Sales forecasting involves determining the sales a business is expected to make in a given period. This could be the first three or six months or even a year. Forecasting can help you determine or identify cash flow problems. You will definitely need a sales forecast if you want to acquire a bank loan for business capital because you will have to provide business a proposal or plan, which should include a sales figure in your Projected Income Statement. Even if you will not seek a loan it can help you manage your expenses and monitor your sales growth.
Sources of assistance for sales forecasting:
- Neighbouring businesses
- Trade associations
- Trade directories
- Trade publications
- Trade suppliers
There are several factors that could affect a sales forecast. We will look at these as they relate to new and existing businesses:
For the new business there is no previous information to assist in the decision-making process. Therefore, based on the analysis from your market research, you will have to determine how many customers would buy your product and how much sales you would get in a specific period.
It is said that 20% of your customers accounts for 80% of your sales. Therefore you need to define your primary market (the businesses or individuals who are most likely to buy your product). A primary market could be:
- middle income females, between the age 25-60 yrs, who have 1-3 children and own a home
- Small business owners with projected sales of $100,000 annually
You also need to look at your location, are your customers near? Can they get to you quite easily, would they have to travel far? Would they get what you sell at an earlier stop?
Get household income statistics and structure from libraries and government publications. Get other household or customer information from trade publications, newspapers and periodicals.
You could use similar businesses as a guide. Estimate how many customers they get on a daily, weekly and monthly basis using their customer volume to help you determine your sales figure. You should make sure that it is a business that offers similar products to yours.
Once you are able to determine monthly sales, then annual sales is a small calculation away.
For an existing business, last years sales would be a starting point, of course taking into account what the sales trend has been over a period, you then should be able to make a reasonable sales estimate.
Make assumptions about the market, taking into account things that could positively or negatively impact sales. Will your market grow or decline and by how much? Quantify it, thus you should estimate whether you will sell 5,000 more units or you will sell 6,000 less units or you could use percentage – will it fall or rise by say 6%?
Take into consideration the expected pros or cons. Are there new taxes on the horizon? Will this mean you will have to increase prices or maybe salaries have increased? Will you have to advertise more?
What about the product itself, has there been steady growth? Has sales been on the decline? Are you introducing a new product that has great potential and so is estimated to boost sales?
Calculation: If your sales tend to be stable:
Last year sales + projected changes in inflation = projected sales
If projected inflation is 5% and you normally sell an average of $60,000 annual:
60,000*0.05 = 3,000 :. Total inflation
60,000 +(- 3,000 )= $57,000 – This would be your annual projected sales figure.
If there are other changes that you have estimated will affect sales positively or negatively beside inflation, calculate as follow:
Last year sales + projected inflation + other change(s) = projected sales
Sometimes sales plans are guided by unrealistic assumptions. In this area, as with any other, you must not be overly optimistic – exercise prudence. Be time specific for real measure. Have a monthly and an annual projection; you can use your monthly projection as a guide for assessment. Consult with and get the opinions of others. If you have others working with you it has to be a team effort, especially if you are not the person in charge of sales.
At each period, advisably at the end of every month, you should check your sales projection against actual sales. Forecast will never be 100% accurate so there should be allowance for some margin of error.
Did you rise above or fall below projection? Deviations of over 10% should indicate the need for another, more detailed analysis.
The promotional mix is the combination of tools used to promote a product. There are four aspects to the promotional mix; sales promotion, advertising, personal selling and public relations.
This article looks at sales promotion and advertising.
Sales promotion is the process of persuading a potential customer to buy the product. It is designed for immediate results and is usually for a specific time period. It can also be used as a part of the personal selling process. Sales promotion supplement advertising and other aspects of visual promotions. Examples of sales promotion are trading stamps, free gifts/gift tokens, loss leaders, competition, production demonstrations, exhibitions, free samples among others.
Some methods of sales promotion:
Cash discounts – These can either be in cash refunds or deductions from invoices over a specified period of time.
Money off coupons – Customers receive coupons, or cut coupons from newspapers or take along with product packaging when they go to purchase. This enables them to buy the product at a reduced price.
Competitions – Customer take part in a chance to win by buying the product.
Discount vouchers – A voucher (like a money off coupon) that will allow the customer some discount on the purchase price of the product.
Exhibitions and Trade Shows – Items are neatly displayed to promote sales and attract potential customers at shows.
Free gifts – Customers get a free product when they buy another product. This is normally given out to customers according to how much they spend, so the criterion could be purchases of $100 and over.
Point of sales materials – E.g. posters and display stands; these are ways of presenting the product in its best way or showing the customer that the product is there and available for purchase.
