Module 12: Forecasting and Quota Development

Question 1

Sales forecasting has the following four primary purposes within the organization:

Answer 1

1. Financial planning helps determine what investments a company may need to make and how it will fund these investments.
2. Sales force helps determine how to organize and structure the sales force, including the number of salespeople, account or territory coverage, and how to set quotas.
3. Interdependence affects other functions in the organization, which are dependent on sales forecasts.
4. Management influences the management of human resources on issues such as the number of employees necessary to meet the organization’s goals, how to pay the employees, and overall how business strategies will be managed.

Question 2

Internal and external forces make it difficult to develop an accurate forecast.

Answer 2

Question 3

pipeline

Answer 3

A way of tracking the progress of sales deals that a sales team is currently working on and expects to close within a reasonable period of time

Question 4

market potential

Answer 4

An estimate of the possible sales for a product or service for an entire industry in a market in a stated time period under ideal conditions

Question 5

sales potential

Answer 5

The maximum or total sales from all perspective buyers of a product for a single firm, generally a percentage of total market potential

Question 6

market share

Answer 6

The portion of a market controlled by a particular company or product; expressed in dollars or units

Question 7

Forecasting Methods

Answer 7

Question 8

Customer Surveys

Answer 8

Question 9

sales force composite

Answer 9

A forecasting method that involves adding up individual sales representatives’ forecasts for sales in their respective sales territories

Question 10

profit margin

Answer 10

The amount that revenue from sales exceeds costs

Question 11

expected value analysis (EVA)

Answer 11

The value at some point in the future which Is calculated by multiplying each of the possible outcomes by the likelihood each outcome will occur and then adding up those values

Expected value = forecasted sales × respective probability

Question 12

Sales Force Composite

Answer 12

Question 13

Executive Opinion

Answer 13

Question 14

Delphi Method

Answer 14

A method of group decision-making and forecasting that involves successively collating judgements of experts.
The Delphi technique was devised by RAND Corporation to help the U.S. government predict what might happen in post-World War II Europe. With internet access, the technique is easier to use than ever before.

Question 15

Advantages and Disadvantages

Answer 15

Question 16

time-series technique

Answer 16

Make forecasts based solely on the historical pattern of data

Question 17

Time-series analysis can help identify and explain the following:

Answer 17

Any regularity or systematic variation in the data, for example, an increase in sales in the toy industry during the fourth quarter
Cyclical patterns that repeat every two to three years
Trends in the data
Growth rates of these trends

Question 18

rollover or naïve approach

Answer 18

An estimating technique in which the previous period’s actual sales are used as the current period’s forecast, without any adjustment or explanation

Question 19

To calculate the average of the absolute error, perform the following steps:

Answer 19

• The actual results and the forecasted results are required.
• Use the ABS function in Excel to take the absolute value as it is the distance, not the sign, that is important.
• Subtract rollover forecast from actual results.
• Average the errors by adding all the absolute error values together and dividing by the total number of values

Question 20

simple moving average forecast

Answer 20

A technique to get an overall idea of the trends for a data set using the average of any subset of numbers

Question 21

weighted moving average

Answer 21

A weighted average of the last “n” prices, where the weighting decreases with each previous price

Question 22

Exponential smoothing

Answer 22

A method for forecasting that is similar to a weighted average, except it uses an exponentially decreasing weight for past observations

Question 23

to determine average daily sales perform the following steps:

Answer 23

• Determine annual sales.
• Divide the annual sales generated in one year by the number of days in a year to calculate the average daily sales.
• Compare the average daily sales of different accounting periods to the costs required to generate those sales or across different locations of sales divisions

Question 24

cycles

Answer 24

A recurrent variation in a time series that typically lasts for two to five years

Question 25

seasonality

Answer 25

A pattern or predictable and recurring shifts in a time series

Question 26

random noise

Answer 26

The random variation in a series

Question 27

decomposition time-series analysis

Answer 27

To decompose a time series into its level, trend, seasonality and noise components

Question 28

Cyclical variation

Answer 28

Cyclical variation is unpredictable and typically occurs over a more extended period—say, two to five years—instead of a single season.

Question 29

An example of the decomposition method to remove seasonality from data has the following steps:

Answer 29

1. Calculate the overall average sales over all data points. (Add up all the data points and divide by the number of data points.)
2. Calculate the average sales for each month.
3. Divide the average monthly sales by the overall average sales to obtain a seasonal index for each month.
4. Divide all sales observations by the appropriate seasonal index (Kolassa and Siemsen, 2014).
5. Use the data with seasonality removed to calculate an exponential smoothing forecast.

Question 30

The quota-setting procedure involves the following steps:

Answer 30

• Choose whether a qualitative, or judgment-based, system will be used or a quantitative, or model-based, system.
• Select the bases for setting quotas, such as sales calls, profits, expenses, total sales volume, number of new customers, emails answered, and product demonstrations.
• Determine which factors will be considered when setting quotas.
• Establish the reward system linked to the quota system.
• Consider the level of sales representative involvement in setting the quotas

Question 31

The quota development process involves the following steps:

Answer 31

• Look at each territory’s sales potential forecast versus the sales history for the salespeople selling in that market.
• Gather data that are comparable to the quota setting period. Look for factors such as seasonality, which may affect the level of sales.
• Evaluate each territory for economic conditions, competition, and travel time.
• Set yearly quotas based on these factors, and then break them down into quarterly or monthly quotas.
• Explain to each sales representative how the quota was developed (Boyd, 2019); quotas will not be the same for every salesperson.

Question 32

direct quotas

Answer 32

A quota set for people who are in the front line of sales and have the power to impact their quota results

Question 33

Attaining quotas and sales goals requires an alignment between organizational goals, historical performance, market potential, and sales force talent.

Answer 33

Question 34

market factor

Answer 34

Any external factor that affects the demand for or the price of a good or service

Question 35

market index

Answer 35

A combination of market factors important in estimating the likely level of sales

Question 36

breakdown model

Answer 36

Determining the size of a sales force by dividing the sales expected from each representative

Question 37

Three conventional methods for estimating the size of the sales force are the breakdown method, the workload method, and the incremental method.

Answer 37

Question 38

workload method

Answer 38

Determining the size of a sales force by estimating the total workload, determining the number of hours necessary to cover the entire customer base and then divide it based on the selling time each representative has available

Question 39

incremental method

Answer 39

A method of estimating the sales force that adds additional sales representatives as long as the additional revenue added exceed the costs

Question 40

marginal revenue

Answer 40

The revenue gained by one additional unit of a good or service

Question 41

marginal cost

Answer 41

The cost incurred by adding one additional unit such as a worker

Question 42

law of decreasing returns

Answer 42

At some point adding an additional input such as an additional worker results in smaller increases in output