D099 Module 12

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70 terms meghanmager Preview D099 m Teacher Mik Sales forecasting is composed of four primary purposes.Explain those purposes and explain how each is utilized in the forecasting process.

• Financial planning helps determine what investments a company may need to

make and how it will fund these investments.

• To organize and structure the sales force, including the number of salespeople,

account or territory coverage, and how to set quotas.

• Interdependence affects other functions in the organization, which are

dependent on sales forecasts.

• Management influences the management of human resources on issues such as

the number of employees necessary to meet the organization's goals, how to pay the employees, and overall how business strategies will be managed.For what reasons are quotas utilized in sales organizations? Identify and describe at least three.

• time-bound targets for sales, set by management and assigned to the sales unit,

which may be a salesperson, a territory, or a specific sales team or division.

• link the sales representatives directly to the firm's strategy and the sales task.
• can be measured in terms of profits, actual

sales, or salesperson activity levels.

• can be used as a tool for evaluation and control, and as a motivator, as they are

commonly tied to compensation.

• Profit/Revenue
• Activity
• Combination

List and describe at least four departments that work together during sales forecasting.

• Sales management as they manage the front-line sales representatives and

understand the customers.

• Marketing as they provide insights on market trends, market strategy, buyer

behavior, targeting, and positioning.

• Finance as they contribute past data and historical information on

organizational spending.

• Operations as they provide perspective on how the business flows.

Describe the internal and external forces that affect sales forecasting.

Internal: goals, objectives and culture changes, human resources, financial

resource availability, production and supply chain capabilities, and technological requirement.

External: labor force, government regulations, technology changes, competition,

legal and political changes, social and cultural change.Discuss the concepts of market potential, sales potential, and market share.Market potential: an estimate of the possible sales for a product/service for an entire industry in a market, in a stated time period under ideal conditions.Sales potential: the maximum/total sales from all perspective buyers of a product or a single firm, generally a percentage of total market potential.

Market share: the portion of a market controlled by a particular company or

product, expressed in dollars or units.Contrast objective and subjective sales forecasting techniques.

Subjective (qualitative): uses expert opinion and judgement,

used when consumer buying habits have changed/current data is not available/or there is a long-term planning horizon--watch for bias, peer pressure and secondary gain.Objective (quantitative): Use statistical analysis and historical data, provides information on consumer trends, and the response of sales to competitor actions and environmental changes-- data may be dirty, corrupt or noisy.What are the three factors to consider when selecting a forecasting technique?

• Marketing knowledge and understanding—Is the business growing or declining,

who are the competitors, what is changing with the customers, is the business seasonal? If there is a need for more information and understanding, this is where qualitative techniques could be valuable.

• Data availability—If data were readily available, those can be used to help

develop quantitative forecasts.

• Past forecasting methods—Analyze what has been done and how accurate or

inaccurate these approaches have been to help select future techniques.Describe the common subjective forecasting technique including customer opinions(1), customer surveys(2), salesforce composite(3), jury of executive opinion(4), expert opinion(5), and the Delphi technique(6).1) start with how many people know about the company, then determine the number who have interacted with its advertising in some way - finally determine how many have made a purchase.2) a forecast based on estimates of sales in each period gathered from all of a firm's sales representatives; they have been calling on their customers and know when buying decisions will be made.3) each executive submits an estimate of the company's sales, which are then averaged to form the overall sales forecast; the advantages of executive opinions are that they are low cost and fast and have the effect of making executives committed to achieving them.4) like an executive opinion, an expert opinion is a tool best used in conjunction with more quantitative (objective) methods.5) each person prepares a forecast based on their perspective with the facts and figures they have available; the forecasts are collected, and an anonymous survey is sent out to all participants in which the forecasts are presented, along with some summary comments. The survey results are tabulated, and the process is repeated with the top vote-getters after each round.

Describe two ways to improve the effectiveness of sales estimates from sales representatives including assumptions and EVA.

• consider the assumptions each sales representative used to make the estimate,

including assumptions on new or lost accounts, new competitors, price changes, new marketing initiatives, and new products to be launched.

