2.2.1 Sales Forecasting

Question 1

Definition of sales forecast

Answer 1

Projection of future sales revenue, often based on previous sales data.

Question 2

What are the purposes of sales forecasts?

Answer 2

1. Avoid cash flow problems - helps manage production, staff.
2. Frees up management time - more time to focus on growth + development
3. Production capacity - helps estimate if they need to increase/decrease production
4. Empty more workers - to cope with new levels of demand
5. Start promotional activity - increase sales by marketing

Question 3

What 3 factors affect sales forecast?

Answer 3

1. Consumer trends
2. Economic variables
3. Actions of competitors

Question 4

How do consumer trends affect sales forecast?

Answer 4

Businesses anticipate and meet the needs of consumers by supplying products that are in demand at a point in time

Question 5

Example of economic variables

Answer 5

• interest rates, inflation, unemployment rate, GDP

Question 6

How do economic variables affect sales forecast?

Answer 6

Sales contracts may not be renewed due to inflation, so it may need to lower prices to maintain the correct level of sales predicted

Question 7

How do actions of competitors affect sales forecast?

Answer 7

When competitors use a strategy to capture a market share from rivals, sales forecasts may need to be adjusted downwards.
Type of strategy used by competing business can affect sales forecast.

Question 8

What are the difficulties of sales forecasting?

Answer 8

• just because a sales forecast has been written, there’s no guarantee that sales will meet this level.
• dynamic markets - demand and sales could rapidly decrease
• not suitable for long term objectives