Four Most Common Blunders In Estimating Sales
Predicting sales is one of the most difficult tasks in business because you are actually trying to foresee the future. Even if we know that there is uncertainty, there is no choice but to try our best to discern it. Large companies usually have well developed ways of going about this critical process, but many small and medium scale enterprises are still in the dark on what to do.
One of the most common causes of business failures is a poor process for projecting sales. Most of the blunders in forecasting are due to reliance on simplistic techniques that rely more on luck than on any scientific basis. However, there are also mistakes that even the most sophisticated may find hard to avoid.
From my own experience and readings on the subject, it is my opinion that a large number of those blunders fall into the four types of mistakes.
Using The Top-Down Forecasting Approach
When planning to enter new markets, there is a tendency to use the top-down approach. This means beginning with the macro view, like total market demand. There are many ways of doing Top-down forecasting and if used in the right way, this approach is very useful.
However, there is this one type of Top-down forecasting frequently used by prospective entrepreneurs in the wrong manner, often leading to disastrous results. This kind of forecasting begins by getting the total demand and then, estimating that even if they get only a small fraction of the demand, the sales is more than enough to generate huge profits.
In the case of China, with over a billion people as consumers, people think they are already being conservative with the Top-down approach. But the reality is that the path of your goods from your company to the point of being bought by your projected consumers is filled with road blocks. This ranges from distribution problems to competitors and a myriad other factors. The end result is that sales usually fall far short of your minimal expectations.
Assuming New Markets Have The Same Preferences
This is frequently the problem with franchises. People of ten assume that given the same market size and income, sales should be comparable to existing franchises. Unfortunately, this may not be true. At times, there may be differences in market characteristics that make the results different. Frequently, some adaptation must be made.
There is a huge dilemma here. Franchisors need their products and services to be consistent so that the brand or company name would deliver on the expectations of those who had already bought from them. On the other hand, the local market may want something different from what they are offering. Whatever path you take, there is bound to be a negative effect on the other factor. Adding to this problem is the company’s pride in its product or service. This was the problem that faced McDonalds when they first came to the Philippines. They refused to adapt their product to Filipino tastes and virtually gave the mass market to Jollibee on a silver platter.
It took a long while for that icon of American business to realize that, at least, in this particular case, it is better to adapt than to be consistent. Still this truth only became apparent in hindsight. After all, Filipinos learned to love French fries, burgers, and other American food. For the small- to medium-sized business, adapting to the market is even more urgent as it is less likely that they could sway established preferences.
Neglecting Feedback From Frontliners
Many businesses do not tap the full potential of the people closest to their customers. If your business has a sales force, then they are the best source of information for estimating sales. Some managers believe that they do not need to consult with their sales force to know what sales target to set. This is a serious mistake if the manager is not normally facing customers on a daily basis in the course of doing business. Just going on a few sales calls is woefully inadequate to know everything. There will be a lot of important information that only your salespeople can provide. They are the first to learn about new trends in the field that may affect your assumptions.
Even in cases where there is an effort to get suggestions from the sales force, it is often superficial or simply a ceremonial rubber stamping of decisions already made. A strong commitment to get the sales force truly engaged is mandatory so that they would be motivated. This does not mean that management should agree with all their suggestions, but only that what they say should be seriously considered.
Not Taking Competition Into Account
In drafting your marketing plan, it is often forgotten that the biggest spoiler is usually the competition. You may be planning a great promotion to increase your sales, but your competitors are also doing their own planning to eat your market. Do not assume that they will be standing still. Anticipate what they are likely to do and what would its impact be on your own plans. Have resources in reserve to counteract possible threats to your revenues.
Predicting sales would always remain both a science and an art. Still, learning how to avoid the biggest blunders in forecasting would be a tremendous boost to the accuracy of your sales predictions. This gives you a stronger foundation from which you can plan your sales forecast.
*Originally published by the Manila Bulletin. C-6, Sunday, November 10, 2013. Written by Ruben Anlacan, Jr. (President, BusinessCoach, Inc.) All rights reserved. May not be reproduced or copied without express written permission of the copyright holders.