• make the information more detailed by doing expected value analysis; have

each representative consider each account and then multiply the forecasted sales for that single account times the probability of achieving it - add up the results.Expected value = forecasted sales × respective probability Describe the common objective forecasting technique including time series techniques(1), time series analysis(2), rollover technique(3), simple moving average(4), weighted moving average(5), exponential smoothing(6), average daily sales(7), and decomposition(8).1) examines sales patterns or trends in the past to predict sales in the future; with trend analysis, the sales manager identifies the rate at which a company's sales have grown in the past and uses that rate to estimate future sales.

2) can help identify and explain the following: any regularity or systematic

variation in the data (for example, an increase in sales in the toy industry during the fourth quarter), cyclical patterns that repeat every two to three years, trends in the data, & growth rates of these trends.3) the actual sales results from one period are copied into the next period as the forecast; this method works well if the business is relatively stable with little seasonality. one of the most effortless quantitative techniques. The most straightforward application of the use of historical data to predict future sales.What is a market test and why is it used?An experiment in which the company launches a new offering in a limited market to gain real-world knowledge of how the market will react to the product; provides some measure of sales in response to the marketing plan. The demand for the product can then be extrapolated to the full market.Describe the methods for building better sales forecasts.Commit to accuracy, pick the right forecasting method, the more estimates the better, decrease bias, and consider changes.Describe the five steps in the quota-setting procedure. 1. Choose whether a qualitative, or judgment-based, system will be used or a quantitative, or model-based, system.

• Select the bases for setting quotas, such as sales calls, profits, expenses, total

sales volume, number of new customers, emails answered, and product demonstrations.

• Determine which factors will be considered when setting quotas.
• Establish the reward system linked to the quota system.
• Consider the level of sales representative involvement in setting the quota.

Describe the five steps in the quota development process.

• Look at each territory's sales potential forecast versus the sales history for the

salespeople selling in that market.

• Gather data that are comparable to the quota-setting period. Look for factors

such as seasonality, which may affect the level of sales.

• Evaluate each territory for economic conditions, competition, and travel time.
• Set yearly quotas based on these factors, and then break them down into

quarterly or monthly quotas.

• Explain to each sales representative how the quota was developed.

What are the ethical implications of setting quotas related to sales compensation.The pressure to achieve quotas could lead to unethical behavior.

Explain direct and overlay quotas.The direct quotas -a quota set for people who are in the front line of sales and have the power to impact their quota results.Describe the four types of quotas and give examples of each.Profit/Revenue - selling enough units or subscriptions to generate a certain level of gross profit or margin Activity -Activities such as the number of new clients landed, phone calls made, or emails answered Volume -Registering new users or moving inventory Combination - a combination of revenue, volume, and activity quotas Describe the methods used to set sales quotas including a jury of executive opinion, sales force composite, past performance, market factor, and market index.Sales Force Composite - Members submit estimates on sales and an average is taken.Past Performance - add a slight increase to the previous year’s sales.Market Factor -Any external factor that affects the demand for or the price of a good or service.Market Index -a combination of market factors important in estimating the likely level of sales.Explain the six common mistakes organizations make when setting quotas.1) Copying a quota system from another organization.2) Basing quotas on gross sales, as this can encourage sales representatives to offer discounts to close the deal.3) Having the same quota system for managers and the salespeople and sales teams; managers are forecasting sales, so rewarding them with quotas based on sales may adversely affect the accuracy of a forecast.4) Reusing the sales policies and procedures without considering updates.5) Using discouraging practices like contests in which the same sales representatives typically win.6) Failing to develop a system that maintains a balance between salary and incentive compensation.Describe the Breakdown Method of determining sales force size.Determining the size of a sales force by dividing the sales expected from each representative.Describe the Workload Method of determining sales force size.Determining the size of a sales force by estimating the total workload, determining the number of hours necessary to cover the entire customer base, and then dividing it based on the selling time each representative has available.Describe the Incremental Method of determining sales force size.A method of estimating the sales force that adds additional sales representatives as long as the additional revenue added exceeds the costs.