Sales forecasting plays a constructive role in almost all branches of business and business management. Sales forecasting can aid management greatly in implementing the marketing management approach for it is the basis for developing coordinated and goal directed systems of marketing action. The sales forecasting is one of the vital tools of market planning because, adequate planning and effective development of marketing resources are resting heavily on sales forecasting information. The following six points portray the role played by sales forecasting in any organisation built on progressive lines :
- It is the foundation for budgeting. Budget is a plan that deals with future course of action expressed in terms of volume or value. These budgets are nothing but the forecasts approved by the managerial mass or the top management. Budgeting activity, in any organisation, starts with sales forecasts because, sales are the starting point. A company can make a product that it can sell successfully. Hence, any budget can be developed on the strength of estimated sales where budget of each department has its roots in sales and the sales forecasts.
- Guarantees effective control. Once the sales are predicted, production can be planned on sound footing. This planned production can be controlled to see that there is no or least deviation in performance. With the most accurate picture, such programme of strict control makes possible efficient use of equipment, preventing unnecessary and costly delays – reduces storage costs by proper inventory control efforts. All this favourable outcome has salutary impact on the employee morale.
- Sound decisions on expansion or contraction. Each and every firm is faced with the hair-splitting and head-cracking problems of growth and expansion or degeneration and contraction of business activities, to keep up the earnings and the earning capacity. Thus, it would be futile to build an expensive plant to meet short-run increase in demand. On the contrary, it is wiser to invest for long-range facilities particularly when construction coasts are the lowest. The programme of expansion and contraction also means sales and product-mixes expansion and contraction or some times status-quo activities.
- Judicious resources allocation. A sound sales forecast gives a sales budget which becomes instrument for the other budgets for various departments and the segments of the organisation. The available financial resources in the form of material and human can be best allocated. As resources allocation is a resource planning, it ends in control, and hence, utilization in tune with the goals or the plan standards.
- Helps in making sound personnel decisions. To translate the plans into achievements, manpower plays a decisive role. The manpower requirements change with the changes in the demand pattern for the product range of the company. Expansion or retrenchment of the employees can be effectively implemented without affecting the employee morale as company comes to know in advance the future sales and sales potential. Thus, organisational manpower requirements and related problems of recruitment, selection, training, remuneration, control and so on can be handled with ease.
- Aids in performance evaluation. Sales forecasts act as the yardstick for evaluating the performance of the sales-force. Whether, it is a case of direct selling or indirect selling, the respective performance can be measured in terms of sales quotas and territories – sales expense budgets – advertising budgets – sales promotion budgets – expenses of physical distribution -inventory costs – to improve upon by locating the areas of wastes and inefficiencies, by encouraging research and developmental activities in the light of the possible pitfalls or follies.