Sales forecasting should originate from the demand side of the enterprise, as it is the sales and marketing teams that are responsible for generating demand. These teams have the best perspective on what future demand will be, as they are directly engaged with customers and the market. Consequently, a sales forecast must reflect insights from those closest to the market dynamics.
The sales forecast serves as the foundation for fund budgeting. All budgeting processes begin with the sales forecast, as it provides the basis for financial planning for working capital requirements, plant expansion, and other needs. By anticipating sales, companies can allocate resources efficiently and prepare for future growth.
It is important to distinguish between a sales forecast and a company’s sales potential. A sales forecast concentrates on the expected actual sales at a certain level of company marketing effort, whereas the company sales potential assesses the possible sales at various levels of marketing activities. This differentiation helps in setting realistic sales targets and in planning marketing strategies accordingly.
In many companies, sales forecasting is an integral part of a critical process for matching demand and supply, often referred to as Sales and Operations Planning (S&OP). S&OP ensures that the company’s operational plans align with its sales forecast, balancing production and inventory with market demand.
Sales forecasting is the first step in many business organizations and is central to marketing management. Following the determination of expected sales, other activities such as production planning, the appointment of salespersons, quota setting, the establishment of sales territories, price fixing, and the development of advertising and promotional programs are planned. This structured approach ensures that all business activities are aligned with anticipated sales, optimizing overall business performance and strategic alignment.
The Crucial Role of Sales Forecasting in Business Strategy
