How to know sales forecasting strategy better than anyone else
If the magical lamp of Aladdin shows up to the manager of a new start-up or small business and tells him that he has three wishes the manager definitely will ask him to know the sales forecasting strategy.
Predicting the future isn’t impossible as long as we set the right expectations but it’s not easy at all, it needs studies, data, and resources.
This topic will help you to know more about sales forecasting strategy especially using the qualitative method.
- Why is sales forecasting important?
- What is sales forecasting?
- Types of sales forecasting
- Sales forecasting strategy
- In Conclusion
Why is sales forecasting important?
Forecasting the sales of your company will help you to know your budget, company’s performance, policies, customers, competitors, market, and needs.
These points will help you to make the right decision regarding your sales.
What is sales forecasting?
Every manager should have a strategy to follow in his/her business.
It’s like a treasure hunt you put clues and plans so when the players start to think and guess the solution by solving the clues and each clue they solve will lead them to the other until they find the aim that you want them to know.
Most probably you take time to achieve your target but you should have enough confidence that you’ll achieve it.
But sometimes it doesn’t work if you make incorrect predictions.
For example, if there is a biscuit company that launched biscuits with a new flavor and you love this flavor but when you tasted it, you didn’t like it.
So we have two results whether it’s a right prediction or wrong prediction
For example, the weather forecast could be right and it could be a bit wrong too.
It differs in business if it was an old company they should resort to their old information, database and sales but if it was a new company then they should test their market, know their customers and competitors very well.
So, it’s the prediction and estimation of the sales that your company will reach or achieve in the future according to the demands of the customers.
Types of sales forecasting
These two types will help you to put a good and strong strategy for your goals or objectives.
Long-term sales forecasting
This plan is used to forecast over five or ten or twenty years, it is a must in the big businesses especially those companies that use equipment with a high cost such as petroleum refinery, ship-building, and furniture-building.
This plan will help you to know your capacity production, your labor requirements, and your resources as well.
Short term sales forecasting
This plan lasts for six months or one year and one year is more preferred.
You sometimes have to change your sales forecasting plan if there is a necessary thing so you’ll have to forecast less than six months. For example, it would last for three months
This policy will help you to produce with limitations.
You won’t have a lack of supply such as machines, raw materials, and sponsors.
Material Requirement Planning
You should have a plan regarding your future sales and demands to know what you have and what you lack
It’s about estimating each regions’ requirements.
For example, if there is a chocolate company, each bar is “50 L.E” and you’ve two regions.
The first region is for the upper class and the Second region is for the middle class.
You’ll distribute in the first region more bars of chocolate than the second region.
You should know whether you have enough labor that will satisfy your company’s needs or not and whether they have good skills or they lack some of them.
You should know your financial statement. It will help you whether you need it or not.
Before studying these methods you need to know some factors that affect your consumer behavior towards purchasing.
You should know them to forecast your sales well and put an effective strategy for your sales.
It could be related to the standard level of your customers such as national income, disposal income or other external factors such as regression and inflation.
So, you should study the economical factors well.
You should know the demographics of your customers such as sex, education, occupation, and income.
Knowing your competitors which produce the same product, you should know the quality that they give to the customers.
You should study the pricing strategy and know your competitors’ pricing strategy as well and you also should pick a catchy design.
So, any changes concerning the company definitely will affect your plan as if an employer or employee resigned or was discharged.
You’ve to put in your mind that you should have other alternative plans such as opening recruitment to hire new employees.
It’s also called the Executive opinion method.
This method depends on the executive layer whether such as HR or finance or marketing or accounting.
Their decisions are taken into consideration and they predict based on their experiences.
The top jury method, this method depends on the jury’s expertise.
So, when the problem is complicated they have to take the final decision.
Percolated jury method, when the executive board includes many employers from several departments such as HR, finance, accounting, and marketing.
Their opinions are taken into consideration due to their experience in the relative field and they also have to take the final decision
This method is only reliable when all the executive method knows the economical issues and information and what the firm has and what it lacks.
But you shouldn’t take their opinions on the following cases:
- If anyone Sayed his opinion not based on the fact.
- If the responsibility was distributed over more than one person.
Survey of Expert’s Opinions
In this method, the experts express their opinions whether they are outside or inside the organization, Unlike the jury method, The juries are working inside the organization only.
They also should know the economic information and market to give their opinion towards the sales of your company accurately.
So, they have the final forecast decision but it doesn’t mean that it doesn’t have disadvantages.