Loyalty cards – Customers earn points for buying certain goods or shopping at certain retailers, which can later be exchanged for money, goods or other offers. Loyalty cards have become an important form of sales promotion. Loyalty cards can offset the discounts a business offer by making more sales and persuading the customer to come back. They also provide information about the shopping habits of customers – where do they shop, when and what do they buy. This is valuable marketing information and can be used in the planning process for new and existing products.
Loss leader – A loss leader is a popular product being sold at below market price to encourage customers to enter the store in the hope that they will make other purchases.
Trading stamps – These are given freely to purchasers by merchants. The customer can then save them until they have a certain number; when returned to the shop or some specified dealer, the customer get goods or money in exchange.
Premium offers – These include self-liquidation devices (being asked to return empty bottles etc for cash or product), gifts, contests, bargain packs (such as buy one get one free).
Advertising presents or promotes the product to the target audience through media such as TV, radio, and billboards to encourage them to buy. When deciding which type of advertising to use (known as an advertising medium) the business needs to consider the following factors:
Reach of the media – nationally or locally, the number of potential customers it could reach.
Nature of the product – the media need to reflect the image of the product; a recruitment ad would be placed in a trade magazine or newspaper but a lipstick ad would be shown on TV or in women’s magazines.
Position in product life cycle – launch stage will need different advertising from extension strategies.
Cost of medium – radio is cheaper than TV, but you may want to consider cost per head if reaching a larger audience.
In the printed media, advertising can take two forms:
A classified ad is normally put into a newspaper by an individual and is expressed solely in words and numbers.
A display ad is where space is bought in the newspaper or magazine and can be filled with words and/or pictures.
Display adverts have more impact, but are more expensive.
Advertising can also be split into types:
Persuasive advertising – This is to entice the customer to buy the product by informing them of the product’s benefits.
Informative advertising – This serves to inform the consumer.
Comparative advertising – This is used to compare your product to others, of course pointing out the positives of your product compared to the others.
Reminder advertising – This serves to inform that the product is still available. This is usually used in areas with a lot of competition or when the product has been around a while and you need to increase its popularity.
Advertising serves to:
- To announce new products
- To highlight the unique features of a product
- To build a firm’s image around its product
- To increase market share by stimulating demand
- To educate customers about the products
- To highlight special events, such as concessions, sales or late opening
- You will need to be fully aware of the laws that govern advertising.
Sometimes a business will employ an advertising agency to deal with its needs. An agency plans, organizes and produces advertising campaigns for other businesses. The advantage of an agency managing the campaign is that it has the expertise a business may not have, e.g. copywriters, designers and media buyers.
- Television (TV)
- Creates and maintains public and consumer awareness of the product.
- Attracts different demographic segments of the population.
- A medium such as radio is not very expensive and so affordable for small business owners.
- The visuals produced by television make it a powerful means of persuasion.
- Telemarketing is a turn-off for many consumers and it is also very expensive
- Sometimes there are several laws and restrictions to observe
- Ads usually have to be aired at a certain time for better effect and those time periods are usually more costly such as morning peak hours or primetime
- Creates credibility
- Printed words last a very long time.
- Customers can refer to it when they need to
- Less use of colour
- Presentation is not as lively or friendly
- There is no way of knowing if target audience reads it
- It’s animated and thus eye-catching
- You can target a specific audience more easily
- In recent times there are limited audience because of the competition from TV and radio
- Can create strong impact
- Signs can be attention grabbing
- Often have to be updated or replaced
Market research seeks to help you identify the possibilities in the current market. You will be able to make predictions from the market research analysis and hence better able to satisfy the needs of your customers.
Market research is critical to the success of any business. You need market research information to market your product successfully. Normally, it involves gathering information from your targeted market, which will be further analysed; information need to be collected, sorted, analysed and interpreted.
So the first thing is to collect that information. Usually this is done through questionnaires. Carefully consider before you design questionnaires. Think of the following:
- Objectives – Consider what questions you want answered.
- Numbers – How many questionnaires do you want completed?
- Target persons – Who do you want to answer questions or fill out questionnaires?
- Nature of questions – When you structure your questions, be careful not to over-simplify.
- Method of research – Decide on the method of research, will it be by telephone or will you be conducting face-to-face interviews?
- Types of questions – Whether it will require yes or no answers, choice responses, a scale of rating or even a combination of two or all three.
TYPES OF MARKET RESEARCH
There are two types of Market Research that you could undertake, Primary and Secondary researches.
When you undertake a primary research, you are creating new data for yourself. Therefore, you are getting information directly from your target market. This will help you to ‘identify and anticipate’ customer’s needs.
Primary research is good in that you can design your research questions or test to answer specific questions about your product and get feedback. The information is of course up-to-date and the market research you conduct is information that is confidential to you only, not your competitors.
Suggested questions to explore:
- Do customers see a need for your product in the market?
- Would they be willing to try your product?
