SALES

FORECASTING
METHODS

Done By :Manpreet kaur

Krishna kanth

 To predict or estimate.
It is one of the important aspects of
administration..
A planning tool that helps management in its
attempts to cope with the uncertainty of the
future, relying mainly on data from the past and
present.
Forecasting is a clear imagination, what will be
happening in the near future after a week,
month or year.
The process of forecasting is based on reliable

SALES

FORECASTING :-

It is an estimate of sales volume that

a company can expect to attain within
the plan period.
A sales forecast is not just a sales
predicting, it is the act of matching
opportunities with the marketing efforts.
It is an essential tool used for
business planning, marketing, and
general management decision-making.
It helps to drive sales revenue,
improve efficiency and reduce costs.

SALES FORECASTING METHODS :-

1. Executive Opinion Method :. The subjective views of executives or experts from

sales, production, finance, purchasing, and
administration are averaged to generate a forecast
about future sales.
. Usually this method is used in conjunction with
some quantitative method, such as trend
extrapolation.
. The management team modifies the resulting
forecast, based on their expectations.
. The forecasting is done quickly and easily, without
need of elaborate statistics. Also, the jury of
executive opinions may be the only means of
forecasting feasible in the absence of adequate

2. DELPHI METHOD : This is a group technique in which a panel of

experts is questioned individually about their
perceptions of future events.
The experts do not meet as a group, in order
to reduce the possibility that consensus is
reached because of dominant personality
factors.
Instead, the forecasts and accompanying
arguments are summarized by an outside party
and returned to the experts along with further
questions.
This continues until a consensus is reached.
This type of method is useful and quite effective

3. SALES FORCE COMPOSITE :Some companies use as a forecast source

salespeople who have continual contacts with
customers.
They believe that the salespeople who are
closest to the ultimate customers may have
significant insights regarding the state of the
future market.
Forecasts based on sales force polling may be
averaged to develop a future forecast.
Or they may be used to modify other
quantitative and/or qualitative forecasts that
have been generated internally in the
company.

4. SURVEYS OF BUYER INTENTIONS :Some companies conduct their own market

surveys regarding specific consumer
purchases.
Surveys may consist of telephone contacts,
personal interviews, or questionnaires as a
means of obtaining data.
Extensive statistical analysis usually is
applied to survey results in order to test
hypotheses regarding consumer behavior.

5. TEST MARKETING : It

is a tool used by companies to provide insight

into the probable market success of a new
product, or effectiveness of a marketing
campaign.
Test marketing can be used by a business to
evaluate factors such as the performance of the
product, customer satisfaction or acceptance of
the product, the required level of material support
for the full launch, and distribution requirements
for a full launch.

1. MOVING AVERAGE METHOD :. A moving average is a technique to get an

overall idea of the trends in a data set; it is an
averageof any subset of numbers.
. The moving average is extremely useful
forforecasting long-term trends.
. We can calculate it for any period of time.
. For example, if you have sales data for a
twenty-year period, you can calculate a fiveyear moving average, a four-year moving
average, a three-year moving average and so
on.
. Stock marketanalysts will often use a 50 or
200 day moving average to help them see
trends in the stock market and (hopefully)

2. Exponential Smoothing Method : Exponential smoothing requires the forecaster to

begin the forecast in a past period and work
forward to the period for which a current forecast
is needed.
Exponential smoothing is expressed formulaically
as such:
New forecast = previous forecast + alpha (actual
demand previous forecast)
F = F + (A F).
An extension of exponential smoothing can be
used when time-series data exhibits a linear
trend.
This method is known by several names: double
smoothing; trend-adjusted exponential

3. Decomposition Method :Decomposition methodsare based on an analysis

of the individual components of a time series. The
strength of each component is estimated separately
and then substituted into a model that explains the
behavior of the time series. Two of the more
important decomposition methods are:
i. Multiplicative decomposition
ii. Additive decomposition
Themultiplicative decompositionmodel is
expressed as the product of the four components of
a time series:
yt=TRtStCtIt

Withadditive decomposition,a time series is

modeled as thesumof the trend, seasonal effect,
cyclical effect, and irregular effects. This is shown
in the following equation:
yt=TRt+St+Ct+It

These variables are defined as follows:

yt= Value of the time series at timet
TRt= Trend at timet
St= Seasonal component at timet
Ct= Cyclical component at timet
It= Irregular component at timet

4. Naive Method : This method is only appropriate for time series data.
All forecasts are simply set to be the value of the last
observation.
That is, the forecasts of all future values are set to
beyTyT, whereyTyTis the last observed value.
This method works remarkably well for many
economic and financial time series.
Seasonal nave method
A similar method is useful for highly seasonal data. In
this case, we set each forecast to be equal to the last
observed value from the same season of the year (e.g.,
the same month of the previous year).

5. Regression analysis : It is a statistical technique for quantifying the

relationship between variables.
In simple regression analysis, there is one
dependent variable (e.g. sales) to be forecast
and one independent variable.
The values of the independent variable are
typically those assumed to "cause" or determine
the values of the dependent variable.
For forecasting purposes, knowing the
quantified relationship between the variables
allows us to provide forecasting estimates.

 The simplest regression analysis models the

relationship between two variables using the
following equation:
Y = a + bX,
where, Y is the dependent
variable;
X is the independent
variable.
Notice that this simple equation denotes a
"linear" relationship between X and Y.
So this form would be appropriate if, when you
plotted a graph of Y and X, you tended to see the
points roughly form along a straight line.

6. Econometric Forecasting : This is a mathematical approach of study and is

an ideal way to forecast sales.
This method is more useful for marketing durable
goods.
It is in the form of equations, which represent a
set of relationships among different demand
determining market factors.
By analyzing the market factors (independent
variable) and sales (dependent variable), sales
are forecast.