If we can simply set a sales goal and expect marketing and sales to exceed it, why do we even need a sales forecast in the first place? This is a question many managers ask and often answer incorrectly (i.e., we do not need a forecast), to their eventual sorrow.
The correct answer is that every time we develop a plan of any kind, we first make a forecast. This is true of individuals, as well as profit and nonprofit compa- nies, government organizations, and in fact, any entity that makes a plan. It can be as simple as planning what we will wear tomorrow. When we decide to lay out wool slacks and a sweater for the next day, we are forecasting it will be cool. If we add an umbrella to our ensemble, we are forecasting rain. The plan was predicated on the forecast, whether we consciously thought about it or not.
This is not much different from a company making financial plans based on expected sales and the costs of meeting those sales. The trick is to not get caught in the trap of making “inadvertent sales forecasts.” Inadvertent sales forecasts are made when we are so intent on developing the plan that we simply assume what sales will be, rather than giving any concentrated thought to and analyzing the market con- ditions that will be necessary to create this level of sales.
One great example of such an inadvertent forecast came from a manufacturer in the grocery products industry. The owner of the company explained to us that the sales plan called for an increase in sales of 5% for the next year. However, we had also been told that this industry in this country was not growing and that any attempt to grab market share from the competition was only met by countermoves that caused greater promotional expenditures, but no shift in market share. “Wait a minute,” we said to the owner. “How can industry size not change, market share not change, but sales grow? It does not take a math major to figure out that this is not going to work.” The answer was that management would simply have to motivate everyone to work harder to achieve the (mathematically impossible) plan. Of course, it is obvious what happened—no amount of motivation is going to overcome an impossible situation, and the sales plan was not achieved. It was not achieved because it was based on an inadvertent and uninformed forecast.