Sales forecasting and sales budgeting

SALES FORECASTING
METHODS AND SALES
BUDGETING
By: Dr. Sandeep Solanki, Associate Professor
RNBGU, Bikaner

MEANING OF SALES FORECASTING
Sales forecasting is a process of estimating the future sales patterns of a firm by taking
the past information and opinion into account for a desired period of time. A sales
forecast can be done either in rupee terms or in terms of units for a specific future
period of time based on a marketing plan and assumptions related to the marketing
environment. Industry sales, company sales, category-wise sales for a wider product
mix, and individual product line sales can be forecasted with a certain level of
probabilities and estimations. Sales manager in a typical MNC forecast customer,
sales territory, regional, divisional, national and global sales. Forecasting can be
done for short-range (6m to 2yrs.) and long-range (more than 2 yrs.) demand.
For example HUL can forecast the shampoo sales for the country (called category
forecast), and then can find the forecast for HUL (company sales forecast) and
subsequently for the brand Clinic Plus Shampoo and other brands.
Sales goals are generated from sales forecasts for product and product lines, individual
sales people, or company divisions. Once plans have evolved into sales forecasts, the
sales managers develop sales budgets for achieving the sales forecasts in the
proposed time period.
1/31/2018ByDr.SandeepSolanki

DETERMINANTS WHILE SALES FORECASTING
Some other determinants at the micro-level which
affect the sales forecast of the product are:
1) Nature of the product (perishable or durable)
2) Stages of the PLC (Electric Vehicles of Suzuki),
3) Degree of Innovation (mobile phones)
4) Planned marketing expenditure to be realized
5) Consumption frequency of the customer

TYPES OF SALES FORECAST
Firms refer to sales forecast by defining three factors: product level, geographic area and time period.
Following types of sales forecast may comprise maximum of 90 different types of sales forecasting:
A. Product Level
a) All (total) Sales
b) Industry Sales
c) Company Sales
d) Product Line Sales (ex:various uses of caustic soda)
e) Product Variant (form) Sales
f) Product Item Sales
B. Time Period
a) Long Term
b) Medium Term
c) Short Term
C. Geographic Area
a) World
b) National (India/US)
c) Regional (North/South)
d) Territory (Branch/District)
e) Customer

IMPORTANCE OF SALES FORECASTING
If demands for a particular firm can be predicted with a certain
level of accuracy:
1) The procurements can be channelized as per the demands.
2) Corresponding inbound logistics of the raw material to the
factory and the inventory level can be regulated.
3) Final output inventory level can be modified during the
production process depending on sales patterns.
4) Production Schedule can be maintained in proper line.
5) Setting up Production Capacity
6) Overall cost of production can be controlled.
7) Demand due to seasonal fluctuation can be maintained to
manage supply chain more efficiently.
8) HRM for manpower planning.
9) It also help in deciding the amount of capital to be borrowed in
the form of debt and the cash flow required to run the
business.
10) The forecast helps the manager to decide the basis of sales
quota to different segments, zones and salesman.

SALES FORECASTING METHODS
I. QUALITATIVE METHODS:
1. Expert’s Opinion or Executive Opinion
2. Delphi Method
3. Sales Force Composite
4. Survey of Buyer’s intentions or expectations
5. Test Marketing
6. Historical Analogy
II. QUANTITATIVE METHODS:
7. Moving Average
8. Exponential Smoothing
9. Ratio / Naïve Method
10. Decomposition
11. Regression

EXECUTIVE OPINION METHOD
In this method, the services of experts in that area such as marketing
professionals, important members of the distribution channel (key
retailers or distributors or dealers), and top executives of the
company as well as professional bodies such as industry associations
and marketing consultants may be asked for. Forecasting on the
basis of expert’s opinion is done in two ways:
(1) by one seasoned individual (usually in a small company)
(2) by a group of individuals, sometimes called a ‘jury of
executive opinion’. The group approach, in turn, uses two methods:
(i) key executives submit the independent estimates without
discussion, and these are averaged into one forecast by the chief
executive, (ii) the group meets, each person presents separate
estimates, differences are resolved, and a consensus is reached.

EXECUTIVE OPINION METHOD
The advantages of this method are: (i) forecasting can
be done quickly and easily, (ii) less expensive than
other methods, and (iii) very popular, particularly
among SMEs.
However, there are disadvantages: (a) unscientific, (b)
subjective, and (c) difficult to break-down the forecast
into subunits (like regions, branches) of the
organization.

THE DELPHI METHOD
This method was developed by Rand Corporation in late 1940s (R&D
company of Doughlas Aircraft, USA).
The procedure includes selection of panel of experts from within and
outside the organization with a Delphi coordinator. The coordinator
asks each expert separately to make a forecast on some matter. Each
member of the expert panel submits in writing his/her forecast
anonymously.
Only the coordinator will know all the members of the team and only
he will have access to all the responses.
The coordinator summarizes these forecasts into a report that is sent
to each panel members. The experts are then asked to make another
prediction separately on the same matter, with the knowledge of the
forecasts of the other experts on the panel. This process is repeated
until the panel of experts arrive at some consensus or when
explanations for deviant opinions have been given. The process aims
at gradual reduction of the variability in forecasts.