Throughout this method, you’ll find four obstacles.
First: the person who isn’t willing to give you the whole information and help.
Second: if the information is distributed over more than one person and most of them are irresponsible.
Third: they put general forecasts without a specific one and you didn’t divide these forecasts.
Fourth: they don’t solve the problem through their discussion.
The aim of this method is achieving the best solution when you’re facing any problem.
The group facilitator sends the problem through email to the experts and the experts send him the solution and the justification.
The group facilitator revises it again and resends it once, twice or three times to the experts, why?
Because he receives multiple solutions so the experts may get convinced by the opinion and justification of other experts so he gets one solution at the end.
So the process is on and on until the number of solutions decreases and they choose one solution with justification.
The advantage of this method that you receive many solutions and justifications that may help you later and you choose the best solution for the forecast, although the identity of these experts is unknown.
SalesForce Composite Method
This method based on the sales in your territory whether your branch or area or region.
The sales agent should be aware of economical information and territory very well.
He can make predictions from the salesman as he is in the market and he deals directly with the consumer.
Many sales agents give low predictions or expectations to salesmen to raise their sales.
It’s also called the user expectation method.
It means that we expect the buyer’s future expectations in purchasing and his consumption of products.
let’s talk specifically about the industrial products the advantage of this method that you take the opinion of the consumer directly but it would be a disadvantage because many consumers purchase things without reason.
It’s also called the replacement method.
When the company wants to launch a new product and terminate the old product.
The marketer should study the old product well to make another unique product in addition to the place it will be launched at.
The marketer always forecast that the new product will be more successful than the old one.
It’s not true because most of the time, the old product is more successful.
It is testing the product before launching it, whether it’ll succeed or not.
So, the marketer should choose specific areas or regions to launch the product to see the response of the consumers such as city centers. Although it takes much time and throughout this time, your competitors may launch another product.
Besides, choosing the geographical areas to launch the product may not be the right one.
Analytical and Statistical Methods
They are the mathematical methods that the company uses to forecast the sales such as the Complex econometric method, regression analysis, exponential smoothing, moving averages method, extrapolation method, and simple projection method.
Market Survey Method
This method occurs when the company wants to launch a new product.
If it was an old company, the primary data will be required to forecast the demand.
If it is a new company and it doesn’t have primary data but it could forecast the sales by making a survey and asking the consumer to fill it.
So, they will understand their consumer behavior in purchasing.
These three previous points will help you with “75%” to know how to put a sales forecasting strategy.
Sales forecasting strategy
By knowing the types and the factors that affect sales forecasting which is essential because there isn’t any company that can put a strategy whether it was about sales forecasting or not without knowing the factors that affect its strategy and the types it has.
The factors are the second strong base for any strategy because it shows it “HOW”.
So, you can put a complete strategy effectively and efficiently.
This strategy based on your data.
Data is the most important tool in sales forecasting.
It shows you whether your previous sales were successful or not by showing your conversion rate.
It would be a disadvantage if you will have to change the market.
For example, if you’re selling your products which are mobile phones in the “region (A)” then there is a hurricane that occurs in this region. So, you changed the region and you started to sell your products in the “region (B)”.
In this case, your old data won’t help you a lot because you never sell there before.
This strategy will be meaningless if you don’t have a clear primary data about your sales because you won’t forecast your sales accurately.
Lengths of sales cycle forecasting
This strategy is a quantitative one.
It measures how long does it take from sales reps to close the deal and it’s not based on what success it does he achieve.
For example, if you give two sales representative 10 deals, each one has five similar deals and each deal has its closed day.
The first deal: 50 days
The second deal: 55 days
The third deal: 40 days
The fourth deal: 60 days
The fifth deal: 45 days
you will add all the days then divide them by 5 which is the number of the deals.
They suppose to end the deal within 50 days but one ends them within 70 days and the other one ends within 40 days.
You should set expectations and do estimations in this strategy as you need accurate data about your customers and the ability of your sales representatives.
This strategy is mainly based on your trust in your sales representatives if you want to know your sales.
Their forecast is important but it doesn’t always work especially if there is a sales representative who doesn’t show loyalty towards the place.
So, it is a good strategy to follow if you want to build a strong bond between you and your sales representatives. Besides, helping you in sales forecasting.
Sales forecasting strategy is indispensable for any business and start-up
Besides, the importance of it you should know:
- Types of sales forecasting strategy
- Methods of sales forecasting strategy
- The most popular qualitative sales forecasting strategy