2.2.1 - Sales Forecasting Flashcards
What is sales forecasting?
Sales forecasting is the process of predicting future sales based on factors such as past sales data, market trends, and external conditions.
Why is sales forecasting important for a business?
Sales forecasting is important because it helps businesses plan for future demand, manage resources efficiently, and make informed decisions regarding staffing, production, inventory, and finances.
How is sales forecasting linked to cash flow forecasting?
Sales forecasting is directly linked to cash flow forecasting because a business’s cash flow is largely determined by its sales revenue.
What do cash flow forecasts rely on?
Cash flow forecasts rely on accurate sales forecasts to predict future cash inflows, helping the business manage its finances, avoid cash shortages, and plan for investments or expenditures.
In what areas of business planning does sales forecasting play a key role?
(5)
- Human resources: Ensuring the business has enough staff to meet sales demand.
- Production and capacity planning: Adjusting production levels to meet future demand.
- Inventory control: Managing stock levels to avoid excess inventory or stockouts.
- Cash flow and profit forecasts: Ensuring financial stability and planning for growth.
- Promotional activity: Aligning marketing strategies with expected sales increases.
What are the main factors that affect sales forecasts?
(3)
- Consumer trends: Changes in consumer preferences, fashions, and buying habits.
- Economic variables: Factors such as interest rates, inflation, and exchange rates.
- Actions of competitors: Competitor launches, promotions, price changes, or market entry/exit.
How do consumer trends influence sales forecasting?
Consumer trends impact sales forecasting because as consumer tastes, fashions, and purchasing habits evolve, demand for certain products can increase or decrease. Businesses need to anticipate these changes to adjust their sales forecasts accordingly.
How can economic variables affect sales forecasts?
Economic variables, such as interest rates, inflation, and exchange rates, can affect sales forecasts by influencing consumer spending.
For example, higher interest rates may reduce consumer borrowing and spending, leading to lower sales in some sectors. Conversely, favorable exchange rates may boost export sales for certain businesses.
In what ways can competitor actions affect sales forecasts?
Competitor actions can significantly impact a business’s sales forecasts.
If a competitor launches a new product, runs a promotional campaign, or lowers prices, it may attract customers away from the business, reducing its sales.
Conversely, if a competitor exits the market, the business may experience an increase in sales as customers shift to them.
Why is sales forecasting difficult in dynamic markets?
Sales forecasting is difficult in dynamic markets because these markets are subject to rapid and continuous change, driven by technological advances, shifting consumer preferences, and competitive actions.
These unpredictable changes make it hard to accurately predict future sales based solely on past performance.
Why is past sales performance not always a reliable indicator of future sales?
Past sales performance is not always a reliable indicator of future sales because of external factors such as economic shocks, changes in consumer behavior, competitive pressures, and other unpredictable events.
For example, a sudden recession or a new competitor entering the market could cause sales to drop, even if they had been increasing steadily in the past.
What challenges do businesses face when forecasting future sales?
- Dynamic and rapidly changing markets.
- Unpredictability of external factors such as economic variables, consumer trends, and competitor actions.
- The potential for external shocks like economic downturns or global crises, which can disrupt even the most well-informed sales forecasts.