The advantages of this method are: (i) objective
forecast that is accurate, (ii) useful for technology, new
product and industry sales forecast, and (iii) both long-
and short-term forecasting possible.
However, the disadvantages are: (a) difficulty getting a
panel of experts, (b) longer time for getting consensus,
and (c) break-down of forecast into products or
territories is not possible.
THE DELPHI METHOD

MOVING AVERAGE METHOD
This is relatively simple method that develops a company forecast
by calculating the average company sales for previous years. The
formula used is:
Sales forecast for next year = Actual Sales for past 3 or 6 years /
Number of years (3 or 6)
When a forecast is developed for the next period, the sales in the
oldest period is dropped from the average and is replaced by sales
in the newest period, hence the name “moving averages”. If a
company operates in a stable environment, a short two or three
years’ average may be most useful. However, if a firm is in an
industry with cyclical variations, the moving average should use
data equal to the length of a cycle or a longer averaging period.

EXAMPLE:
Year Actual Sales (in
Millions)
3 year Moving
Average
6 year Moving
Average
1997 840
1998 880
1999 864
2000 832 861
2001 862 858
2002 948 852
2003 956 880 871
2004
(forecast)
922 890

The advantages of this method are: (a) relatively
simple method, (b) easy to calculate and (c) widely
used for short-term and medium-term sales forecasts.
The disadvantages are: (a) unable to predict a
downturn or upturn in the market, (b) cannot predict
long-term sales forecast accurately, and (c) historical
data needed.

EXPONENTIAL SMOOTHING METHOD
This method is an extended use of moving averages
forecasting method, except that in the exponential
smoothing method the forecaster is allowed to vary the
weights assigned to past data points. It allows consideration
of all past data, but less weight is placed on data as it ages,
e.g. the previous year’s data has greater weight than five
years’ old data.
So exponential smoothing is basically a weighted moving
average of all past data. The method is used to forecast only
one period in the future. Exponential smoothing techniques
vary in terms of how they address trend, seasonality,
cyclicality and irregular influences.

While using this method, a probability-weighing factor (a) or
smoothing constant (a), is selected arbitrarily. This factor
may be between 0.1 to something less than 1.0, depending
upon the sensitivity of the forecast to past data. The larger
the value, the more sensitive the forecasting values will be
to recent changes in sales.
If sales change consistently, the smoothing constant (a)
would be small to retain the effect of earlier data.
Rapid changes call for a large (a). Several values for (a) can
be applied to past forecasts and actual data to help
determine the most appropriate (a)for the particular
situation. The value that proves to be most accurate then
can be chosen for future forecasting.

The forecasting equation is:
Next year’s sales = (a) (This year’s sales) + [1 - (a)] (This
year’s forecast)
Example: Given that the (a) is 0.2 and actual sales of
this year 2003 was Rs.956 million and the moving
average forecast for this year 2003 was Rs.880 million,
then the sales of next year 2004 will be:
0.2 x 956 + (1 – 0.2) x 880 = Rs.895 million

The advantages of this method are: (a) simple to
operate, (b) forecaster’s knowledge or intuition can be
used in forecasting, (c) useful method when sales data
have a trend or a seasonal pattern, (d) immediate
response to an upturn or downturn in sales, and (e)
used by many firms.
The disadvantages are: (a) smoothing constant is
somewhat arbitrary and (b) long-term and new product
forecasting is not possible.

NAÏVE OR RATIO METHOD
Naïve or ration method is a time series method of
forecasting, which is based on the assumption that what
happened in the immediate past will continue to happen in
the immediate future. This method ignores the irregular
components, and assumes that seasonality and cyclicality
do not exist, and that the trend is flat.
The simple formula used as follows:
Sales Forecast for the Next year = Actual Sales of this year x
Actual Sales of this year / Actual Sales of last year
Example: Actual Sales of this year (2003) is Rs.956 million
and the actual sales of last year (2002) was Rs.948 million.
The next year (2004) sales forecast would be = Rs.964 million

SALES FORCE COMPOSITE METHOD
12/2//2018ByDr.SandeepSolanki
This method involves salespeople to estimate their future sales.
It is an example of bottom-up approach and is also called a
“grass-roots” approach. Each sales person estimates in his/her
territory how much quantity or value existing and potential
customers will buy of each of the company’s products and/or
services. This method is often used by industrial or business
marketing companies. Sales representatives make the sales
estimate in consultation with customers and sales supervisors,
and/or based on their experience and intuition. The company
sales forecast is made up (composite) of all the salesperson’s
sales forecast.

