Which of the following is NOT one of the four steps to preparing a sales forecast?

The answer

The standard four steps to preparing a sales forecast are:

1. Determine market potential — the total possible sales of a product category by all sellers in a defined market and time period.
2. Determine sales potential — the maximum share of that market potential your specific company could realistically capture.
3. Forecast sales — the amount you actually expect to sell given your marketing plan, budget, and effort.
4. Evaluate and adjust the forecast — compare the forecast to actual results and refine your assumptions.

So the correct choice is whichever answer sits outside this list. On most versions of this question the odd-one-out is "set the selling price" (sometimes phrased as "determine the price" or "establish a marketing budget"). Pricing is a marketing-mix decision, not a step in building the forecast itself — you forecast unit demand first and price separately.

Why the distractors are wrong

Each of the three genuine steps describes a stage that narrows a broad number down to a usable prediction. Market potential is the widest figure — everyone's sales combined. Sales potential shrinks that to your firm's ceiling. The forecast is the realistic working number, and evaluation closes the loop. A tempting wrong answer like "set the selling price" feels like it belongs because pricing affects how much you sell, but it is an input to demand, not a forecasting stage. Likewise, "choose a distribution channel" or "hire a sales force" are execution activities that follow the forecast — they are not part of producing it.

A worked example

Suppose you sell reusable water bottles in one city.

• Market potential: research shows 500,000 residents buy roughly 1 reusable bottle per year = 500,000 units.
• Sales potential: given your brand strength and shelf access, you could capture at most 8% = 40,000 units.
• Forecast: with your actual $20,000 ad budget and two retail partners, you realistically expect to sell 12,000 units this year.
• Evaluate/adjust: after Q1 you sold 2,500 (on pace for 10,000), so you revise the forecast down and increase promotion.

Notice that price never appears as a step — you set it (say, $15) as a separate decision, and it simply feeds into the demand assumptions.

The bigger picture

A sales forecast is the foundation for budgeting, staffing, inventory, and cash-flow planning. Getting the sequence right matters: you must move from the biggest possible number (market potential) to the most realistic one (the forecast) and then keep correcting it. Confusing a forecasting step with a marketing decision like pricing is exactly the trap this exam question tests.