Forecasting sales and Developing
Budgets
Dr.Pusanisa Thechatakerng
E-mail: drsunnyt@yahoo.com
1
Market Potential and Sales Potential (I)
The total expected sales of a given product or service
for the entire industry in a specific market over a state
of time (total industry concept)
Four elements:
• The item being marketed (the product, service, idea,
person or location)
• Sales for the entire industry in dollars or product
• A specific time period
• A specific market delineated either geographically, by
type of customer, or both.
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Market Potential and Sales Potential (II)
Sales potential
The maximize share (or
percentage) of market potential
that an individual firm can
reasonably expect to achieve
Company’s sales potential – specific the product, market,
and time period
Ex. Budweiser brand accounted for 40% of the
approximately 180 million barrels of beer consumed in the
USA in 2004
- Budweiser beer’s sales potential is close to 40% of market
in the coming year
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Market Potential and Sales Potential (III)
Sales forecast
An estimate of sales (in dollars)
that an individual firm expects to
achieve during a specified
forthcoming time period, in a
stated market, under a proposed
marketing plan
Less than the sales potential for many
different reasons
Ex. 4ps < quality, financial problem
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Estimating Market Potential and Sales
Potential (I)
1. Market-factor Derivation
– Market factor
• An item or element in a market that causes the demand
for a product or service or
• Related to the demand
Ex. Bangkok’s population annual as a market factor
underlying the demand for sandal. This element is related to
the number of sandal that manufacturer can sell
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Estimating Market Potential and Sales
Potential (II)
Market-factor Derivation
Ex. Bangkok’s population annual as a market factor underlying
the demand for sandal. This element is related to the number
of sandal that manufacturer can sell. The sales potential for
sandal as follows:
Estimate number of Bangkok’s pop
= 4,000,000
Times: percent who buy sandal
=
Market potential
Times: Potential market share
Sales potential
x 0.33 (33%)
1,350,000
=
x 0.30 (30%)
396,000
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Estimating Market Potential and Sales
Potential (III)
2. Surveys of Buyer Intention for determining
potential
– Consists of contacting potential customer and
questioning them about whether or not they
would purchase the product or service at the price
asked.
Ex. The manufacturer established that it would be satisfied if
it sold 50,000 leather sandal pairs per year. Since the cost of
the pair would be higher than that of plastic pair. The
manufacturer want to know 2 things. First, how many people
would buy product at retail price B.200? Second, What did
customers think the price of such a product should be?
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Estimating Market Potential and Sales
Potential (IV)
• Survey through personal interviews with 240 Bkkpop.
• 170 of 240 (approximately 71%) were interested in product.
• They indicated that price should be B.130 to capture that size
of market
• The average (mean) price quoted (B.145) would eliminate half
of respondents who showed interest in the product.
• Still 10 people (4% of market) said they would be interested in
purchasing the product at retail price B.200
• Survey showed 1/3 of BKKpop purchase sandal
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Estimating Market Potential and Sales
Potential (V)
Estimate number of Bangkok’s pop
= 4,000,000
Times: percent who buy sandal
=
x 0.33 (33%)
Market potential
1,350,000
Times: taking 4% of the result
=
x 0.04 (4%)
Market potential for B.200 leather sandal = 52,800 pairs
>50,000 = o.k
Yes - based on information obtain directly from people
No – cost & time
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Sales Forecasting
•Executive opinion
Survey methods:
•Sales force composite
•Buyers’ intentions
•Moving average model
Mathematical methods
•Exponential smoothing
models
•Regression models
Operational method
“Must-do” calculations
•Capacity-based calculations
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Source of sales forecast data
-Executive opinion
Executives & managers
Customers
-Sales force composite
Survey of buyer intention
-Moving average models
Historical data
-Exponential smoothing
-Regression analysis
Company operation
-“Must-do” approach
-Capacity-based approached
-Test market
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Moving average method
Month
Actual sales
Total sales (3 months) Forecast sales
1
120
-
-
2
130
-
-
3
110
360
120.00
4
140
380
126.67
5
110
360
120.00
6
130
380
126.67
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Exponential Smoothing Models
Month
Actual sales
Total sales (month/s)
Forecast sales
1
x
120
=
120
-
2
x
130
=
260
-
3 (6) x
110
=
330
710
4
118.33
5
128.33
6
120.00
P.S 6/710=118.33
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Regression Analysis
(sales trends into the future)
Sales
(millions)
2010 forecast, 10 yrs
base
35
30
25
20
15
10
5
2001
02
03
04 05
07
09 10
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“Must-Do” Forecasts
• Reasonable forecast is the sales that must be
achieved for the firms to reach its break-even
point.
• Ex. One new service enterprise budgeted its
total overhead costs at $165,000 for the first
year. The entrepreneur desired a profit of
$60,000, which would represent her salary.
Thus, she projected sales at $225,000 for the
year and proceeded to plan on that basis
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Capacity-Based Forecasts
• Ex. Restaurant 10 tables, each table for 4
people, only lunch 30 Baht/food with drink,
open everyday
• So 10x4 = 40 seat
•
40x30x365 = 438,000
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Review the forecasting process (Method)
• Use more than one method
• Select the right method
– Short period
• Moving average models
• Exponential smoothing models
– Long period
• Regression models
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Problems (I)
• Indicate what market factor or factors you
would use to estimate the market potentials
for each of the following products: McGrawHill economics textbooks, Chang Beer, 12 plus
roll-on, Johnson baby powder, Nike sport
shoe, MK Suki.
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Problems (II)
• In, general, how do sales forecast based on
surveys differ from forecasts based on
mathematic methods?
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Problems (III)
• Tiger company’s monthly sales;
Months:January, February, March, April
Sales 250
268
320 345
Forecast sales force on May by using moving
average method (3,2,1)
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Problems (IV)
• Tiger company’s monthly sales;
Months:January, February, March
Sales 250
268
320
Forecast sales force on April by using
exponential smoothing method (3,2,1)
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