The advantages of this method are: (i) forecasting is done by
salespeople who are closest to the market and have better insight
into sales trends than any other group in the company, (ii) detailed
sales estimate broken down by customer, product, sales
representative and territory are possible, and (iii) involvement of
salespeople.
The disadvantages include: (i) sales forecast are often
pessimistic or optimistic, as sales people are not trained enough
in forecasting, (ii) if sales forecast are used to set sales quotas,
which are linked to incentive schemes, salespeople may
deliberately underestimate the demand, and (iii) many
salespersons are not interested in sales forecasting, and prefer to
spend time in the field meeting customers.
SALES FORCE COMPOSITE METHOD

SURVEY OF BUYER’S INTENTIONS OR EXPECTATIONS
This method is sometimes called as market research (or market survey). It
includes asking existing and potential customers about their likely
purchases of the company’s product and services for the forecast period.
For instance, if the question is asked: Do you intend to buy a refrigerator
within next six months?
The above is called a purchase probability scale. The customers are also
asked other questions, such as product quality, features, price and
service, which are all a part of the questionnaire. The information collected
from buyers help the company to make effective decisions not only in
sales & marketing areas, but also on production, research & development.
0.0 0.20 0.40 0.60 0.80 1.0
Not at all Slight Possibility Fair Possibility Good Possibility High Possibility Certain Buying

Several research organizations conduct periodic surveys of the
consumer buying intentions. One such survey is done every quarterly
since Dec. 2002 in India by The Economic Times, which measures the
consumer optimism through consumer confidence index (CCI).
The advantages of this method are: (i) useful in forecasting sales for
industrial products, consumer durables, and new products, (ii) it also
gives customer’s reasons for buying or not buying, (iii) relatively
inexpensive and fast, when only a few customers are involved.
The disadvantages are: (i) sometimes buyers are unwilling to reveal
their plans, (ii) buyers are sometimes over optimistic, and (iii) expensive
and time-consuming in consumer non-durable markets where
consumers are very large in number.
SURVEY OF BUYER’S INTENTIONS OR EXPECTATIONS

This method is useful for forecasting sales for a new
product, which has no historical (or previous) sales figures. It
can also be used for estimating sales for an established
product in a new territory. Major methods used for
consumer-product market testing include:
1) Full-Blown Test Markets
2) Controlled Test Marketing, and
3) Simulated Test Marketing
TEST MARKETING

Full-Blown Test Markets: It consists of the company choosing a few (2 to
6 days) representative cities, in which full promotion campaign is
introduced, similar to what would be done in national marketing. The
duration of the test market varies from a few months to one year,
depending on the repurchase period of the new product. Buyer surveys
are carried out to get information about consumer attitude, usage and
satisfaction towards the new product.
If the test markets show high trial and repurchase rates, the product
should be launched nationally; if they show a high trial rate and a low
purchase rate, the new product should be redesigned or dropped; if they
show a low trial rate and a high purchase rate, the product is acceptable
but more consumers should try it; if both trial and repurchase rate are
low, the new product should be left permanently.
TEST MARKETING

Controlled Test Marketing: The company with the new product hires a
research firm and gets a panel of stores at specified geographic locations.
The research firm delivers the new product to the panel of stores, arranges
promotions at the stores, and measures the sales of the new product. The
research firm also interviews a sample of consumers to get their perceptions
on the new product. Both full-blown and controlled test marketing expose
the new product to the competitors.
Simulated Test Marketing: In this method, about 30-40 consumers (or
shoppers) are selected, based on their brand familiarity and preferences in a
particular product category, such as baby-care or soft drink. These shoppers
are shown commercials or print advertisements of well-known products and
also the new product, without any specific mention. These consumers are
given a small amount of money and asked to buy any items in a store.
TEST MARKETING

The researcher of the company notes how many consumers buy the new product and
competing products. These consumers are interviewed to find reasons for buying or
not buying, and later, after usage of the new product, satisfaction levels and
repurchase intentions. This method gives accurate results. The new product is not
exposed to the competitors.
The main advantages of these methods are: (i) their usefulness for forecasting the
sales of new or modified products, and (ii) in deciding whether a company should go
ahead for a national launch of a new product, without spending a huge amount. The
disadvantages are: (i) for some of the methods like full-blown test market and
controlled test marketing, where there are possibilities of the information on new
products going to competitors, there are chances of spoilage of the test marketing, (ii)
if repurchase period is ling, particularly for consumer durables, it is difficult for the
company to wait to measure test results. In such cases, the company decides to
introduce a new product in a small geographical area and subsequently ‘roll on’ to
other areas, in a planned manner.
TEST MARKETING

This is used for forecasting the demand for a product or
service for which there is no past demand data. Sometimes
the product may be new but the organization might have
marketed other products earlier with features similar to those
of the new product. So, the marketing personnel may use
the historical analogy between the two products and derive
the demand for the new product using the historical data for
the earlier product. Example: introducing another new soap
in the market with a different brand name by an FMCG
company.
HISTORICAL ANALOGY

