Sales Forecasting is the process of using a company's sales records over the past years to predict the short-term or long-term sales performance of that company in the future.

This is one of the pillars of proper financial planning.
As with any prediction-related process, risk and uncertainty are unavoidable in Sales Forecasting too.
Hence, it's considered good practice for Sales forecasting teams to mention the degree of uncertainties in their forecast.
For successful and accurate Sales Forecasting, it's necessary to take into consideration the direction from significant departments of the organization, consisting of seniors, managers, sales teams and finally − your own gut feeling.
Directions from Top-level Seniors− It may be initially necessary for you to increase your sales by 10%, however, your seniors, being wiser, may ask you to reconsider your target depending on promises made to outside investors as well as stockholders.
Directions from one's own manager− These kinds of directions are mostly integrated along with the direction from the top level, but their expectations are generally a little more conservative and realistic.
If the top management gives you a target of 15% sales growth, your manager will tell you what the real expectations are.
Direction from Sales Teams− For instance, if the Sales Teams may project a growth of 10% over the management's forecast figure of 20%; this extra-conservative number is a cushion so that they could increase their chances to beat the sales forecast.
Direction from other Entities− Many other entities also take part in Forecasting.

Once you are done taking feedback and input from all these people, the final question to ask is − what is your interpretation of all these factors?
Most often a person's gut feeling is more accurate than all the numbers put in front of him.
Although it's not advisable to go against the company's decision, it is always a good policy to do further research till the negative hunch doesn't go away.

While participating in a sales forecast, you must answer after considering both the corporate and the departmental viewpoints that may arise.
External factors have a very significant role to play in Sales Forecasting.
Organizations study external factors with great detail because they cannot control or influence them.
Getting numbers is fine, however, the individual contributions of teammates are a significant factor in correlation to the culture of the corporate world.
It might initially seem like a great thing to try to revise any forecasts put in front of you to improve your opportunities of showing up at the top level, which will give you and your team the privilege to shine among others.

Basic Elements of Forecasting

Forecasting helps us to know the future.
It leads to a regular investigation of different aspects of production and management within and outside the organization.
Thus, company results are compared with the estimated ones, the other element which is quite conspicuous with forecasting.
Forecasting, therefore, helps to know the expected profits or losses and just going through certain reports and records of the company, enables the forecaster to make necessary decisions.
Decision-making becomes better and easier when forecasting is undertaken on a scientific basis.

James W. Redfield has summarized the essential elements as follows:

It carries out an orderly investigation of products, companies and industries.
The group work preparation requires a thorough study, investigation and analysis of the company, its products, its market share, its organizational structure and the industry.
The investigation will involve the past performance of all these factors, their growth over some time and the extent of their inter-relationships and interdependence.
The aim is to build a foundation on which future estimates can be based.

This follows a clear-cut plan for working out future expectancies in the form of a natural undertaking with key executives.
The future expectancy of the business can be reasonably computed from past data as well as the input from the key executives of the organization, sales personnel and other specialists.
This forecast is developed with the participation of the key personnel and is officially communicated to all.
Thus, all these people assume responsibility for meeting these forecasts and accountability for any deviations from this forecast.

Checking the attained with anticipated results of the business periodically and tracking down reasons for major differences.
The forecast estimates over the future years provide benchmarks against which the actual growth and results can be measured and compared.
If there are significant variations between the two, one way or another, the reasons for such deviations can be investigated and analyzed.

Once familiarity with estimating the future of the business is gained through practice, sharpening the approach and refining the procedure becomes quite easy.
Thus, these constant revisions and refinements and improvements would add to the experience and skill in forecasting, since proficiency in forecasting can only be gained through practice and experience.

The above elements indicate a systematic approach to the problem of forecasting. As materiality, these elements are found in any research procedure.

Features of Forecasting:

Based on the above definitions the following features are explained below:

Forecasting relates to future events. Forecasting is the essence of planning because planning also aims at deciding what is to be done in the future.

Actually, forecasting is made by analyzing past and present relevant data. It takes all the factors into account, which affect the functioning of the enterprise.

Forecasting defines the probability of future events. Therefore, future events can be precise only to a certain extent.

As can be gathered from what has gone before, forecasting is a systematic attempt to probe the future to draw certain useful Inverness.
Such probing obviously demands a proper and full analysis of known facts with the help of various qualitative and quantitative forecasting techniques.

Management Notes