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Sales Management

Managing Sales Information

and Forecasting

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Sales Management

Managing sales information

Sales information is like circulatory system in the body

Helps organizations to plan and make appropriate

Business decisions

Helps Sales Managers analyze current market situationand Sales Persons performance

To build customer data base, reward system by HR andforecasting

Most important use of sales information is - forecastMarket demand

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Sales Forecast

Sales Forecast is an estimate of sales

during a specific future period which

assumes a particular state ofuncontrollable and competitive forces

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Factors influencing Sales Forecast

General Economic conditions (Inflation, deflation): Athrough knowledge of economic, political conditions help tobuild forecast more effectively

Consumers: Age, sex, habits and trend influence sales

Industrial behaviour: Competition, industrial unrest, Govtcontrol

Change within the firm : Policy changes

Period:

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Importance of forecasting

Success of business depends on how forecasting is done

Supply & value chain management depend on demand pattern

Procurement can be canalized as per demand

Raw material & inventory control during production process

If forecast is not proper High inventory, increased cost of product

Low inventory- short supply, loss of revenue/customer

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Importance of forecasting

It is a gear by which all other activities are controlled

Forward planner for al other requirements(Raw Material,financial needs, labour)

Advertisement programs are beneficially adjusted

Indicator for financial requirements

Helps in allocation and reallocation of sales territories

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Forecasting Approach

Top-down / break down approach Company SF

(based on secondary data) forecast

broken down into region, district, territory Regional / Zonal

Bottom up / build up approach Area / Branch

(based on primary data) area or branch

Manager asking its SPs to estimate or Sales FC offorecast sales in their respective territory individual

customer

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Forecasting Process

Determine objective ( Rs.sales / Units sales)

Determine dependable variable (unit / value) andindependent variable (market factors)

Forecasting procedures and methods for analyzing

sales based on assumptions

Experts opinion

Delphi method

Qualitative method SF composite methodSurvey of buyers intentions

Test Marketing

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Forecasting Process

Experts opinion:

Getting views of top executives of the company regardingfuture sales based on judgment, intuition & experience

Advantages: quick, easy & less expensive. OK for small/medium firms

Disadvantages: unscientific, subjective,

Delphi method:

Panel of experts from within and outside the organization.

Coordinator conduct the procedure

Advantages: Objective, useful for new products

Disadvantages: difficult to get experts, long time to come to consensus

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Forecasting Process

SF composite method:

Sales people estimate ( bottom up approach)Advantages: SP is close to customers & Market and has better insight

Disadvantages: SP not trained, may underestimate demand to get reward

Survey of buyers intentionsMarket research of existing & potential customers about their

likely purchase0.0 0.20 0.40 0.60 0.80 1.0

Not at all slight possiblty fair possiblty good possiblty high possiblty certain

Advantages: useful for industrial, consumer durable, & new product

Disadvantages: Not accurate, uncertainty

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Forecasting Process

Test Marketing :

For a new product where no historical data or estimatingsales for established product in a new territory

Full blown Test Marketing : choosing a few (2-6) representative cities

with full promotion campaign

Controlled Test Marketing: select panel of stores at specified

geographical location and measure the sales of new product

Advantages: useful for new or modified product. Gives a fair idea ifcompany should go ahead with national-wide launch

disadvantages: Information may leak to competition. If purchase period

Is long, it is difficult for company to wait to measure test results

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Forecasting Process

Moving Average

Exponential smoothingQuantitative methods Decomposition

Nave / Ratio method

Regression Analysis

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Forecasting Process

Moving Average: Actual sales for past 3 6 years

No of years ( 3 6 years)Sls Period Sls Vol Sls for 3 yrs 3 yrs moving Av

1 200

2 250

3 300 750/3 250

4 250 900/3 300

5 450 1100 / 3 366

6 370 1170 / 3 390

7 ? = 390

Or 1+2+3 2+3+4 3+4+5 4+5+6

3 3 3 3

Advantages : simple, easy to calculate, short term / medium term FC

Disadvantages : unable to predict downturn, upturn in market.

Historical data required. Long term FC not accurate

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Forecasting Process

Decomposition Method

Previous years sales broken down into 4 major componentsTrend: Growth of 3% due to technical development

Erratic events: 5% drop due to terror activities

Cycle: 10% reduction due to recession in demand

Seasonal: 15% up due to festive season in 3rd quarter2010 Sales = 900 Cr. Trend 3% ( 900x1.03) = 927

Erratic events 5% ( 924x0.95) = 880

Cycle 10% ( 886x 0.90) = 792

Seasonal 15% for 3 months ( 792/12=66 per month)

66 X 9 + 66 X 1.15 X 3 = 822

Sales forecast for 2011 = 822 cr.