- What do they think of the competition?
- How would they rate the current offer of product available to them?
- What factors would contribute to them trying or not trying your product?
- What do they see as a reasonable price for the product?
- Would they recommend it to others?
- What do they like about current products?
- What don’t they like about current products?
- What preferences or needs do they have that current products do not satisfy?
These are just some suggestions but you would of course tailor your questions to your particular type of business, ask the critical questions you need answered.
Getting out there and asking questions is often termed ‘field research’. We will now look at the various methods of field research.
Face-to-face interviews – Here you would ask people on the street questions. You could pull on your slacks and go out there and get it done yourself, especially if cost is a big factor for you. You could also enlist the aid of neighbourhood kids; you would not have to pay much in this case, plus they would appreciate the pocket money. If you are planning on a bigger venture, which may involve sampling different markets, then enlist the services of a market research agency.
Questionnaires – Prepare questionnaires and mail or issue them allowing individuals to fill them out and you collect them when finished.
Telephone interviews – This is where you call individuals at random, ask questions and record responses. It is advisable that you do not make questionnaires too long or you will probably have more phones slammed in your ear than completed responses.
Focus group/consumer panel – You will probably use this method only if you are introducing a new product to the market. Here a small group of people are asked detailed questions about a product after close examination.
Online survey – This is becoming a very popular way of gathering primary data. It is more cost effective than other methods and information can also be gathered quickly.
The main disadvantage to performing primary research is that it can be costly if you pay others or an agency to assist in the information gathering. Also, some people do not like to stand and answer series of questions. With that in mind, keep it short. Sometimes you might need to have it a little longer to satisfy your criteria, but always be mindful of the negatives when designing your questionnaire.
This is the use of information that had previously been gathered and compiled by other entities. Gathering data in this manner is usually less expensive than primary research. Therefore, you should first explore this option when you decide to do your research.
Where to look for secondary data
Search local libraries for information gathered about your industry of choice. Trade association publications, periodicals, information provided by government agencies and also search online.
When gathering secondary data ensure that information is not outdated, check the year when research was conducted, information that is too outdated may be useless. You also have to bear in mind that information might not be as valid since the circumstances in which they were conducted might have been different and as such sought to answer different questions than those you need answered. The methods of measurement might also have been different.
As a potential small business owner you might want to buy into the pessimistic view that small business owners have about market research, that it is costly, irrelevant, only for big businesses and is complex. It does not have to be costly, as you would have realised from reading above; it can be as complex or as simple as you want it to be and certainly, it is not irrelevant. Market research can aid you in assessing your suitability to a market. Even freelancers have to know what is happening in their market. Ensure that you do some market research before venturing into the market place, it will help to correctly assess and analyse your position.
- Visit and observe other businesses that are operating in the industry you wish to enter.
- Get statistical information on the industry such as import, export, price ranges, industry sales and industry market shares.
- Determine the potential of your product – will it have longevity or will it be more of a fad?
To help you in identifying opportunities and threats, monitor what is happening with your competitors and their marketing strategies, economic changes, population changes, new laws and other legal developments and the local economic situation.
Marketing is a management effort, which aims to identify the needs of customers, and satisfy those needs in a profitable and efficient manner.
What are the elements of marketing?
You probably have heard about the 4ps of marketing or the marketing mix. If you are already knowledgeable on the subject that is great; if you are not, here are some basics.
The 4ps of marketing are the elements that you will combine in order to put your product in the market place. They are Product, Price, Promotion and Place.
Lets take a brief look at each. We will look a bit more closely at product, price and place; promotion will be examined in a later article.
Product is the goods or service that you are offering to the market. You want to ensure that your product is designed, packaged and branded in the most attractive, efficient, effective and convenient manner.
Is it appealing? It is more likely that customers will not pass your product if packaged attractively; we often tend to ignore the boring labels and stop to read the ones that catch our eyes.
Does it do the job?
The product must fulfil its function. If, for example, you stated that your detergent does not fade coloured clothing, then the customer should see the results when they wash.
What is its impact on the environment?
You want to produce products that are as environmentally friendly as possible. Try to minimize negative environmental impacts.
The main purpose of the package is to protect the product from damage. Often in transit products are subjected to rough treatment so this should be taken into consideration. Also, you do not want more wrappings than is necessary. Packaging should also be reusable (if possible) and easily disposable.
Packaging serves the following purposes:
- It enables goods to be easily identified
- It improves presentation
- It makes products easier to handle
- It saves time since it facilitates distribution
- It protects the product from dust, dirt or being handled by fingers (buyers have a habit of feeling and touching with the fingers)
Branding is a form of trademark; it serves the purpose of creating a unique name or image for your product. Think of Sprite or Nike! Customers can readily identify branded products. Branding will build trust and loyalty over time, if you become known for your quality. It makes your product readily identifiable and so customers can differentiate between yours’ and the competitors. The brand is usually affixed to the product packaging.
