Sales Forecasting is an essential tool used for business planning, marketing and general management decision making. It is the estimation of sales of the enterprise on the basis of sales records in the past, present circumstances and future expectations. It can also help to drive sales revenue, improve efficiency, increase customer retention and reduce costs. Following are some of the definitions given by different scholars on ‘Sales Forecasting’:
- William Lazer: “Sales forecasting is the focus of integrative planning”.
- Philip Kotler: “The Company Forecast is the expected level of company sales based on a chosen marketing plan and assumed marketing environment”.
- Cundiff and Still: “Sales forecast is an estimate of sales during a specified future period which estimate to a proposed marketing plan and which assumes a particular set of uncontrollable and competitive forces”.
- American Marketing Association: “Sales forecast is an estimate of sales in dollars or physical unit for a specified future period under a proposed marketing plan or programme and under an assumed set of economic and other forces outside the unit for which the forecast is made. The forecast may be for a specified item of merchandise or for the entire line.”
- E. Sultan: “Business forecasting is the calculation of probable event to provide against the future. It therefore, involves a look ahead in business an idea of pre-determination of events and then financial implications as in the case of budgeting.”
- Matthew, Buzzles, Lovitt, Frank: “A sales forecast is an estimate of sales of a company’s product that are expected to be achieved during a given future period, in a given place”.
Objectives of Sales forecasting
The objectives of Sales Forecasting can mainly be divided into two parts (I) Short-term Objectives and (II) Long-term Objectives. The details in this regard are as follows:
Short-term Objectives (Usually for a period of time less than a year)
Determination of Suitable Production Policy
By suitable production policy, the problem of under-production or over-production may not arise in the business enterprise and the production may be made in accordance with the needs and wants of the customers.
Regular Supply of Raw-materials
For the profit maximization and customer satisfaction, the proper supply of goods & services is necessary. Hence, by proper sales forecasting, the regular supply of raw-materials at right time, at right place and at right quantity is very necessary for smooth production and for controlling the costs of production of an enterprise.
Best utilization of machine
Sales forecasting helps in best utilization of machines that helps in increasing or reducing the quantity of production according to the demand.
Regular Availability of Labour
Sales forecasting is very helpful in arranging the required number of technical and non-technical personnel. It avoids the problem of the shortage of man-power. It also helps in making the best use of available labour force.
Determination of appropriate price policy
Sales forecasting affects the production policy of the enterprise. The production policy affects the costs of production and distribution and the costs of production and distribution bear a direct association with the price policy of the enterprise.
Setting the sale targets and establishes the controls and providing incentives
Sales forecasting helps in determining individual sales targets for all the sales territories of the enterprise. It helps in controlling the performance of these salesmen and also helps in providing versatile incentives to the sales-representatives so that they may contribute their whole-hearted efforts in achieving their sales targets.
Forecast short-term financial requirements
The sales forecasting helps in forecasting the short-term financial requirements of an enterprise. It provides a base for the arrangements of short-term financial requirements. Primarily, they depend on the volume of production and sales of the enterprise.
Long-term Objectives (time horizon of 5-7 years,10- 20 years)
Planning of long-term production
In the planning of long-term production, the sales forecasting helps in adjusting the demands of goods and services produced by the business enterprise according to needs and desires of the customer.
Planning of plant capacity
The long-term sales forecasting helps in planning the plant capacity according to the demand. If the present capacity of the plant is not sufficient to meet the demand, then arrangements are made to increase the capacity of the plant.
Planning of Man-power is another very important objective of long-term sales forecasting. The arrangements may be made to recruit the sufficient number of persons to meet the requirements in long-term.
Forecast long-term financial requirements
The long-term sales forecasting helps in taking the appropriate measures to arrange the long-term financial requirements of an enterprise.