Advantages: Takes into consideration all external / internal variables

Disadvantages: Historical data not considered. Complex statistical method

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Forecasting Process

Nave method:

What happened in the immediate past will continue

to happen in the immediate future

SF for next yr = actual sls for this yr x actual sls this yr

actual sls last yr

Advantages: simple to calculate, less data required, good

for short term FC

Disadvantages: not good for long term FC, fluctuation not

considered

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Forecasting ProcessRegression Analysis:

Statistical FC method to predict salesCompany identifies cause & effect relationship between

company sales and the independent variable(or factors) which

influence sales ( price, promotion, population

Advantages: High FC accuracy, Objective , can predict companys turning point

Disadvantages: Complex, expensive, time consuming, software package essential

Promo expenditure

Linear Positive

relationshipLinear negative

relationship

Curvilinear

relationship

Price Sales calls

sales sales sales

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Forecasting Process

Exponential smoothing method:

Closely related to moving average of all past data.The sales in certain period influence sales forecast more than

sales in other period. More weight-age given to recent data

High value for more recent period ( 0.8 )

Low value for earlier period ( 0.2 )

Advantages: simple to operate, useful data when sales data has trend orseasonal pattern, immediate response to upturn /downturn in sales

Disadvantages: smoothing constant is somewhat arbitrary, long term and

new product FC are not possible

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Sales Management

Management of sales Quota

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Sales Quota ( Target)

Estimated or predetermined volume(physical units) or value ( Rupee) of salesexpected to be achieved by sales forceover a given period of time

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Quotas ( Targets )

Sales assignments or goals to be achieved in a specificperiod of time

Managerial device for defining & stimulating sls efforts

Expectation of top management expressed in volumeor value for a specific future period

Companys expected market share assigned to SP in

each territory. branch, distributor, selling agent, dealer

Develop plans convert objective into targetsimplement plans evaluate results

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Quotas ( Targets )

Objectives

To maximize sales in physical & in monitory terms

To facilitate distribution of sales to various market segmentsand territories

To ensure systematic and rational physical distribution ofProducts

To make the best use of available sales force by fixing salesquotas in accordance with efficiency and experience of salesforce

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Quotas ( Targets )

Factors determining sales quotas

Past sales Potential of Market Production capacity

Advertising and sales promotion Product development Level of competition Living standard of customers

Sales forecast ( future prospects) Sales policy( discount, extension of credit policy, salescontests

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Importance of sales Quotas

Motivate Sales people- link with reward systemFeedback on their performance thro achievmt of Quota

Help weaker ones to pay attention to knowlge & skills

Learn from high performers the basic elements

There is no specific formula available in target setting

To be drawn from the market, taking into prevailingconditions in each territory based on SMART concept

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Procedure for setting Targets

One to one discussion between Sales Manager & SP

Fill in individual goal setting form

Conferencing with each Sales Person/group andcreate a win - win situation

Types of sales QuotasSales volume quota- quantity & time frame(mthly, quarterly, annual)

Points quota : set points & SP achieves through different products

Sales budget quota: sales volume + control expenses, margin / profit

Sales activity quota: sales + non selling activity

Combination quota: Target + customer + activity ( call to prospects,product demonstration etc. )

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Method of setting Quotas

Based on sales forecast: Total forecast break itdown to territory

Based on past experience: average of previous

year and add arbitrary percentage

Executive judgment : Sales Manager relies onPast experience to make future predictions

Sales people judgment : SPs familiar with marketset their own quota

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Advantages of sales quota

Evaluation of sales performance( actual vs achievement)

Locate weak and underdeveloped area

Control device activities of SP

Effective compensation plan

For conducting sales contest

Controlling selling cost

Source of motivation

Maximization of sales and profit

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Disadvantages of sales quota

Based on arbitrary estimate and past experience-misleading

Danger of ineffectiveness HO person fixes withoutKnowing territory problems ( demotivates sales person)

Unattainable high quota SP likely to give up

Short supply, too low quota Loss of interest due to loss ofIncentive

Danger of increasing bad debts- liberal terms, sales creditetc put pressure on business

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Sales Management

Class Assignment:

TATA Nano - forecast