Know-How Exchange : Student Questions

A sales forecast is an estimate of what the company is likely to do for revenue over a period of time - month, quarter, year.

An estimate of the market potential is the figure that the firm could realize if it was able to obtain all the possible sales from all possible customers.

The two are different because there are competitors who take away some of the sales.

I hope this helps.

Wayde

I’d Like to concur with Wayde and Karen on the market potential definition, but add to the sales forecast a little. The sales forecast can be a budgetary issue, in which case it is the estimate, hopefully from the Sales or Marketing Director of what they can achieve with the resources (Budgets, people, tools etc) available. If the board agree to it, it becomes part of the sales plan for that financial year. Whilst it can be re-visited and changed, it is essentially a static figure (Or should be!) which becomes incorporated into every aspect of a company’s plan for the next year from purchasing through to manufacturing and finance.

An on-going forecast is another matter as it is dynamic. Usually a sales forecast consist of the sum of the best estimates of the individuals concerned with selling. In other words, those people who have some visibility of the likelihood of future sales. Such sales people will be able to estimate, from their experience of talking with customers and prospects, the value of individual deals, when they are likely to be closed and the date on which they will be closed. If this is done rigorously, the sum of all the individual forecasts will approximate to the company sales forecast as a whole. The sales manager will still have to factor in “Bluebirds” (That’s unexpected sales which appear on no-ones radar) and such things as unexpected repeat business and service related sales, which can all be estimated from past figures to make up the total.

Such a sales forecast, if done properly will give the management a lot of advance visibility as to whether they are succeeding or failing to meet their sales plan and their company plan and will give them the means to take corrective action if things are going off track.

Lastly, there are other means of forecasting, some of which verge on the ridiculous. Some boards hand down a sales forecast because that is the figure they wish to see earned. It might be realistic, it might not. The sales management are not consulted neither are they given the resources to achieve it. Such a board is unlikely to be interested in receiving a running sales forecast from work done. The accounts are the only thing they are interested in and any sales manager or salesman who is stupid enough to predict anything less than an on-target achievement, for whatever reason will get the chop. Then there is sales forecasting by proxy, where the Finance Director doesn’t believe a single forecast figure that the sales team give him. These guys forecast by activities, service revenues and last years figures. They are usually spot on or 100% wrong. They just don’t know which in advance!

Best wishes


Steve Alker
Unimax Solutions