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Sales Forecasting What is Sales Forecasting?
“Prediction based on past sales performance and an analysis of
expected market conditions.”
* The true value in making a forecast is that it forces us to
look at the future objectively. Importance of Sales Forecasting
Evaluation of past and current sales levels and
annual growth
Compare your company to industry benchmarks
Establish policies to monitor prices and operating
costs
Make a company aware of minor problems before
they become major problems Importance of Sales Forecasting
Companies that implement accurate sales forecasting processes
realize important benefits such as:
* Optimised cash flow
* Knowing when and how much to buy
* In-depth knowledge of customers and the products they order
* The ability to plan for production and capacity
* The ability to identify the pattern or trend of sales
* Determine the value of a business above the value of its
current assets
* Ability to determine the expected return on investment Internal factors affecting Sales
Forecast External factors affecting Sales
Forecast
Seasonality
of the
business
Productivity
changes
Styles or
fashions Need
Every company needs to generate forecasts of their short to.
medium term sales. Being able to forecast demand more
accurately has major commercial advantages, whether the
forecast is used:
To plan purchasing, production and inventory
As the basis of marketing or sales planning
Or for financial planning and reporting or budgeting Types of forecasting
Time-Series Forecasting A common forecasting
task is to predict sales for the next 12 months based
on sales of the past 36 months.
Time-series techniques are quantitative-that is, they
use values recorded at regular time intervals (sales
history) to predicts future values Correlation or Regression Techniques
Another common forecasting task is to predict the
increase in sales given some marketing action such
as a sales promotion or advertising campaign. In
this case, correlation or regression techniques are
used to compare how a change in one variable (e.g.
advertising effort) causes a change in another
variable (e.g. sales volume). Qualitative Techniques
Changes in sales volume may result from the actions
of the company or from other factors such as actions
by competitors and economic conditions.
Time-series techniques cannot foresee and regression
techniques cannot account for changes in demand
patterns and other relationships that affect sales
volume. Instead qualitative techniques (also called
subjective and judgmental techniques) call on the
expertise of people inside and outside the company to
adjust the forecast to account for these factors.
The three categories include many different sales
forecasting
