In this article, we have discussed the most important methods of measuring and measuring as well as the methods of forecasting sales and demand in the markets. The most important of these methods include quantitative and qualitative methods as well as computational methods and expert opinions. Understanding these methods helps marketers as well as sales experts to increase their sales and to better allocate financial and human resources by predicting sales in the future.
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Estimation of market size and share
Estimating the needs of the entire market
Qualitative methods of sales forecasting
1. Examining the opinion of the Board of Directors:
3. Examining the opinion of the sales force:
4. Examining the intention of consumers to buy:
Quantitative methods of sales forecasting
Delegating forecasting responsibilities
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After the process of market segmentation and target market selection, proper sales forecasting leads to strategic and principled planning. Sales forecasting is a necessary tool for launching new products, planning production, determining the necessary inventory levels, and creating an optimal distribution method. Mistakes in low or high estimates can be very costly. On the other hand, a very high forecast about the demand probably leads to an excessive increase in the company's investments in production and inventory, by wasting financial resources, it reduces profitability. On the other hand, too low forecast of demand is also harmful. Forecasting less than the actual level causes the company to limit the movement, investment and necessary actions for the future; As a result, if the actual demand is more than the predicted amount, besides losing opportunities and potential customers, it also makes some of its current customers unhappy. Because he cannot answer the demand and It is their demand and it will have a harmful future.
Estimation of market size and share
The size of the market depends on the number of buyers available. Buyers in the market have three characteristics: interest, income and access.
Estimating the needs of the entire market
The needs of the entire market are not a fixed number, but subject to specific conditions; including the level of activity of marketers and the general economic situation.
Companies use different methods to estimate the needs of the entire market. Two examples are:
First sample
Q=n*q*p
In this formula, Q is the total market needs, n is the number of buyers in the market for a particular product, q is the number of products purchased on average by a buyer per year, and p is the average price.
Second example: Another method to estimate the needs of the entire market is the chain ratio method. In this method, the base number is multiplied by several consecutive percentages.
Sales forecasting methods
There are two different types of forecasting methods. Prediction based on previous information and prediction when there is no previous information. The second type of sales forecasting is used when there is no previous information, or the company is just starting out as an startup business, or the product is completely new and innovative. In these cases, one must use a combination of methods; including judgment, comparison and common sense.
There are different methods for the two types of sales forecasts. The choice of method depends on the availability of information, budget, time and experience and skill of the forecaster. To make things easier, the methods can be divided into quantitative and qualitative. Qualitative forecasts are mostly based on judgment and experience. However, it must me mentioned that all the methods depends greatly upon sales strategy of the company.
Qualitative methods of sales forecasting
The advantages of this method are that people who are familiar with certain markets can correctly estimate the number of sales based on their information about market dynamics, and one of its disadvantages is that the quality of such forecasts depends to a large extent on the characteristics of It depends on the predictor. These methods can be helpful specially in digital marketing strategies for all companies.
1. Examining the opinion of the Board of Directors:
In this method, the sales forecast is obtained by examining the managers' opinions. Group members may include sales, marketing and finance staff. The advantage of this method is that it is more suitable for short-term forecasts. Also, this method is easy to implement and takes less time than other methods. The disadvantages of this method are:
1) The personal interests of company managers may cause unrealistic predictions.
2) In cases where each manager gives information based on personal research, this information may be limited in terms of time.
3) There is no responsibility in group forecasts.
4) This method requires that the line managers do the work that the headquarters personnel can competently handle.
2. Delphi method:
In this method, which is similar to the previous method, experts from outside the organization are often used. The Delphi method is used to identify future trends and market opportunities for new products, especially when prior information about the market is not available. The primary features of the Delphi method are:
1) Unknown members of the group.
2) Repetition with controlled feedback.
3) statistical group answers.
In this method, experts first provide their individual predictions. Then, the coordinating researcher calculates the average of these results, sends it to the experts with the reasons given by each participant, and asks them to announce another prediction considering the results of the first round. Forecasters are free to modify or change their initial forecast.
The main goal after several rounds is to reach a consensus of all group members. This method has several advantages.