Why is Branding necessary?
- It helps to create customer loyalty
- Registering a brand name protects ownership rights
- It makes promotion of the product easier so you can advertise a whole range of products at once
- It can help to increase sales since people are more likely to buy brand names
Register your trademark to :
- Protect others from using it or creating something too similar, as this could mislead the public.
- Prevent unauthorized use, legally
Once registered you can take legal actions for infringements.
This is usually a tag attached to the packaging to aid with the identification of the product. A label should clearly display the following information:
- The registered office or country of origin
- The expiry date of the item (if necessary)
- The ingredients in the product
The aim of ‘product’ in the marketing mix is not just for you to identify a product but to also look at how that product will be delivered to your customer – its packaging, presentation and disposal.
In the ‘price’ section of the marketing mix the product’s selling price is determined. There are several factors to could consider when determining the price; these are examined in the Costing and Pricing article.
It would be a total waste of time to produce a product if the customers have no access to it. You want your customers to be able to access your product when they need it. There are different channels through which goods can be distributed to customers:
Manufacturer to Customer
Here the customers access the products directly from you, the producer. This also serves the important purpose of keeping you close to your customers, therefore feedback can be readily obtained.
Manufacturer to Retailer to Customer
Goods pass from the manufacturer to the retailer who sells to the customers. Normally, this means your customers will pay a bit more than they would had they accessed the goods directly from you since the retailer puts a mark-up on the price.
Manufacturer to Wholesaler to Retailer to Customer
As you will notice, the product has to pass through two other channels before it reaches the final consumer, with a mark-up added at each point. Therefore, your customers will definitely be paying more. Another negative is that you cannot readily determine your customers’ feedback and it will undoubtedly take longer for you to get the information.
That being said, distribution channels are important and sometimes the only feasible way to get products to customers. Where possible you should try to monitor and manage these channels.
There are several outlets through where products could be distributed to reach the consumers, such as:
- Automatic Tellers
- Consumer co-operatives
- Convenience shops
- Door-to Door selling
- Internet shopping
- Mail Order Houses
- Shopping centres
- Vending Machines
Factors influencing choice of distribution:
- The type of product you are selling
- Consumers you want to reach
- Your budget
- Quantity to be delivered
- Frequency of delivery
These are just some important things to take note of. Visit again for follow up articles on this topic.
Why Market Feasibility?
Market Feasibility is quite appropriate where you are planning to open a new business or extend an existing line of product. Your aim is to determine how ‘feasible’ your product would be in the current market.
It will allow for better evaluation of your product’s suitability to the market. You will need to:
- Define your objective(s)
- Gather your information
- Make your analyses
- Make a decision
To be able to accomplish these you would have had to conduct a market research.
Having done your research there are two methods to further proceed.
1. Go/no go decision
Based on information collected and market trends should you or should you not go ahead with your business decision. Do you need to make adjustments to the original ideas? If so, what changes?
2. Return on investment
Evaluate your business as an investment, look at the opportunity costs (the cost of opportunity forgone. By deciding to go ahead with this venture, what other opportunities are you giving up? Are they more or less profitable ventures?). Based on the estimated sales determined from market research, would there be adequate returns in a given period of time? How long can you go on without positive returns?
The marketing strategy is the business’ approach to marketing the product. It helps you to focus on and better serve your target market. Your target market, location, and your budget can affect your marketing strategy. Given these considerations you will have to determine a specific product, promotional strategies, price and the distribution method you will need to employ to suit your target market. Your marketing strategy is what you use to determine your marketing plan.
A marketing plan is a written description of your marketing objectives. It is the detailed layout of the information mentioned in your marketing strategy. It will look at:
- How you will increase product awareness
- How you will appeal to customers and convince them to buy
- How you will deliver your product to the customers
- Where you intend to sell and to whom you intend to sell
- Product choices and how you will tailor that product to the market, considering pricing, sales and promotion
As a small business owner your resources may be quite limited and so market segmentation could be a viable option. Market segmentation focuses on satisfying the needs of one or two markets instead of the general market. You could focus on satisfying the needs of specific geographic areas such as neighbourhood shops or neighbouring communities. You could also segment according to the target market, thus focusing on the section of people that are most likely to buy your product.
In summary, for effective marketing we need to examine:
- Market research – evaluate customers’ needs
- Marketing strategy – develope by analysing competitive and comparative advantages
- Marketing plan – detailed description of specific product, pricing, distribution and promotional methods
- Target marketing – determine the specific markets you will serve
- Marketing mix – determine how to satisfy your target customers by identifying and applying a market mix
Click the link to download a Market Feasibility Study Template.