QS Study

Sales forecasting serves as the starting point for all activities of the firm and gives direction to all activities. It helps the firm to decide which produces are to be continued, which ones are to be dropped, which ones are to be added, and which need modification. It enables the firm to identify its precise position in the market, this, in turn, facilitates optimum utilization of resources, optimum penetration of markets, and optimum gains from marketing opportunities. It is the starting point in budgeting because sales impacts/ drives virtually every aspect of a firm’s activities because sales will determine revenues and direct costs. Revenue and costs are critical to budgeting and cash flows.

Sales forecasting forms the backbone of marketing. It provides not only the numbers regarding sales, but also vital clues regarding customer’s tastes, preferences, and needs. Only with proper sales forecasting can the firm meaningfully handle its marketing planning and marketing strategy formulation. Only with sales forecasting again, can the firm fine-tune its marketing objectives. And, only with sales forecasting can it develop its budgets. The sales forecast is the foundation for all marketing decisions on physical distribution, promotion, sales force, and pricing. For example, in physical distribution, transportation and warehousing plains hinge on sales forecast.

Similarly, in the matter of sales force, the decision as to how many salesmen must be employed depends on the sales forecast; sales compensation plans to depend on it; so too, the structuring of sales territories. In short, the entire marketing mix, i.e., product, price, promotion, and distribution, revolves around the sales forecast.