MARCH 15, 2012 MKGT 241 DR. DAWNE MARTIN Sales Forecasting

Administrative Things & Learning Objectives Due Thursday, March 28: Paper 4 -- Recap of Marketing Strategy Marketing Mix Due Tuesday, April 10 : Start up costs, Cash Flow and Profit/Lose Statements Next Big Thing – Due Sunday, March 25, 2012 Learning Objectives  To identify a method of sales forecasting that would work for your business  To identify sources of information to use in your forecasts  To review how to develop start-up costs, cash flow and income statement estimates and forecasts

Types of Forecasts Sales Forecast: Firm’s sale given a specific marketing program Market Potential: All potential customers Industry Sales: Forecast of all sales for this industry (as a percent of market forecast) Sales Potential: Firms sales given maximum marketing effort Market Forecast: Those who will buy during this forecast period

Examples of Forecasts & Uses Management Decisions Assessing market opportunity & allocating resources Evaluating competitive performance Planning for manufacturing and inventory Assessing the size of the sales force Type of Forecast Market potential & forecast Sales potential Sales forecast Sales forecasts

Determining Market & Sales Potential Statistical Series  Assumes there is a good relationship between demand and statistical series Example: # employees and number of uniforms  Single Series Method  Based on NAICS or market segments  Steps Select Statistical series Relate series to demand through usage factor Estimate series for desired time period Potential = usage factor X value of series for year  Multiple Series Methods – for more complex demand  Multiple regression techniques

Determining Market & Sales Potential Market Research  Uses  Estimate demand from few buyers  Estimate demand for new products  Supplement data from statistical series  Methods  Surveys – NAPM.ORGNAPM.ORG  Focus groups  Customer visits

Forecasting Methods: Judgement & Counting Methods Naïve Extrapolation Sales Composite Jury of Executive Opinion Scenarios Delphi Technique Historical Analogy Counting Methods  Market Testing  Market Survey

Association/Casual & Time Series Association/Causal Correlation Regression Models Leading Indicators Econometric Models Input-Output Models Time-Series Moving Averages Exponential Smoothing Adaptive Filtering Time-Series Extrapolation Times Series Decomposition Box-Jenkins

Where do you find the information? County Business Patterns Survey of Buying Power  us/index.jsp us/index.jsp Census tracks, county and city data

Estimating for a Local Business & Resources Step 1: Profile customer and trends in your industry  Growth rate of industry & industry sales  Market Line or Business & Company Resource Center (Library website)  Trade journals or trade associations  Internet usage patterns:  Forecasts of the Economy: economic-outlook/2011-economic-outlook/index.html?cid= : economic-outlook/2011-economic-outlook/index.html?cid= Step 2:  Current sales in your area (or sales of related category)  Survey of Buying Power  % of type of customers that buys this product and lives in your trading area – Area demographics from U.S. Consensus & trade data  Population demographics and geographical dispersion  Step 3: List and profile competitors  What percentage of market share does each competitor represent? 

Sales Forecasts Step 4: Use research to estimate sales on a monthly basis  Little or no sales for the first few months until you build awareness  Reduce your anticipated sales figures by at least 50% for the first year  Consider your competitors and their market share  Use 1 st year sales forecast to forecast for the next year by adding percentage of growth at or above industry growth rate

Information on Start Up Costs, Sales Forecasting & Pro-forma Income Statements Based on your sales forecast – estimate your breakeven time

Summary Demand Analysis and Sales forecasts are used throughout the organization Choosing a forecasting technique is based on:  Who and how it will be used  Time frame  Data available  Costs/Benefits Various methods may be used, but should combine top-down & bottom- up

Problem You have been asked to create an estimate of demand and a sales forecast for rubber matting to be used to cover the floor of stock trailers. What would you use as a surrogate number for the total demand potential? What would you need to know in order to move from the total potential to a yearly sales forecasts?