In this method the company’s previous periods sales data is broken
down (or decomposed) into four major components such as: trend, cycle,
seasonal and erratic events. These components are then recombined to
produce the sales forecast.
For example: Given that the sales of 2003 was Rs. 956 million and we
need to forecast the sales for next year of 2004. Assume that various
analysis have broken down the previous sales data into the following
components;
i) a growth of 3% in sales due to the development in technology (the
trend component) i.e, 2004 sales would be Rs. 985 mn. (956*1.03),
further;
ii) increased terrorist activities are expected to reduce sales by 5% (the
erratic component) i.e, 2004 sales would be affected upto Rs. 936 mn.
(985*0.95), further;
DECOMPOSITION METHOD

iii) a 10% reduction in sales is expected due to a recession in
demand (the cyclic component) i.e, 2004 sales would be Rs. 842
mn. (936*0.90); hence the annual sales forecast of the year 2004
will be Rs. 842 million without considering the seasonal
fluctuations.
But in practice, seasonal component like festive season is also
considered. So, in the third quarter of the year, sales is expected to
go up by 15% due to festive season as compared to other three
quarters. Thus, the average quarterly sales will be Rs. 210 (842/4).
But for the third quarter it would be Rs. 242 (210*1.15) and a
consistent sales forecast Rs. 200 (842-242 = 600/3) each for other
three quarters.

The major advantage of this method is that it is conceptually
a sound method.
However, the disadvantage are: (i) difficult and complex
statistical methods are needed to break down sales data into
various components, and (ii) historical data is needed.

This is a statistical forecasting method that is used to predict sales,
called as dependent variable ‘Y’ (Sales shown on Y-axis in the graph).
The company then identifies causal (cause & effect) relationship
between the company sales and the independent variables (or factors),
which influence the sales. If there is only one independent variable
(shown on X-axis in the graph), say promotional expenditure, then it is
called linear (or simple) regression.
But in practice, company sales are influenced by several independent
variables such as price, sales calls, population etc. To forecast the effect
of several independent variables on the company sales, the method
used is Multiple Regression Analysis.
REGRESSION

The advantages of regression analysis are: (i) high
forecasting accuracy, if relationships between variables are
stable, (ii) objective method, and (iii) can predict turning
points of the company’s sales.
The disadvantages are: (i) technically complex, (ii) can be
expensive and time consuming, and (iii) use of computer
and software packages (like SAS & SPSS) are essential.
REGRESSION

1. Strategic Planning & Goal Setting at Corporate Level
2. Sales Strategy at SBU Level
3. Performance Measurement, Diagnosis & Corrective
Action at Functional or Operational Level:
(A) Sales Analysis,
(B) Marketing Cost Analysis and
(C) Sales Audit
(D) Sales Budgeting
SALES MANAGEMENT PROCESS & CONTROL

STRATEGIC PLANNING & GOAL SETTING AT CORPORATE
LEVEL
Fig. Strategic Sales Management Programme

LEVEL
Fig. Strategic Sales Planning At Various Levels

The Sales Management Process in any organization involves three
inter-related steps:
1) Formulation of Strategic Sales Management Programme:
The sales planner must take into account the influences and
constraints imposed by the external environment. The demands of
the potential customers and the strategic moves of competitors. The
other environmental factors include the legal & political, social &
cultural, the technological and natural environment. Analysis of
internal or organizational factors also determine the nature of sales
programme. Human, financial resources, the level of capacity
utilization, and the innovation cycles prevailing in the environment
decides the company’s ability to pursue the market expanding
goals.
LEVEL

There are few key decisions which a sales manager must ponder:
(a) how the personal selling efforts can be dovetailed to the company’s
environment and integrated with marketing strategy.
b) in what way the potential customers can be approached, persuaded and
serviced.
(c) designing the sales force suitable to the market.
(d) deciding over the sales forecasts, quota and budget-setting.
(e) deployment of the firm’s sales force in the light of the account
management policy.
At Corporate Level, strategic planning is developed at the company’s
headquarters to guide the whole organization. The planning process includes
four steps: (i) developing corporate mission and objectives, (ii) defining
strategic business units (SBUs), (iii) allocation of resources to SBUs, and (iv)
developing corporate strategies to fill the strategic planning gap.
LEVEL

2) Implementation of a Strategic Sales Management Programme:
Implementation of the strategic sales management programme involves
motivating people and directing their efforts and energy towards the
achievement of the corporate goals. Factors that influence the job
performance and behavior of salespeople are:
(a) Conditions of the economy influences the organizations’ demand
pattern and hence the sales performance level sales staff.
(b) Elements of marketing mix such as the perceived quality of the
product, the pricing policy followed in the market, and the level of
promotional support influence the sales performance of the salesforce.
(c) A salesperson’s job is defined by the roles and expectations of the
sales manager, the marketing manager, and other employees in the
organization.
STRATEGIC PLANNING & GOAL SETTING AT SBU
LEVEL

