2.2.1 Sales Forecasting

Question 1

Definition: Sales forecast

Answer 1

• A sales forecast estimates the volume or value of future sales using market research or past sales data.

Question 2

Purpose of sales forecast – avoid cash flow problems

Answer 2

• Accurately forecasting the sales and building a sales plan can help the business to manage their production, staff and financing needs more effectively and possibly avoid unforeseen cash flow problems
• A sales forecast will help a business to write the income part of the cash flow forecast

Question 3

Purpose of sales forecast - frees up management time

Answer 3

• While it’s always wise to expect the unexpected, a well- constructed sales forecast can allow the business owners to spend more time developing their business rather than responding to day-to-day developments in sales and marketing
• Managers will have more time to focus on the rest of the business

Question 4

Purpose of sales forecast - production capacity

Answer 4

• The business can use a sales forecast to estimate if they need to increase or decrease production – and this will also help them to see if they have enough production capacity to deal with expected demand
• The business may need to buy or rent new premises if there is a huge increase in sales forecast

Question 5

Purpose of sales forecast – employ more workers

Answer 5

• If the business has high sales forecasts for a new product or service it may need to take on new employees to cope with new levels of demand
• Failure to meet required staffing levels could result in poor reviews – customer service and this may have an impact on future sales

Question 6

Purpose of sales forecast - start promotional activity

Answer 6

• If sales are forecast to be very low and the product or service is not in the decline phase of the product lifecycle, then the business may decide to try and increase sales though promotion and marketing
• Sales forecasts can also direct a business to a specific season or month when promotion activity would be likely to net the most sales revenue e.g. Christmas

Question 7

Factors affecting sales forecasts

Answer 7

• consumer trend
• economic variables
• actions of competition

Question 8

Consumer trends

Answer 8

• A sales forecast may take into account consumer trends
• Documents like reports that Mintel produce can help a business to identify an upcoming trend
• Fashion shows and trade fairs are also ways that a business can research what might be new popular products

Question 9

Economic variables

Answer 9

• Economic variables such as; interest rates, inflation, unemployment rate and GDP can all affect how a business plans its sales forecasts
• For example some sales contracts may not be renewed due to inflation and the rising cost of the products from the business, so it may need to lower prices to maintain the correct level of sales predicted
• The UK economy is now in the recovery phase*, so low cost retailers like Poundland, Poundworld and Aldi may need to forecast lower sales

Question 10

Actions of competitors

Answer 10

• The actions of competitors may also have an impact on sales forecasting
• If the business has products that face declining sales, perhaps because of a competitor’s superior product, they may decide to produce or sell less of those products

Question 11

Difficulties of sales forecasting

Answer 11

no guarantees
dynamic markets
short term thinking

Question 12

Difficulties of sales forecast– no guarantees

Answer 12

• Just because a sales forecast has been written by a business - there are no guarantees that sales will meet these levels
• This could be down to any number of uncertain factors e.g. impact of terrorism on tourism in some countries

Question 13

Difficulties of sales forecast - dynamic markets

Answer 13

• In April of 2017 the fidget spinner was the must-have toy, by May 2017 most schools had banned them and sales were in decline
• The craze or fad for fidget spinners had died - meanwhile toy shops are packed to the rafters with the toy they can no longer sell

Question 14

Difficulties of sales forecast – short term thinking

Answer 14

• A sales forecast is useful for a business which can produce and sell products or services in a one year period
• For some businesses e.g. ship building company or a hotel, a one year forecast will not be useful or appropriate for multi- billion dollar contracts, over a longer time period