Sales Potential - Definition, Importance & Example
What is Sales Potential?
Sales potential is the estimated market share that company expects to capture in a market in a stipulated time period after entering the market. Sales potential results are very important for a company in determining whether to enter a market or not depending on the estimated profitability from sales potential.
Sales potential and market potential are different things. Market potential is the total sales or total potential sales of all players in the industry in the defined geographical area during a certain period of time. Sales Potential is an figure indicating the maximum or total sales from all prospective buyers of the product. Market potential is a marketing exercise which estimates the maximum potential a product can have. It is generally a percentage of the total market potential. In a way, market potential can be said to be the estimated market size for a product category and sales potential is the prospective market share.
Importance of Sales Potential
Sales potential generally means how much one product could be sold. It means total quantity of a particular brand that could be sold in a market instead of all the brands of a particular product category. It is actually a process by which a business / company predict the future market demand. This includes all the direct costs so that it will be easy to estimate profits.
Before sales potential forecasting the sales, there are certain assumptions that need to be considered. Those are – either market share will grow or shrink by certain percentage, need of increasing sales force, location advantages, and increase in product’s prices, change in technology, competition, and government regulations. It forecast can be short term as well as long term.
Advantages of Sales Potential
Sales Potential has several advantages, some of which are written below:
1. It helps in producing right quantity at the right time which in turn helps company in reducing losses.
2. Helps the management to determine the expected revenue out of the business.
3. Also helps in determining an approximate quantity of raw materials and labor force required.
4. It gives a good driving start to the business in terms of decision making.
5. Helps in proper planning to achieve required targets.
Disadvantages of Sales Potential
Some disadvantages are:
1. Consumer’s buying behavior can’t be predictable and are irregular as there are many alternatives available in the market.
2. Sales potential forecast may sometimes give inaccurate results because of technological disruptions and coming up of mega trends.
Difference Between Market Potential Vs Sales Potential
While defining market and sales potential, both of the concepts takes into consideration both the needs and demands of the customer. Market Potential is the total quantity of all brands of a same product category that could be sold. It differs from Market potential as it only considers the total quantity of a particular brand instead of all the brands that could be sold in the market.
For example, if there are two brands - Brand X and Brand Y. Customers who are very much loyal to Brand X would be market potential estimate for Brand Y but would not be their sales potential estimate and vice versa. So, there is no guarantee that sales estimates will be equal to market estimates. Mostly sales potential estimates are calculated from market potential estimates. So in order to calculate sales potential estimates, one needs to know market potential estimate.
Examples of Sales Potential
Coca Cola sales potential forecast is combination of various factors like historical data, social and economic parameters, seasonal variations, occasions, festivals and ceremonies. They do have weekly reviews so as to adjust monthly forecasts. Ion Mostly the forecast is done region-wise and are further fragmented into cities, towns and villages. They analyze regional and submarket demand and supply and take into consideration macroeconomic conditions before forecasting. They build their decisions in order to maximize returns and minimize risks. Hence, estimating sales potential helps coca cola in getting a huge market share and the company is able to cater to the demands of a huge population.
Hence, this concludes the definition of Sales Potential along with its overview.
This article has been researched & authored by the Business Concepts Team. It has been reviewed & published by the MBA Skool Team. The content on MBA Skool has been created for educational & academic purpose only.
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