(d) The salespeople should be motivated enough to stay committed to the job through
some financial rewards, job enrichment and promotions.
(e) The ability of the sales people to achieve the desired level of outcome which is
influenced by the environment in which they operate. Personal traits of the salesman
such as personality traits, level of intelligence, and analytical ability to comprehend the
selling situations will decide his success level in the sales field.
(f) Adequate knowledge about the product market conditions, presentation
effectiveness and competitor product performance information.
(g) Training is an ongoing process to upgrade the knowledge and skill level of the
sales force.
(h) Sales managers need to develop effective supervision policies and procedures so
that the salespeople can obtain advice and guidance from the management. A
supervision policy should give enough freedom to the sales force to apply creative
selling skills in realizing a sale.
LEVEL

At SBU level, the strategic planning process includes following eight
steps:
(i) Defining the business unit’s mission
(ii) Scanning the external environment (for opportunities & threats
analysis)
(iii) Analysis of the internal environment (for assessment of
strengths and weaknesses)
(iv) Developing long-term objectives and goals
(v) Formulating strategies for achieving the objectives and goals
(vi) Preparing programme or action-plans from the strategies
(vii) Implementing the strategies and action-plans
(viii) Monitoring results and taking corrective actions
Accordingly, sales budgeting and sales strategy is conceived.
LEVEL

3) Evaluation and Control of Sales Force Performance:
Sales control is an integral part of the sales management process and
necessary follow up to planning. Control is a pre-requisite to planning. It finds
out where, when, how, and why things go wrong from time to time and
suggests or take necessary steps to correct the wrong or deviations when
appropriated. One of the most important responsibilities of a sales manager
is to exercise control over the sales results and the performance of the
selling activities. Ensuring that the sales targets are achieved consistently,
sales need to be controlled both on continuous basis as well as periodically.
Main objectives of sales control are as follows:
(i) Identifying Opportunities
(ii) Measurement of Sales Performance
(iii) Identifying negative features and diversions
STRATEGIC PLANNING & GOAL SETTING AT
OPERATIONAL / FUNCTIONAL LEVEL

Sales Control Procedure involves following steps:
(i) Setting of performance objectives: The first step in the control process is the
establishment of standards against which actual performance can be compared.
Establishment of performance standards is part of the sales planning and sales budgeting
process. Sales planning sets sales quotas, which act as standards. Sales budgeting also
sets targets cost levels and provides budgetary allowances for the various types of sales
activities. The amount fixed for various sales related activities acts as standard for
comparing actual expenditure levels.
(ii) Comparison of actual sales objectives with the set performance objectives: In this step,
actual sales and cost results are compared with the standard or budgeted figures.
Significant sustained differences indicate that something is wrong either with the planning or
with the operation. On the other hand, if sales is below sales quota set and the spending
level is above the budgeted allocations, it is then certain, that the process is out of control.
The causes of divergences may be controllable or uncontrollable. If controllable, then
corrective actions may be taken or revising the standards or actions.

(iii) Taking of corrective action in case of deviation: There are two options
– modify the standards or alter the results. Modify the standards in the
event of uncontrollable factors and alteration of results with strict control
over sales activities in the event of controllable situations.
(Note: will also be covered in detail in Unit-3)
Purposes of Sales Control are:
(i) To implement steps for improving the productivity of sales force
(ii) To increase sales profitability
(iii) To revise the sales policy and the strategies followed
(iv) To improve the quality of target setting, sales planning and budgeting
functions
(v) To initiate remedial steps

At functional or operational level, Sales Control Methods
involves measuring sales performances and diagnosis
through:
1) Sales Analysis
2) Marketing Cost Analysis
3) Sales Audit
4) Sales Budgeting
SALES CONTROL METHODS AT OPERATIONAL /
FUNCTIONAL LEVEL

1. SALES ANALYSIS:
Meaning: The purpose of sales analysis is to find out overall performance of
sales function. It measures how effectively sales efforts have resulted in sales
performance, in terms of sales by product, sales by territory, sales by customer
accounts, sales by salesmen, and sales by area. Though all sales analysis explains
the volume of sales, they explain different aspects of sales. They help in finding out
which sales areas are good, which products are moving faster, and which salesperson
in the same territory sells better or poorer by others. Though it can explain the sales
response behavior but why such results have been derived, needs further analysis of
sales strategy, sales forecasted, or competitor’s moves. It involves scrutiny of sales
data by assimilating, classifying, comparing and drawing conclusions about overall
sales performance. Sales analysis conducted at various levels inside an organization
is called ‘hierarchical sales analysis’. It leads to certain degree of evaluation and
control, as well as helping in identifying strengths and weaknesses of salespeople in
different territories.
FUNCTIONAL LEVEL

