Sales Forecasting- Systematic approach

 What is Sales forecast and why it is critical success factor for any organization..

Sales forecasting is the process of estimating future sales. Accurate sales forecasts enable companies to make informed business decisions and predict short-term and long-term performance. Companies can base their forecasts on past sales data, industry-wide comparisons, and economic trends.

Forecasting can be broadly categorized into 2 segments Short range forecasting and Long-range forecasting. Short range forecasting (SRF) is very impulsive and based on the dynamic environment. We will be focusing more in understating the systematic approach for Long term forecasting (LRF)

 

Let’s try to understand each method in details;

1.    Casual Method

Your sales outcome are dependent on many variables such as Promotional or marketing spent, Customer touch points, Price discounting, Inventories and some industry specifics such as in pharma progression of disease epidemiology etc. If you have fair understanding of the impact of your variable factors you can use casual method. This method can be worked out with simple regression analysis.  Lets try to understand with help of case discussion

Case scenario- Alpha pharmaceuticals is an drug making company dealing with sales of its product in pediatric segment with team of 50 sales executive. Company has sales productivity of (X) amount . company has contracted institutional sale of (b) amount. And company has larger dependency of sale on marketing speng on pediatricians ( a= Number of CMEs) .

In Such scenario My Sales (Y)= aX + b

If you have multiple dependents factors such is Reps working days, daily activity , customer coverage you can apply multiple regression methods. This can very easily be done on excel in a matter of few minutes.

 

2.    Time Series Method

This is very popular method in forecasting overall sales instead of brand wise sales however on can predict brand level sales also by this method. Below mentioned are few tools frequently used in Time series method

·      Moving Average – is  a calculation to analyze data points by creating a series of averages of different subsets of the full data set. If my moving quarter average is 5% growth, I can apply the same growth in forthcoming quarter.

·      Exponential smoothing- The simplest of the exponentially smoothing methods is naturally called simple exponential smoothing (SES). This method is suitable for forecasting data with no clear trend or seasonal pattern. Example- If my last 4 Quarter growth is varying from for -10% to +25% with help of simple exponential smoothing we can draw a line between X and Y axis by considering the mean growth value of all months and can predict the growth for subsequent quarter.

·      Trends and Seasonal Decomposition – This is very experience-based method. when you are aware of impact of factors such as Weather, Festival, Union budget etc. you can apply your understanding of impact on your sales to determine the outcome

·      Box - Jenkins Analysis - refers to a systematic method of identifying, fitting, checking, and using integrated autoregressive, moving average (ARIMA) time series models. The method is appropriate for time series of medium to long length (at least 50 observations).

 

3.    Qualitative Method

This methods are usually applied for decision making associated with large investment or Impact such as new product launch. We will try to understand few frequently used under qualitative method.

·      Delphi Method - is a forecasting process framework based on the results of multiple rounds of questionnaires sent to a panel of experts. Several rounds of questionnaires are sent out to the group of experts, and the anonymous responses are aggregated and shared with the group after each round. The experts are allowed to adjust their answers in subsequent rounds, based on how they interpret the "group response" that has been provided to them. Since multiple rounds of questions are asked and the panel is told what the group thinks as a whole, the Delphi method seeks to reach the correct response through consensus.

·      Jury of executive opinion-  A method of forecasting using a composite forecast prepared by a number of individual experts. The experts form their own opinions initially from the data given, and revise their opinions according to the others' opinions.

·      Sales Force Composite - The Sale Force Composite Method is a sale forecasting method wherein the sales agents forecast the sales in their respective territories, which is then consolidated at branch/region/area level, after which the aggregate of all these factors is consolidated to develop an overall company sales forecast.

·      Consumers' survey method -  demand forecasting involves direct interview of the potential consumers. Consumers are simply contacted by the interviewer and asked how much they would be willing to purchase of a given product at a number of alternative product price levels.