2.2.1 Sales forecasting Flashcards
What is a sales forecast?
It predicts future revenues based on past sales figures.
They commonly focus on what will happen in the future to:
- The volume and value of sales
- The size of the market
- Sales as a result of promotional activity
- Sales as a result of cyclical factors
What do businesses use sales forecasts to determine?
- How many staff will be needed?
- How much stock will be required?
- Does capacity need to be expanded or reduced?
- Does the equipment need to be upgraded, replaced or increased/reduced?
- How much and which type of finance will be required?
- Is promotional activity required and when?
Which factors can influence sales forecasts?
- Consumer trends
- Economic variables
- Actions of competitors
What aspects of consumer trends can influence sales forecasts?
- Seasonal variations
- Fashion
- Long term trends
How do seasonal variations influence sales forecasts?
- Demand for certain goods is seasonal.
- Seasonal events such as annual holidays impact demand for a wide range of products.
How does fashion influence sales forecasts?
- Fashion is often led by celebrities, and their influence can have a short-term impact on sales.
How do long term trends influence sales forecasts?
- Consumer behaviour, attitudes and spending habits change over time.
How does economic growth influence sales forecasts?
- During periods of economic growth, increased consumer incomes will lead to higher than forecast sales.
- During periods of economic slowdown, decreased consumer incomes will lead to lower than forecast sales.
How does inflation influence sales forecasts?
- The general increase in prices over time reduces consumers’ spending power.
- Firms may revise their sales forecasts downward during periods of rising inflation.
- Firms may revise their sales forecasts upwards during periods of falling inflation.
How does unemployment influence sales forecasts?
- Increased levels of unemployment are often experienced during periods of recession and tend to be a key cause of reduced spending in the economy.
- Sales forecasts for lifestyle and luxury goods may reduce as consumers focus their spending on essentials.
How do interest rates influence sales forecasts?
- When interest rates rise, borrowing becomes more expensive for consumers.
- Businesses that sell products that consumers frequently buy on credit may therefore adjust their sales forecasts downward.
How do exchange rates influence sales forecasts?
- Where the value of the UK £ falls against other currencies, overseas consumers will find British exports become relatively cheaper.
- Businesses that sell products overseas or that cater for tourists visiting the UK may adjust their sales forecasts upwards to reflect the expected increase in demand.
How do actions of competitors influence sales forecasts?
- Sales forecasts should consider short-term actions of competitors such as sales promotions as well as longer-term strategies such as changes to product ranges and expansion plans.
- Competitor actions are difficult to predict so the usefulness of past data to predict future sales may be limited.
What are the difficulties of sales forecasting?
- Smaller businesses may lack the experience or personnel to construct a sales forecast.
- It is difficult to avoid experience bias (opinions of the future based on the past).
- It is difficult to construct a sales forecast that takes the priorities of all shareholders into account.
- Sales forecasts will rarely reflect the full range of external influences.
- Selecting the most appropriate external data to support sales forecasts is extremely challenging.
