2.2.1 Sales Forecasting

Question 1

What is a sales forecast

Answer 1

Predicts future sales for business during specific time like every month.

Question 2

Sales forecasting purpose:

Answer 2

-predict increased sales forecast indicate for increased productive capacity = employ more staff to meet increase in demand- helps create a human resource plan - not at risk of not being able to cope with high sales.
-level of scales will determine level of output required to meet sales, helps with production scheduling.
-identify when business should start promotional activity eg if sales forecasted low business start to promote product to extend its plc.

Question 3

Factors affecting Sales forecasting:

Answer 3

-consumer trends like changes in habits/taste will determine sales= business’s goods become less popular.
-economic variables affect demand like interest rates/exchange rates. eg recession decreases demand due to reduction in consumer incomes - business should revise down sales forecasts. However, inferior goods eg in Aldi may revise sales forecasts upwards as incomes fall= demand for inferior goods increases=negative income elasticity of demand.
-Actions of competitors impact business sales forecasts; eg a big competitor use predatory pricing strategy= big fall in the demand for the businesses goods/services - sales forecasts may have to be revised down.

Question 4

Problems with Sales Forecasting:

Answer 4

-Sales forecast is extrapolation (based on past trends)- startup business struggle to analyse past trends to forecast future sales due to lack of history
-Wastes time and money on R&D.
-changes in market (price) or economics conditions (incomes) = impact demand businesses goods/services= greater risk of sales forecasting being inaccurate.
-dynamic markets- hard to forecast sales as they have to be adjusted to reflect the changing market conditions= sales forecasting inaccurate beyond short periods