualitative vs Quantitative• Goal = Accuracy• Commonly Done by Marketing

Forecasting Overview

• Hard to do, but must be done• Shorter Time Frames are more accurate• Harder for New Products • No Substitute for Actual Demand• Done for Each Product, Territory, …..• Multiple Methods often used

Goal is….

• Accuracy• Accuracy• And• Accuracy

Mean Absolute % Error (MAPE)

• Why Mape (or MSE)?• All past forecasts• Does not control for external shocks

Patterns

• Trend• Seasonality• Cycle• Outliers

Market Potential

• Buying Power Index• NAICS• Trade Press• Chain Ratio• Leading Indicators

Qualitative Methods

• Turning Points & Shocks• Sales Force Composite• Jury of Executive Opinion• Survey of Customer Buying Intentions

Quantitative Methods

• Strong & Weak Points• Seasonal Adjustments• Naïve• Moving Averages• Exponential Smoothing• Other Methods

Naïve Method

• Previous Period = Forecast• More Accurate than you think

Moving Averages

• 2PMA• 3PMA• Ex 2PMA:• t1 = 100• t2 = 150• Forecast = 125

Exponential Smoothing

• 2 Formulas• Usually High Alpha (why done)

Exponential Smoothing Example

• Alpha = 0.9• 2020 = 1000• 2021 = 1200• 2022 = 1100• 2022 forecast = .9 (1200) + .1 (1000) = 1180• 2023 forecast = .9 (1100) + .1 (1180) = 1108

Regression

• Dependent vs Independent Variables• Can you get data?• Better than using dependent variable alone?

Trend Projections

• Why Done• Problems With

Most Firms Use > 1 Method