Forecasting Sales and Developing Budgets

Sales forecasting methods

There are numerous sales forecasting methods that a business owner can embrace in order to learn about the demand of the products that he or she is offering in the market. However, each of the focusing method has its strengths and weaknesses, and it’s applied at different situations.

1. Survey of buyers` intentions

In this direct method of forecasting sales, the marketing manager focusing on getting the opinion of the product consumers especially on how they intend to use of consume the product in future. Precisely, the sales manager starts by listing of all the prospective or potential buyers and then organize for a face to face interview with the selected list of potential buyers. Through the interview, the firm manages to not only learn and ascertain the future intentions of the listed consumers but also to estimate future sales of its products.

Strengths and weaknesses of this method

There are numerous strengths and weaknesses that are associated with this method. For example, this method is essential when the number of consumers is limited. In addition, the method is suitable when it comes to making short-term decisions especially those which entails the product and promotion. Consecutively, the results that are gained from the interviews are realistic and valid, especially due to the fact that they are based on direct opinions of consumers. Moreover, this method is simple to comprehend and administer. On the other hand, the method is unsuitable for long term forecasting, especially due to the fact that some necessities of consumers such as fashion, tastes, and preferences may change in the long run. In addition, the forecasts are sometimes wrong and biased especially due to the fact that some customers rarely want to give their exact requirements. In addition, surveying tends to be expensive in terms of time and resources needed. Lastly, this method is not suitable when consumers group is large.

When this method is most appropriate to use

This method is only appropriate to use when the number of consumers is limited. This is due to the fact that the amount of time and resources needed to conduct the survey may be high if a large number of consumers are to be surveyed.

2. Trend analysis method

This method of forecasting sales is based on the aspect of analyzing of past sales patterns in order to anticipate or predict what the sale patterns will be in future. The trend analysis method relies on the assumption that the future events are a continuation of the past.

Strengths and weaknesses of this method

There are myriad of merits and demerits that are associated with the trend analysis method. For example, this method is very economical and simple to implement. Additionally, the results of this method are most reliable especially if all the factors affecting sales remain constant. On the other hand, the accuracy and reliability of the trend projection method depends on the availability of time series data (GKToday, 2016). This means that if the time series data is long, the better the results will be. Moreover, the method rely on the assumption that all factors influencing sales remains constant during the entire period of forecasting, but the reality of the matter is that it is close to impossible for that to happen in a dynamic and competitive world that we live in. this means that the results that are obtained through this method are not always reliable and precise. Lastly, it may not necessarily be true that the past sales pattern would remain unchanged in the future.

Situations when this method is most appropriate to use

This method of sales forecasting is most appropriate to use when the available sales data are of different time periods. Moreover, the data becomes reliable and more accurate it is longer, as this would enable the marketing team to conduct extensive analysis concerning the sales patterns. The marketing manager uses the historical data to predict the future.

3. The Delphi Technique/Experts Opinion Method

This method entails collecting the opinions of experts in the marketing field in order to forecast the sales of an enterprise based on those opinions. The opinions collected under this method may be from distributors, retailers, wholesalers, journals, newspapers, and professional experts (Gilliland, 2014). Additionally, the experts who offer these opinions may not necessarily have face to face interactions since they can still do it within their comfort zones. Apparently, each of the expert tends to be free to offer or express his or her opinion based on the marketing aspects that he or she uses to forecast the sales of the given enterprise.

Strengths and weaknesses of the Delphi Method

There are a number of merits and demerits that are associated with the use of this method. For example, the method is important since the marketing management is not required to spare it’s time for sales forecasts. Collecting opinions of experts is cheaper compared to conducting the actual survey, and this makes the method to be economical. In addition, since the sales forecasts through the use of this method are on the bases of the experience and knowledge of the experts, the method is considered to be reliable. On the other hand, it is impossible for the management team to forecast the sales for different market territories and segments. Additionally, it is not suitable for sales forecasts on the basis of different areas, different goods and services and different customers.

Situations when this method is most appropriate to use

This method is most appropriate wen the product is absolutely new to all markets. This is due to the fact that when the product is new, there are limited number of factors that the experts are required to take into consideration while providing their sales forecasting opinions.

4. Market test method

This method is important when it comes to the aspect of forecasting sales of a potential of existing or new product in new geographical area. Through this method, limited segments of the market are selected and a given product is introduced on trial basis. The results of this segments are analyzed and generalized to represent the forecast of the entire market.

Strengths and weaknesses of this method

This method is less risky especially due to the fact that it entails launching a new product in limited market segment. The method also provides an opportunity for the product and market development. On the other hand, this method is in most cases time consuming since it observes the actual buying patterns of consumers. In addition, the test market method is sometimes costly especially if the produced product fails to penetrate the market.

Situations when this method is most appropriate to use

This method is most appropriate when a new product is being introduced in the market. This is due to the fact that the sales that can be made in the limited selected market segment can be used to generalize how the product would be perceived in the entire market.

5. Regression analysis

This method is one of the mathematically focused choices for forecasting the sales of products in a given enterprise. The success of this method is based on in-depth analysis of statistics as well as the factors influencing the sales performance of a company (Washenko, 2018). Some of the factors influencing sales that are reviewed under this method are not limited to time period, independent variables, dependent variables and correlation between variables.

Merits and demerits for this method

This method helps the marketing team to establish the variables which have an impact on the sales. On the other hand, though this method can produce very accurate results, it calls for advanced levels of forecasting, to some extent requiring one to have a PhD in mathematics.

Situations when this method is most appropriate to use

This method is most appropriate when an organization requires to now the in-depth quantitative review of aspects that might be affecting the sales of a company, and make changes where necessary. The method is important for large companies.

The relationship between forecasting methods and budget development

Forecasting methods entails the methods that shows whether the company is headed to the right direction in terms of making the anticipated amount of sales in a given period. Precisely, forecasting methods estimates the amount of revenues that a company would achieved in a given period (Hyndman & Athanasopoulos, 2018). On the other hand, budget development entails the plan that quantifies the expectation of revenues that a company intends to achieve for a future period. Budget development lays the plan concerning where the management intends to take the company while forecasting methods evaluates whether the company is heading to the anticipated direction.

How organizations may address the strategic relationship between planning and performance

Organizations can address the strategic relationships between planning and performance by ensuring that what is planned can be feasible. Precisely, the organizations should not set high and technical goals which are hard to be achieved with the set timeframe. In addition, there is need for organizations to embrace the aspect of using the internet to plan as well as forecasting the sales. For example the use of Google Trends Data has been one of the best ways of forecasting sales for various products that are being offered in the market (Boone, Ganeshan & Hicks, 2015).

Referencing

Boone T., Ganeshan R., and Hicks R., (2015). Incorporating Google Trends Data. The International Journal of Applied Forecasting is the property of International Institute of Forecasters.

Gilliland M., (2014). Role of the Sales Force in Forecasting. The International Journal of Applied Forecasting is the property of International Institute of Forecasters.

GKToday, (2016). Various Methods of Sale Forecasting. Retrieved from, https://www.gktoday.in/gk/various-methods-of-sale-forecasting/

Hyndman, R. J., & Athanasopoulos, G. (2018). Forecasting: principles and practice. OTexts.

Washenko A., (2018). 5 essential sales forecasting techniques. Retrieved from, https://blog.getbase.com/5-essential-sales-forecasting-techniques