What do you do when you are asked to forecast sales in an unstable economy?

CEO, Power-MI
eventMarch 18, 2019

When talking to local predictive maintenance service companies, especially in Latin America, they tell me that many manufacturers ask them to estimate sales during the year.

This causes them some stress because they do not know how sales are going to go. Local market conditions are different from what the manufacturers know, who are usually companies from the United States, Europe or Japan, where the economy is more stable.

I will give you recommendations on how to manage this. However, first, a little context.

The forecasts or sales budgets are estimates that are made for different uses: managing the cash, planning production, managing personnel and resources of the company.

Many manufacturers ask their representatives for this estimate: how many pieces of equipment will be sold in the country, some even ask for the details of the models and the quantity toward months. They do this to have a certainty of their annual results. Total the forecasts of all their representatives and apply a factor. With that, they have a vision of how the business will go that year. It is a regular and recommended practice for the management of any company.

Now, the stress point of the representatives is that the level of uncertainty in their market is exceptionally high. These are the signs of a market with high risk:
Sales opportunities with different closing times. That is, some close quickly and others take years.

  • Investment decisions making are subject to the political situation or local economy.
  • High turnover of the staff that makes purchasing decisions or investments.
  • Technical maturity of the market is low. This means that sometimes companies are determined to buy but then they miss the enthusiasm.

When a manufacturer asks the sales estimate of their representative, what they want is to have an idea of how the business is going to go. Some manufacturers have a minimum of sales in their representation contracts, and that can be a point of stress.

However, that's different from making a sales forecast.

What to do?

Prepare a small document that includes the following parts. Each part of approximately half a page:

  1. General situation of the economy of the country: write the condition that the local economy will have based on facts such as the political situation that is expected that year (for example, if there are elections), the fears and expectations of the industry (for example, the price of oil, government initiatives, new plants to be built). Use as many sources as you can.
  2. The situation of the market of predictive maintenance: mention relevant data such as substantial sales opportunities in progress or to be started, events or fairs to be carried out, large projects where machine condition monitoring technologies could be included.
  3. The situation of your company: relevant data of your service company such as the hiring of personnel, collaboration with other companies, participation in events or fairs, marketing plans, main opportunities in clients, whether or not they involve the manufacturer's brand.
  4. Scenarios: already described the context, now you are going to raise the scenarios of the forecast of sales of the equipment of the manufacturer. One is the pessimist and the other the optimist. In the pessimistic, you are going to put the deals that you already have in opportunity and with more than 80% probability of winning. In the optimist, you will put the sales opportunities that you have in a chance to win with more than 20% and then multiply it by two. The optimistic scenario implies winning the majority of active sales opportunities and generating the same amount in the year. This is just an idea to calculate the two scenarios as you go better.

After explaining the context and the two scenarios of sales forecasting, ask your manufacturer contact to have a phone call to estimate the sales of the year together. This will allow him to know the assumptions and the level of certainty of the forecasts.

Remember that it is always good to have a review of the achievement of these forecasts and adjust them every 3, 4 or 6 months.

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