Sales Forecasting Methods

Sales are very important for any kind of business. An organization uses several sales management and sales techniques to sell their product to the customers. If there are no sales, then the organization cannot survive, be it a product based organization or a customer based organization. But what is sales forecasting? Sales forecasting is predicting the sales for a particular organization for a particular time period. This is done on the basis of the past and present performance of the organization along with the market conditions. Various statistics, charts and past customer demands are some of the tools that help in forecasting sales. There are certain assumptions too that are taken into consideration while making a sales forecast. A thorough market research helps in forecasting a more realistic figure. There are several methods of sales forecasting.

Importance of Sales Forecasting

Each organization needs to think of capital budgeting for a particular year. Capital budgeting is planning where the money of the organization will be invested and what assets will the organization acquire in a particular year. Sales forecasting helps in this process and enables the management in arriving at a rough figure of how much of profit can be expected in that year and how much of that money can be invested by the organization. Sales forecasting helps an organization in self assessment. It can think of various other marketing strategies that can be followed to increase the sales of the organization. The evaluation of your sales in the past and the present also helps you understand the rank of your organization in competition with the others in similar business. Any problems in your organizational policies, ways the things are handled in the organization as well as the sales and marketing approach followed by the organization can all be found out during the forecasts and these problems can be attended to before they go out of hand. New business growth strategies can be devised and implemented with the help of the forecast figures. In addition to these, let us not forget the subsequent increase in your earnings as a result of good sales forecast. These and several other are the benefits of a forecast and hence, it is vital that you conduct a forecast each year for you organization. Now that you know the importance of sales forecasting, without further ado, let me introduce you to the sales forecasting methods.

There are two types of methods, qualitative and quantitative. The sales forecasting techniques mentioned below are the quantitative ways of forecasting sales. These include the use of several complicated algorithms and calculations. There are two approaches which are used in forecasting.

Time Series Approach
Here, as the name suggests, time is taken into consideration. Meaning, the sales of the previous years are considered to make the sales forecast for the current year. The forecast is made based on the past sales that the organization has made and based on that data, a figure for the future is arrived at. The marketing plans and the advertising followed, and those that are currently being followed can help in arriving at a close to accurate figure. This method could work for the short-term, however, there is no guarantee for the long-term. Also, this is one of the popular ways of sales forecasting. One of the sales forecasting models used here is the moving average model which takes into account some changes that can happen in the market at different time periods which may affect the sales of the organization.

Explanatory Approach
Another sales forecasting method, this approach uses certain data to estimate the sales for the year. Working capital and other such statistical data will be needed in this approach. This method may involve several complex techniques which will help the organization to arrive at a more accurate figure. This approach would take into consideration the current trends in the market as well as the ups and downs according to various seasons. The advantage of this method over the earlier method is that this method takes into account the various changes in the trends in the market, and hence, the figure that you arrive at, may be more realistic.

Whichever from the aforementioned forecasting methods you choose, there are certain things that you need to consider. There should be a reasonable amount of accuracy in the forecast, as you will plan your business plan and your business financing based on the forecast. The methods followed should be easy to understand so that the person who is forecasting is comfortable using it. The organization must be able to rely on the figures arrived at, and finally, the method used should be cost-effective for the organization. There are several other methods too that can be considered. However, they are very complicated and involve a lot of calculations and numbers. Remember, the forecast will help you in your organizational strategic planning, so choose the one that is more realistic and easy to follow. All the best!!!