Meaning……………
Such a diagnostic method improves managerial ability of the sales leaders, in both
identifying problems, and taking corrective action. The most widely used method of
sales analysis is comparison of performance with sales quota. Similarly, companies
also undertake analysis between forecasted numbers with actual numbers (as a
control measure). The starting point for sales analysis is invoices, cash memo, credit
sales memo, etc. Management has to decide the units of measurement in which the
sales data is to be analyzed. Sales data may be analyzed in rupees, units of products,
cases of packaging, length in metres etc.
Major Approaches or Types of Sales Analysis:
1) Geographical or Territorial Analysis or Composite Sales Analysis
2) Product Analysis
3) Sales Person’s Analysis
4) Customer Accounts’ Analysis
5) Area Analysis
FUNCTIONAL LEVEL

1) Geographical or Territorial Analysis or Composite Sales Analysis: In this
method sales managers scan the total sales on territory basis. It is the grouping &
analysis of sales by geographical or territorial units. Analyze the below table and
comment:
FUNCTIONAL LEVEL
SALES NORTH EAST WEST SOUTH
Sales 138 134 139 240
Sales Quota 167 129 147 268
Effectiveness% ? ? ? ?
Last Year Sales 120 98 130 200
Growth in % ? ? ? ?
Industry Sales 1500 1200 670 890
Market Share % ? ? ? ?

2) Product Analysis:
It is concerned with the variations between different (sizes & varieties) products
sold by the company. Analyze the below table and comment:
FUNCTIONAL LEVEL
By Product Type Quota Actual Sales ( + / - ) % of Quota
Soaps 126 108 ? ?
Toothpastes 234 213 ? ?
Detergents 456 467 ? ?
Perfumes 700 680 ? ?

3) Sales Person’s Analysis:
In this method the various sales person’s performance is analyzed in a
territory. Analyze the below table and comment:
FUNCTIONAL LEVEL
Sales Persons Quota Actual Sales ( + / - ) % of Quota
Rakesh 95 93 ? ?
Rajeev 115 117 ? ?
Amit 110 109 ? ?
Rajit 106 110 ? ?
Pradeep 108 107 ? ?
Sharad 110 112 ? ?
Manoj 130 106 ? ?
Nitin 116 116 ? ?

4) Customer Accounts Analysis:
It is concerned with variations which occur between customers of different types
or individual customers. Analyze the below table of sales of a typewriter and
comment; We see that one important account i.e, government dept. is
responsible for sales person’s poor performance on that product line.
FUNCTIONAL LEVEL
Accounts Quota Actual Performance as % of
quota
Govt. Dept. 24 2 ?
Fin. Institutions 12 12 ?
Private Parties 10 10 ?
Banks 20 20 ?
Educational Inst. 14 14 ?
Industrial
Undertaking
16 16 ?

5) Area Analysis:
Sometimes sales analysis of select cities or areas becomes necessary. Analyze
the below table and comment:
FUNCTIONAL LEVEL
Sales Area Quota Actual Sales ( + / - ) % of quota
Chennai 240 267 ? ?
Madurai 168 108 ? ?
Trichy 120 135 ? ?
Coimbatore 134 121 ? ?

2. MARKETING COST ANALYSIS:
Marketing cost go beyond sales costs and include all other costs,
including advertising & promotion cost, physical distribution,
transportation, warehousing, sales administration, market research,
loyalty programme costs etc. It helps sales managers:
i) Reduce unnecessary expenses and increase operational efficiency
ii) Improve competitive position of the firm
iii) Pruning unprofitable products, customer segments and distribution
channels and enables concentrate on most profitable market
segments
iv) Appraise the true cost of various services such as after-sales
service, delivery and extended credit to consumers
v) Measures productivity of expenses on various marketing expenses
vi) Searches a way to improve profit performance through exposing
relative strengths and weaknesses
FUNCTIONAL LEVEL

By relating sales, cost and financial dimension of each selling transaction and
activity it can generate:
(i) Average value of orders
(ii) Average cost per orders
(iii) Sales to Call Ratio
(iv) Profit per rupee of sales
(v) Turnover of Stock and Profitability
(vi) Expense to Sales Ratio
(vii) Profit per segment, channel & territory
(viii) Total operating and functioning cost – product wise, region wise etc.
Techniques of Marketing Cost Analysis:
1) Bases for allocating common expenses
2) Classifying selling expenses
3) Contribution Margin
4) Converting accounting expenses data to activity expense groups
FUNCTIONAL LEVEL

3. SALES AUDIT:
Sales Audit has been defined as, “a systematic, critical,
unbiased review and appraisal of the basic objectives and
policies of the marketing function and of the organization,
methods, procedures and personnel employed to implement
those policies and to achieve those objectives.” The sales
audit is a reviewing function primarily concerned with the
evaluation of overall marketing strategy. Its main purpose is
to identify opportunities for improving the effectiveness of the
total marketing efforts.
FUNCTIONAL LEVEL

