Answer to Question #159035 in Economics for Noor ul Hira

Question

A reputable FMCG company is holding its Annual Sales Conference on January 30th 2021 for its New Year sales plan.The company is interested in launching new product beside its existing product lines.The new product will be novel in the history of the company.

)1.Discuss the techniques of forecasting that will be used by the company for its existing and new products and.explain specific type and reason for using those techniques. Also identify the limitations of these techniques.

Answer 1

Sales forecasting allows you to identify problems in a timely manner and take the necessary actions to eliminate them. For example, you notice that you are 35% behind the plan, it's time to figure out the reasons. Perhaps your competitors have started aggressive discount policies, or the productivity of salespeople has dropped significantly.

Timely identification of these reasons gives you the opportunity to correct the situation in time. It will be worse if you notice these changes at the very end of the month or quarter when you no longer have time to clarify the circumstances and make adjustments.

Sales forecasting is also important for a variety of other reasons, from hiring plans and resource allocations to goal setting and budgeting.

Imagine that forecasting shows 25% overfulfillment of the plan. In order to cope with the planned workload, it may be necessary to expand the team and hire more employees. If there is another trend and sales are planning to decline, then it is probably the right decision to suspend hiring or temporarily slow down the pace. Budgets for marketing and advertising, as well as for staff training, should be planned accordingly.

Among other things, sales forecasting is a powerful motivational tool for managers.

As an example, weekly, and if technology allows, then daily broadcasting of sales figures and fulfillment of the set plan will motivate managers to keep up with their goals.

One of the most important things about forecasting sales is that the forecast doesn't have to be perfectly correct in order to be of value. Sales forecast will almost always differ slightly from actual sales. Of course, a large discrepancy between forecast and fact in either direction indicates inaccurate forecasting or incorrect use of the method itself (we will talk about them a little later). Using the right data and methods will help you make an accurate forecast and thus fulfill the set plan, which will undoubtedly have a positive impact on the company's growth.

There are several methods for forecasting sales. Below we take a look at five of the most popular.

 

1) FORECASTING BY THE NUMBER OF TRANSACTIONS

This method is directly related to the stages of sales in your funnel. The further along the funnel a trade moves, the more likely it is to close. For example, deals that are at the “primary contact” stage will be closed with a 10% probability and deals at the “KP approval” stage with a 40% probability.

Choose the period you are interested in, usually a month, quarter, or year, it all depends on your sales cycle and employee plans. Next, you need to divide the probability of a deal by 100 and multiply by the estimated amount of the deal - we get the expected amount in case of the successful closing of the deal.

2) FORECASTING ON THE BASIS OF DURATION OF TRANSACTIONS

This method takes the duration of trades as a basis to predict when they are most likely to close successfully. For example, the average transaction period in your company is 3 months. If a sales manager has been working with a deal for a month and a half, it means that he is about halfway and the probability of successful completion of this deal is 50-55%.

This approach is subjective and does not take into account the feedback from employees on how the deals are going, so forecasting is very general. For example, suppose a salesperson has submitted a sales quote to a customer and tells you that the customer is almost ready to buy. But he only communicates with him for two weeks and the probability that the client will actually buy with an average transaction cycle of three months is around 17%. This suggests that a purchase is unlikely at this stage.

3) INTUITIVE FORECASTING

Some sales leaders ask their managers how likely they are to successfully close their current deals. Some of the managers might say, "I'm sure I will close a $ 50,000 deal within 14 days."

4) FORECASTING BASED ON STATISTICAL DATA

A quick, but at the same time, insufficiently accurate way of forecasting sales for a month, quarter or year is to compare the performance of this period of time over the previous period and expect similar results.

5) MULTIFUNCTIONAL SALES FORECASTING

The most difficult, but at the same time, the most accurate way to forecast sales. It includes all the factors and predictive analytics mentioned above, such as average lead time, probability of successful completion, individual managers' metrics, and statistics.

The simplest example of this kind of forecasting: imagine that there are two managers in your department. Everyone is working on their own deal. The first one is holding a meeting with the client's purchasing department, the second one has just made contact and is at the stage of identifying needs.

Taking into account all the factors influencing the successful closing of a trade: the average duration, the percentage of successful closings, the size of the trade, and the number of days before the end of the quarter, it turns out that there is a 40% chance that the trade will be closed in this quarter.