N5 Sales Management 1. The importance of forecasting
A sales forecast is an estimate of sales at some point in the future. The most important function of forecasting is that it provides a basis for organisational planning and budgeting and forms part of the strategic planning process of a business. Managers can determine how many units to produce and distribute.
The basic purpose of forecasting is to: • Predict how much a business: “Clover”, can sell • During a specified period: “one year” • Under a given marketing plan: “marketing mix/4 Ps” • The products “for example butter, milk, cream, cheese, beverages etc., the flavours, package sizes (350 g, 500 g, 1 kg), are the size staying the same?
• The price “R42,95 for 250 g salted butter” • Promotion: “any competitions planned?” • Place: “any new outlets?”
Forecasts are used by the production, finance and all other departments to plan their work and determine their requirements (for example cash flow and stock control) for a specific future period. For example, before a production schedule can be developed, the business must know: • How much it expects to sell in the coming period • This in turn will determine the material and labour input required • Sales managers must know if/how many new salespeople to hire • What their operating budget will be.
Important benefits derived from accurate forecasting is: • Improved cash flow • Comprehensive knowledge of customers and the products they buy • Skill to plan for production and capacity • Knowing when and how much to buy • The ability to identify the pattern or movement of sales • Ability to determine the expected return on investment
Often the forecast is just an estimate. This is the case when a forecast is needed for some new product for which there is neither a sales history, nor any industry statistics. In other situations, sales of a product or service are recognisably connected to some factor in the marketplace, for example an increase of bond rates, influencing property sales. There is thus information to base the forecast on. Finally, in some situations, a businesses future sales are highly dependent upon seasonal or cyclical forces, for example the sales of swimming pools or ice cream.
DEFINITION
A sales forecast is an estimate of sales in Rands or units that an individual business expects to achieve during a specified time period, in a stated market and under a proposed marketing plan.
Forecasting is an extremely important activity in a business and can be the difference between only surviving and being highly successful. For sales forecasting to be valuable, it must not be treated as an isolated exercise but must be incorporated into all aspects of a business.
Watch the following video on the Importance of Sales Forecasting:
http://smallbusiness.chron.com/
effective-sales-forecasting-72313.html
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