174 CHAPTER 8 GETTING TO GROSS PROFIT

IT IS SIMPLE REALLY

Do not be terrified by the idea of forecasting sales. It really is quite straightforward. There

is no black magic or sorcery involved. Let me take you through an example.

Recall that Tetrylus Inc has developed a computer system that tracks the activities of

workers in hazardous industries – mining, oil and gas extraction, construction, accounting

(just kidding about this last one).

Tetrylus is playing the numbers game. The planners have identified the number of

sales-channel business partners that they can support and the number of sales that the

partners are expected to make in a year. They have also projected the average number

of components that will be included in each sale (one software package and up to 2500

identity badges). Simple arithmetic produces sales volumes. From volume, costs and

prices are built up. These are shown in Figure 8.4. Inventories, sales, cost of sales and gross

profit are calculated automatically in Figure 8.6 (later). A descriptive extract from the busi-

ness plan is shown in Figure 8.8 (later) – and the example is continued in Chapter 9.

This is a simple and consistent forecasting. You might not agree with the numbers, but

you can alter the assumptions and produce a range of possible outcomes that you can

believe in – which is where our friend what-if comes in (Chapter 11).

Pulling it all together

Having arrived here, you have:

understood your market (Chapter 5);

developed a strategy and an operating plan (Chapter 6);

laid down assumptions for the planning period;

used an economic/environment forecast to predict the path of leading indicators;

used leading indicators to forecast demand for your product class, category or

product itself;

allowed for changes in the pattern of demand for product class and category; and

estimated the effects of your strategy and plan on final demand for your product.

Now you need to pull together all of this analysis. Make a table with a row showing fore-

cast sales volumes for each month (or quarter or year). Put your projected sales prices for

each period into another row. Multiply one by the other and you have a forecast of gross

sales revenue per period. An example is shown in Figures 8.4 and 8.6. Note that all the

figures in the second half of the example (Figure 8.6) are calculated automatically. Change

a forecast or assumption in the first half, and you see the effect ripple through. This will

make your what-if modelling in Chapter 11 very easy.

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