Factors of Sales Forecasting

Explore essential factors of sales forecasting to improve accuracy and drive business growth. Learn how to leverage data for better decision-making. The management of a firm is required to prepare its forecast of the share of the market that it can hope to capture over the period of forecasting. In other words, the sales forecast is an estimate of the sales potential of the firm in the future. All plans are based on the sales forecasts. Sales Forecasting is the projection of customer demand for the goods and services over a period of time. A businessman who invests a large amount of capital in his business, cannot afford to work haphazardly. So, what we discussing is – Meaning, Definition, Need, and Factors of Sales Forecasting.

The Concept of Forecasting explains Sales Forecasting by Meaning, Definition, Need, and Factors.

In this article is discussing, Sales Forecasting: Meaning of Sales Forecasting, Definition of Sales Forecasting, Need for Sales Forecasting, and Factors of Sales Forecasting. This forecast helps the management in determining as to how much revenue can be expected to be realized. How much to manufacture, and what shall be the requirement of men, machine, and money. Future is uncertain. Man thinks about the future. He may be a businessman, a broker, a manufacturer, a commission agent etc.

All guess about the future in their respective field of interest. We try to know, through a clear imagination, what will be happening in the near future—after a weak, month or year. It can be called forecast or prediction. The process of forecasting is based on reliable data of past and present. Forecasting is not new, as it has been practiced from time immemorial.

Meaning of Sales Forecasting:

Any forecast can be termed as an indicator of what is likely to happen in a specified future time frame in a particular field. Therefore, the sales forecast indicates as to how much of a particular product is likely to be sold in a specified future period in a specified market at the speci­fied price. Accurate sales forecasting is essential for a business house to enable it to produce the re­quired quantity at the right time.

Further, it makes the arrangement in advance for raw mate­rials, equipment’s, labor etc. Some firms manufacture on the order basis. But in general, the firm produces the material in advance to meet future demand. Forecasting means estimation of quantity, type, and quality of future work e.g. sales. For any manufacturing concern, it is very necessary to assess the market trends sufficiently in ad­vance.

This is a commitment on the part of the sales department and future planning of the entire concern depends on this forecast. It is the estimate of the number of sales to be expected for an item/product or products for a future period of time. Except the industries based on job order, almost all the enterprises produce in advance to meet the future requirements. Thus accurate sales forecasting is essential for an enterprise to enable it to produce the required number of items at right time.

Definition of Sales Forecasting:

Forecasting is one of the important aspects of administration. The comer-stone of successful marketing planning is the measurement and forecasting to market demand.

According to the American Marketing Association,

“Sales forecast is an estimate of Sales, in monetary or physical units, for a specified future period under a proposed business plan or programme and under an assumed set of economic and other forces outside the unit for which the forecast is made.”
“An estimate of sales in dollars or physical units 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.”

It is an estimation 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 the determination of a firm’s share in the market under a specified future. Thus sales forecasting shows the probable volume of sales.

According to Candiff and Still,

“Sales forecast is an estimate of sales during a specified future period, whose estimate is tied to a proposed marketing plan and which assumes a particular state of uncontrollable and competitive forces.”

Thus we can define sales forecasting as, estimation of type, quantity, and quality of future sales. The goal for the sales department is decided on the basis of this forecast and these forecasts also help in planning the future development of the concern. The sales forecast forms a basis for production targets. From above, looking to its importance, it is essential that the sales forecast must be accurate, simple, easy to understand and economical.

Thus we can say that a sales forecast is an estimate of the number of sales for a specified future period under a proposed marketing plan or programme. They can also be defined as an estimate of sales in terms of money or physical units 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.

Need for Sales Forecasting:

The following Need for Sales Forecasting below are:

• The management of the enterprise can take the decision regarding operations planning, scheduling, production programming inventories of various types, physical distribution and operating profits on the basis of sales forecasts.
• Long-term sales forecasts can help in deciding investment proposals. Such as modernization, expansion of existing units, diversification of product lines etc.
• Sales forecasts are essential to make proper arrangement for training. The manpower in its own unit or sending them to other industries in the country or abroad to meet the future needs of expertise.

Factors of Sales Forecasting:

Factors influencing a Sales Forecasting; A sales manager should consider all the factors affecting the sales while predicting the firm’s sales in the market.

An accurate sales forecast can be made if the following factors are considered carefully:

General Economic Condition:

It is essential to consider all economic conditions relating to the firm and the consumers. The forecaster must see the general economic trend-inflation or deflation, which affect the business favorably or adversely. A thorough knowledge of the economic, political and the general trend of the business facilities to build a forecast more accurately. Past behavior of the market, national income, disposable personal income, consuming habits of the customers etc., affect the estimation to a great extent. Two types of Economic; microeconomic and macroeconomic as well as short-term market and long-term market.

Consumers:

Products like wearing apparel, luxurious goods, furniture, vehicles. The size of the population by its composition-customers by age, sex, type, economic condition etc., have an important role. And the trend of fashions, religious habits, social group influences etc., also carry weights. Also, The consumer is the one who pays something to consume goods and services produced. As such, consumers play a vital role in the economic system of a nation. Without consumer demand, producers would lack one of the key motivations to produce: to sell to consumers.

Industrial Behaviors:

Markets are full of similar products manufactured by different firms, which compete among themselves to increase the sales. As such, the pricing policy, design, advanced technological improvements, promotional activities etc., of similar industries must be carefully observed. A new firm may come up with products to the markets and naturally affect the market share of the existing firms. Unstable conditions—industrial unrest, government control through rules and regulations, improper availability of raw materials etc., directly affect the production, sales, and profits.

Changes within Firm:

Future sales are greatly affected by the changes in pricing, advertising policy, quality of products etc. A careful study in relation to the changes in the sales volume may be studied carefully. Sales can be increased by the price cut, enhancing advertising policies, increased sales promotions, concessions to customers etc.

Period:

The required information must be collected on the basis of the period—short run, medium run or long run forecasts. A period of sales depending on the market requires. For example, Some product sale short period. As well as medium or long periods all required, is product demands and supply.

Some Factors also Considered:

Following factors should be considered while making the sales forecast:

• Market Competition: To assess demand, it is the main factor to know about the existing and new competitors and their future programme, the quality of their product, the sales of their product. The opinion of the customers about the products of other competitors with reference to the product manufactured by the firm must also be considered.
• Technology Changes: With the advancement of technology, new products are com­ing in the market and the taste. The likings of the consumer’s changes with the advancement and change of technology.
• An action of Government: When the government produces or purchases. Then depending upon the government policy and rules, the sales of the products are also affected.
• Factors Related to the Concern Itself: These factors are related to the change in the capacity of the plant. Change in price due to the change in expenditure, change in product mix etc.

Accurate sales forecasting is essential for a business house to enable it to produce the re­quired quantity at the right time. Further, it makes the arrangement in advance for raw mate­rials, equipment’s, labor etc. Also, Many firms manufacture on the order basis. But in general, every firm produces the material in advance to meet future demand.