Procedure of Sales Audit:
a) Examining of sale objectives with regard to precision, appropriateness, realism &
challenge
b) Reviewing plans and policies (explicit & implicit both) whether they are appropriate from
the standpoint of their consistency. The auditor should also review the allocation of
resources to individual segments as compared with the company philosophy and priorities.
c) Evaluation of the methods, programme & procedures utilized in plan implementation as
measured against the stated objectives.
d) Study of organizational structure and staffing to determine adequacy of structure,
delegation, human relations and individual differences. He is to see whether the
organization possesses the necessary capabilities for achieving the marketing objectives.
Planning and control system are appropriate for the organization, organization is properly or
over or under staffed or the personnel are competent.
e) Prepare recommendations for improvement based on the appraisal of objectives, plans,
method and organization.
FUNCTIONAL LEVEL

Types / Kinds of Sales Audit:
1) Sales Productivity Audit: It calls for examining data on the profitability of different marketing
entities and on the cost-effectiveness of different types of marketing expenditure.
2) Sales Function Audit: It involves carrying out an in-depth evaluation of major marketing mix
components namely product, price, distribution, sales force, advertising, sales promotion and
public relations.
3) Sales Environment Audit: It calls for analyzing the major macro-environment forces that might
have an impact on the company and major trends in the key components of the company’s task
environment i.e, markets, customers, competitors, distributors, dealers, suppliers etc.
4) Sales Organization Audit: it calls for evaluating the marketing organization’s capability for
developing and carrying out the necessary strategy for the forecasted environment.
5) Sales System Audit: It involves examining the adequacy of the company’s systems for analysis,
planning and control in the marketing area as for innovation.
6) Sales Strategy Audit: It calls for reviewing the company’s marketing objectives and marketing
strategy to see how will these are adopted to the current and forecasted marketing environment.
FUNCTIONAL LEVEL

4. SALES STRATEGY
(FOR ACCOUNTS OR SPECIFIC CUSTOMER LEVEL)
The strategic decisions are typically made by arranging
individual customers (or accounts) into similar
categories or groups.
There are four parts of a sales strategy:
1. Classification of Accounts
2. Relationship Strategy
3. Selling Methods
4. Channel Strategy

1. Classification of Accounts:
Within a target market segment, the accounts or specific customers, are classified
into different customer groups. All customers within a target segment are not same.
Some customers may have a good relationship with competitors, a few customers
may have large sales potential and other customers may require medium or low
value of the company’s products or services. Let us consider an example of a
business marketing company: A precision steel tube manufacturing and marketing
company had targeted automotive segment as one of the target segments.
Within an auto segment, it classified the customers into three different customer
groups:
1) Class A: High Sales and Profit Potential
2) Class B: Medium Sales and Profit Potential
3) Class C: Low Sales and Profit Potential, including prospective customers and
customers who have good relationship with competitors.
Sales Strategy for each segment class will be different.
SALES STRATEGY

2. Relationship Strategy:
Buyers and salespeople, who do business together have some type
of business (or working) relationships. Their relationships have a
range or spectrum, as follows:
1) Transactional Relationship Selling
2) Value Added Relationship Selling
3) Collaborative or Partnering Relationship Selling
Every relationship is an exchange, which is the process of
obtaining a desired product or service from someone by offering
something in return. Relationship marketing is basically the
creation of customer loyalty. It means important or major
customers need continuous attention through partnering or
collaborative relationships. For ex: company’s best salespeople are
assigned to sell and service ‘A’ class or major customers.
SALES STRATEGY

Customers who have low sales and profit potentials and businesses
that have low-priced and low-profit products or services, the focus is
on single transaction with each customer. This is called transactions
relationship oriented selling, where after the product or service is
sold, the customer is not contacted again and hence the relationship
is not extended. In the case of value-added relationship or exchange,
the focus is on the salesperson understanding the current and future
needs of the customer correctly and meeting those needs better than
the competitor. After the purchase is made, the salesperson contacts
the customer to find out if the customer is satisfied and has any
future needs. Such customers have medium sales and profit
potential.
For ex; Maruti Udyog’s sales and service centre contacts each
customer to find out the customer’s satisfaction with the car’s
purchase or maintenance service.
SALES STRATEGY

3. Selling Methods:
Sales people should use different selling methods to
suit different relationship strategies. The different
selling methods are:
1) Stimulus Response Method
2) Formula Method
3) Need-Satisfaction Method
4) Team Selling Method
5) Consultative Selling Method
SALES STRATEGY

The selection of selling method for a specific type of
relationship is an important part of strategic sales. For ex;
considering the precision steel tube manufacturing
company; the suitable selling method for Class ‘A’ (major
customers), with whom the company wants to have
collaborative relationships, is team selling method or
consultative selling.
For Class ‘B’ (medium sales potential), with value-added
relationships, the proper selling method would be need-
satisfaction, consultative or problem solving method.
For Class ‘C’ (with low sales potential but large in number),
with transactional relationship strategy, should have
typically stimulus response or formula method of selling.
SALES STRATEGY