By using a group of experts, detailed information is obtained from different disciplines. The logic of this method supports group judgment. In most cases, group members cooperate in implementing the Delphi method. The accuracy of short-term and long-term forecasts is usually medium to very good. Of course, the accuracy of the prediction depends on the expertise of the participants. This is one of the disadvantages of this method
It is time-consuming due to independent polling; besides, the design of the questionnaire may not be clear and include a large number of questions.
3. Examining the opinion of the sales force:
Many commercial companies use a bottom-up forecasting method in which sales staff are asked to forecast short-term sales. This type of prediction is more useful when the market includes a small number of customers and their specific needs are known to the sellers.
This method has advantages. Sales staff are more familiar with the market, so this method is the best way to determine sales expectations based on product line, customer accounts and sales areas. In addition, since the sales staff are used, the motivational force is more. This method also has disadvantages. Most of the sellers provide low-level forecasts in the case where sales quotas are linked to incentive payments to measure, control and encourage them. To reduce the effect of such a problem, many companies separate the activity related to sales forecasting from the task of identifying sales quotas.
4. Examining the intention of consumers to buy:
A direct method for forecasting sales is asking potential customers about their purchase intentions, and it is effective when the company has limited potential customers. The advantage of this method is that when the customers are surveyed, a more accurate sales forecast becomes possible. Of course, in this method, the purchase intention of the customers is rated, which may not reflect the real "behavior" of the purchase, and of course, this may be costly for them.
5. Market test simulation:
In this method, customers' buying behavior is tried to be measured without actual purchase. There are two ways to do this. The first way is that, for example, in a test supermarket, some customers as representatives of the population are asked to buy from the supermarket by selecting the available products. By generalizing the results to the entire population, sales can be predicted relatively. The second way is to provide catalogs to the customers, or to show the products to the customers through computer or video and evaluate their reaction. The main advantage of this method is its low cost, and one of its disadvantages is that the sample may not be representative of the entire population.
6. Market testing:
Another method is to offer the product in the market and observe the customer's reaction to it. This method of product marketing strategies are on a limited scale. The product is distributed at a limited level in a number of cities. According to the performance of the product in these cities, it is possible to predict the sales of the product; Provided that the cities are selected appropriately. The main disadvantage of this method is its high cost.
Quantitative methods of sales forecasting
In this section, there are quantitative methods of sales forecasting. These methods are the analysis of statistical information, including time series and correlation.
1. Time series analysis:
The use of these methods is based on the assumption that existing sales patterns will exist in the future. Since this assumption is probably more correct in the short term, these methods are used for short term predictions. The main disadvantage of statistical forecasts is that they do not predict turning points (when the growth rate of the trend changes dramatically). Five types of time series methods are:
Trend analysis
· Analysis of information
· Moving averages
· Exponential smoothing
Box Jenkins model
2. Other quantitative methods
Here are few other methods. These quantitative methods of sales forecasting are:
Correlation analysis
The method of least squares (regression): · Multivariate regression method (multivariate regression) can be applied as a strong interpolation technique for prediction of selling in future.
Forecasting issues
Choosing a sales forecasting method is an important issue in the forecasting process, but there are other issues that are important in forecasting. Reducing forecasting errors: wrong assumptions are the main cause of forecasting errors. Another issue regarding reducing the level of mistakes is the logic of the obtained numbers.
Creating a reliable forecasting method is necessary for the sales forecasting and crating successful strategies for companies. The best forecasting methods have the following criteria:
1. Evaluation and detailed testing of forecasting options
2. Accurate selection of information data
3. Information about the possibility of forecasting mistakes
4. Accurate definition of the assumptions that are based on the forecast
5. Constant attention to the emergence and correction of previous predictions and their effectiveness in future predictions
Delegating forecasting responsibilities
Many companies predict sales by combining two or more methods, these methods are not mutually exclusive, but all are created to improve the company's ability to assess the future situation; Therefore, as far as the budget and program allow, it is better if more methods are used for the estimation.
Sales forecasting
Sales forecasting is a key action for keeping a business alive in future.
