Differences Between Sales Forecast, Sales Plan, and Sales Target

Nowadays most managers have big conflict between the difference between sales forecast and sales plan, also between both and sales target.

Here we can review the main differences between them: 

Sales forecast, is defined as a projection into the future of expected demand, given a stated set of environmental conditions.

Sales plans, is defined as a set of specified managerial actions to be undertaken to meet or exceed the sales forecast. Examples of plans include production plans, procurement plans, distribution plans, and financial plans.

Sales target, is defined as sales goals that are established to provide motivation for sales and marketing personnel.

Many companies confuse the functions of forecasting, planning, and target-setting.

Plans for the level of sales to be achieved should be based on the forecast of demand, but the two management functions should be kept separate.

Similarly, target-setting should be done with a realistic assessment of expected future demand in mind, and this assessment comes from the sales forecast.

In other words, the functions of planning and target-setting should be informed by forecasts of demand, but should not be confused with sales forecasting. 

Note that these definitions imply different performance measures for sales forecasts than for plans. Since the purpose of sales forecasting is to make projections of demand given a set of specified environmental assumptions, one of the key measures of sales forecasting performance is accuracy of the forecast, and one of the key methods to explain variances in accuracy is how the environment varied from the one defined. This explanation is not intended to excuse forecast inaccuracy; rather it helps us understand the business environment and forecast more accurately in the future.

In contrast, the goal of plans is not accuracy but rather to effectively and efficiently meet forecasted demand.

In addition, whereas forecasts are meant to be accurate, targets are meant to be met or exceeded. A mistake made by many companies is to confuse the sales forecast, where the objective is accuracy, with the sales target, where the objective is to at least meet and, ideally, exceed the goal or quota. In other words, companies should never be guilty of confusing forecasting with the firm’s motivational strategy.

Reference: Mentzer, J. T., Myers, M. B., & Stank, T. P. (2007). Handbook of global supply chain management. Thousand Oaks: Sage Publications.