4. Channel Strategy:
A strategic issue in the sales strategy is to select an appropriate channel
(also called marketing channel, distribution channel, or trade channel)
and for covering selling efforts, it is called sales channel. Sales managers
should ensure that accounts (or specific customers) and group of
customers receive effective and efficient sales coverage. The various sales
channels available to firms for covering selling efforts to individual
customers are:
(i) the company sales force, (ii) industrial distributors or dealers,
(iii) manufacturer’s representatives, independent representatives, or
agents,
(iv) telemarketing, (v) internet, (vi) brokers and commission merchants.
For Ex: Dell Computers uses the telephone and internet mode to access
the prospective customers, however in India, employing sales force is
more suitable for customers demanding live demonstrations while buying
computers.
SALES STRATEGY

1. Meaning of Sales Budgeting
2. Advantages of Sales Budgeting
3. Methods of Sales Budgeting:
1) Rule of Thumb Method
2) Zero Based Budgeting Method
3) Competitive Parity Method
4) Percentage of Sales Method
5) Objective & Task Method
5. SALES BUDGETING

1. What is a Sales Budget?
A sales budget consists of estimates of expected volume of sales and selling
expenses. The Sales Volume part of the sales budget is based on the sales forecast.
The sales volume budget, which is derived from the sales forecast, is broken
down into – product-wise quantities, the average selling price per unit, territory-
wise quantities to be sold, customer-wise and sales person-wise sales volume
quota yearly or monthly. The Selling Expenditure budget consists of the selling
expense budget and the sales department administrative budget. The selling
expense budget includes expenditure for personal selling activities, such as the
salaries, commissions or incentives, and other expenses for the salesforce. Any
plans for increase in numbers of sales people must also be included in this
budget. The Administrative Budget of the sales department should include the
salaries of territory sales managers, sales supervisors, their secretaries and the
office staff. The budget should also include the operating expenses like rent,
power, supplies, office equipment and general overhead.
SALES BUDGETING

2. Advantages of Budgeting:
1) Budgeting coordinates the activities of various departments and functions of
the business.
2) Budgeting creates cost consciousness and an attitude of mind.
3) Budgetary control system creates necessary conditions for the introduction of
standard costing technique.
4) It provides yardstick against which actual results can be compared.
5) It ensures that working capital is available for the efficient operations of the
business.
6) A budget motivates executives to attain the given goals.
7) It increases production efficiency, eliminate waste and controls the costs.
8) It shows management where action is needed to remedy a situation.
9) A budgetary control system assists in delegation of authority and assignment
of responsibility.
10) Budgeting compels managers to think ahead and prepare for changing
conditions.
SALES BUDGETING

3. Methods of Sales Budgeting:
1) Rule of Thumb Method: It is an arbitrary method. Budget is decided
based on the will, whims a& fancies of the finance manager/sales
manager. Mass selling goods and companies dominated by finance
function are major uses of this method.
2) Zero Based Budgeting Method: It involves a process in which the sales
budget for each year is initiated from zero bas thus justifying all
expenditure and discarding the continuation of conventions and rule of
thumb. It is a very elaborate and time-consuming process.
3) Competitive Parity Method: Large sized companies whose products face
tough competition and need effective marketing to maintain profits make
use of this method. The use of this method presumes knowledge of the
competitors’ activities and resource allocation.
SALES BUDGETING

4) Percentage of Sales Method: Sales and marketing managers use this method by
multiplying the sales volume budget by various percentages of each category of
expenses. For example, the sales manager may decide travel expenses for salespeople
to be 0.3 percent of the budgeted sales revenue, advertising expenses to be one per
cent and sales promotion to be 0.8 percent of the budgeted sales volume. The sales
manager may decide these percentages based on the past experience or the on the
basis of marketing & sales plans. The percentages are used during the monthly or
quarterly evaluation of performance on sales volume and selling expenses for each
sales territory and sales person.
5) Objective and task method: The first step is to look at the sales volume objective to be
achieved during the budget period of say one year. Then based on the marketing and
sales strategies, the tasks or actions are decided that are required to be carried out in
order to achieve the earlier stated objective. The third step is to estimate the costs of
carrying out the tasks. The costs are then added up to find out whether the profit
objective can be achieved. Review of sales revenue, cost and profit figures continues
until the managers are satisfied with the sales and profit objective, the tasks, and the
budgeted cost/expenditure of various items of selling expenses.
SALES BUDGETING

Referred Books:
Source:
 Tapan K. Panda & Sunil Sahadev, Oxford Higher
Education, 2/e
 Krishna K Havaldar & Vasant M Cavale, McGraw
Hill, 2/e
 Still, Cundiff & Govoni, Pearson, 5/e
 P.K. Agarwal, Pragati Prakashan, 2/e

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