3.3.1 Quantitative Sales Forecasting Flashcards
What does a sales forecast do?
provides an estimation of future sales figures using past data and considering predictable external factors
What can a sales forecast be used for?
Sales forecasts can be used to identify trends in product sales which can then be compared with the market as a whole
What are the three main methods in sales forecasting?
- Moving averages
- Extrapolation
- Correlation
What is moving averages?
averages calculated from successive segments of a series of data
The averages smooth out data so that trends may be identified easier
What is extrapolation?
The prediction of future sales from past data, you’d illustrate this on a graph by extending a line of best fit to the year u need to predict
What is correlation?
a link between two variables,
correlations may be positive or negative
Why are moving averages calculated?
Sometimes past sales data is too erratic for clear trends to be identified, a moving average smoothes out raw data, making it easier to spot patterns even where there are seasonal variations
Reasons why a business would do sales forecasting? (5)
- Inform decision making (don’t over/underproduce)
- Helps financial planning (budgets)
- Attract investors/ FDI
- Marketing (when sales are low)
- Risk management
How do you work out a three point moving average?
- Add three months/periods worth of data
- Do another column titled ‘total sales’
- With centring, take the sum of 3 months data and put it in the column next to the month in the middle
- Do this for all if required
- When done, divide each total by 3
- Plot on graph
How do you work out a four quarter moving average?
- Add all sales to find 4 quarter data
- Then add two 4 quarter data together to get an 8 quarter total
- Divide 8 quarter total by 8
- Plot on graph + extrapolate for future forecast
- Do variance (actual data- trend data)
- Add this to forecasted digit
- Pray
What do scatter graphs do
allow businesses to compare two variables, such as sales volume and advertising, to establish if there is any correlation between them
What is meant by positive correlation
A positive correlation means as one variable increases, so does the other variable
A line of best fit that slopes upwards can be identified
What is meant by negative correlation
as one variable increases, the other variable decreases
What is meant by no correlation
no connection between the two variables,
It is not possible to identify a line of best fit
Drawback to correlation?
Doesn’t always indicate a relationship or causation between variables so research needs to be conducted to see if there is a relationship and the strength of that relationship
It’s also just a prediction
How do u extrapolate with a correlation graph?
Draw line of best fit then do this
What are the limitations of sales forecasting?
- Good for short term, long term may be impacted by external shocks
What factors may influence the accuracy of a sales forecast? (4)
- seasonality
- Competition (porter)
- Marketing
- Market changes PESTLE
What kind of business do to improve accuracy of a sales forecast?
- Conducting detailed market research
- Employing specialists
- Revising sales forecasts frequently
- Forecasting for the short- to medium-term
What are the advantages to sales forecasting?
- reduce risk.
- Help resource management. (Budgets, staffing, stock)
- Marketing
- Attract investors
What tends to happen in Q1 of each year
Jan to march
-reduced spending (recover from Christmas)
-winter
-ppl motivated by New Year’s resolutions
What tends to happen in Q2 of each year
Idk it’s lowkey irrelevant
What tends to happen in Q3 of each year
Summer
Ppl spend on vacations
What tends to happen in Q4 of each year
Holiday spending increases
