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Appendix 4Appendix 4
Developing ForecastsDeveloping Forecasts
ForecastForecast
A forecast is a prediction for a A forecast is a prediction for a future period.future period.
Key Considerations in Developing ForecastsKey Considerations in Developing Forecasts
Development of Useful Forecasts
What time periods should forecasts cover?
What types of forecastsare needed?
How often should the forecasts be prepared?
What factors need to beevaluated in developing
the forecasts?
What data are availablefor developing the
forecasts?
Who will be involvedin preparing the
forecasts?
How will the forecastsbe used?
What methods will be used to generate the
forecasts?What can be done toimprove the accuracy
of the forecasts?
Who will use the forecasts?
Forecasting by Sales ManagersForecasting by Sales ManagersTypes of ForecastsTypes of Forecasts
• Market PotentialMarket Potential – The best possible level of The best possible level of industry salesindustry sales in a given geographic in a given geographic
area for a specific time periodarea for a specific time period
• Market ForecastMarket Forecast– The expected level of The expected level of industry salesindustry sales given a specific industry given a specific industry
strategy in a given geographic area for a specific time periodstrategy in a given geographic area for a specific time period
• Sales PotentialSales Potential– The best possible level of The best possible level of firm salesfirm sales in a given geographic in a given geographic
area for a specific time periodarea for a specific time period
• Sales ForecastSales Forecast– The expected level of The expected level of firm salesfirm sales given a specific strategy in a given a specific strategy in a
given geographic area for a specific time periodgiven geographic area for a specific time period
Examples of Uses of Forecasts Examples of Uses of Forecasts by Sales Managersby Sales Managers
• Determining Salesforce SizeDetermining Salesforce Size• Designing TerritoriesDesigning Territories
• Assigning Salespeople to Assigning Salespeople to TerritoriesTerritories
• Allocating Sales Calls to Allocating Sales Calls to AccountsAccounts
• Designing Compensation Designing Compensation ProgramsPrograms
• Establishing Selling BudgetsEstablishing Selling Budgets• Establishing Sales QuotasEstablishing Sales Quotas
Sales ForecastSales ForecastMarket Potential Market Potential Market ForecastMarket Forecast
Sales PotentialSales Potential
Market PotentialMarket PotentialSales PotentialSales PotentialSales Forecast Sales Forecast
Sales ForecastSales Forecast
Sales ForecastSales Forecast
Sales ForecastSales Forecast
Sales Management Decision Area
Type of Forecast Normally Used
Forecasting ApproachesForecasting Approaches
Factors Affecting Company’sShare of Total Industry Sales
Forecast of General Economic and Business Conditions for the Country as a Whole
Market Potential for Relevant Industry
Sales Potential for Company as aPercentage of Industry Sales
Company Sales Forecast
Sales Managers’ Forecasts for Zones, Regions, Districts, Territories, and Accounts
Top-Down Approach
Company Sales Forecast
Combined into District, Region, and Zone Forecasts
Combined into Territory Forecasts
Salespersons’ Forecasts of Accounts
Bottom-Up Approach
Top-Down ApproachesTop-Down Approaches
• Company Forecasting MethodsCompany Forecasting Methods– Moving AveragesMoving Averages– Exponential SmoothingExponential Smoothing– Decomposition MethodsDecomposition Methods
• TrendTrend• CycleCycle• SeasonalSeasonal• Erratic EventsErratic Events
• Breakdown MethodsBreakdown Methods– Buying Power Index (BPI)Buying Power Index (BPI)
Sales & Marketing Management’sSales & Marketing Management’s
Buying Power Index (BPI)Buying Power Index (BPI)
BPI = (5I +3P + 2R)/10
I = % of U.S. Disposable Income (economic factor)P = % of U.S. Population (demographic factor)R = % of U.S. Retail Sales (distribution factor)
where:
For Lafayette, LA
I = 0.11% of U.S. Disposable IncomeP = 0.14% of U.S. PopulationR = 0.13% of U.S. Retail Sales
BPI = ((5*.11)+(3*.14)+(2*.13))/10BPI = 0.123%
where:
Estimate of Sales for Eating & Drinking Places in Lafayette, LA$243,842,859,000 * 0.00123 = $224,226,717
Bottom-Up ApproachesBottom-Up Approaches
• Survey of Buyer Intentions Survey of Buyer Intentions MethodMethod
• Jury of Executive Opinion Jury of Executive Opinion MethodMethod
• Delphi MethodDelphi Method
• Salesforce Composite MethodSalesforce Composite Method