The Sales Meteorology

Forecasting for a profitable future.

The sales force of a company can play a very important role in sales forecasting. They can help a company to improve its forecast by understanding the consumer's psyche. There are several statistical tools available today, which salesmen can use to forecast sales. Quantitative tools use an analysis of historical sales figures to project future demands.

It is imperative, that a company should ask its salesmen to provide quantitative sales information for two reasons:

1. Changing demand patterns of the customers, and
   
2. Probabilities of acquiring a huge order (quantity-wise).

Four important elements, which a company can adopt to improve forecasting are:

1. Include forecasting in the job description

Most salesmen believe that their sole job in sales is selling. This is not true. Their job should also include forecasting sales information for the company. The roles that a salesman plays are like the sides of the triangle. The first side involves selling, when the salesmen go out and sell the company's products to the customers. The second side involves building customer relationships and enhancing the Customer Lifetime Value (CLV). The third side involves market feedback, which provides the firm with information about competitors and customers. Forecasting is a part of the third side of the triangle, and can be incorporated in the following ways:

a. The job description of the salesmen must include forecasting, which must be carried out every
month.
b. Train the salesmen to realise the importance of an accurate forecast, and help them to improve their skills accordingly.
c. Provide salesmen with a feedback on the accuracy of their sales forecast and performance.

2. Encourage accurate evaluation

Salesmen play clever games with forecasts and quotas. When this happens, sales forecasting behaviour is affected in two ways. Firstly, salesmen would make a low forecast so that the quotas set would be achievable. Secondly, when targets match forecasts, there is a tendency to over-estimate the forecast.

The action that the management can take to reduce such distortions are:

1. Ensure that salesmen forecast information accurately. To achieve this, reward those salesmen whose forecasts are excellent.
   
2. Separate forecasting from quotas. Let these two entities be expressed in different units.
   
3. Separate the time limit between forecast and quotas.
   

3. Tools of the trade

Provide the salesmen with all the tools and training that is needed for forecasting, so that they can do so efficiently. You can also make use of the local intranet in the office for better implementation of the forecasted results. If there are any corrections to be made in the projections, then the salesmen must give a reason for it.

4. Focus on Forecasting

Forecasts made by the salesmen must be relevant to the company's overall forecasting effectiveness, and must be focused. Focus is possible only, if salesmen concentrate on the customers and products that are important for the forecast. This is the "80/20" Pareto's rule, where 80% of the sales come from 20% of the customers and 20% of the products. An insight into such customer/product combinations can overcome shortcomings in the supply chain.

Without a clear-cut sales forecast, the company will not be able to deliver products on time to the end- customers. This in turn would affect the satisfaction levels of the customers. Effective sales forecasting will help to synchronise efforts between the marketing, financial, and manufacturing functions.

Make the most of sales forecasting, to increase market share and profitability.

Related reading:

"Improving salesforce forecasting"; Moon, Mark A, Mentzer, John T; The Journal of Business Forecasting Methods & Systems; Summer 1999