4.3 Sales forecasting Flashcards
What is ‘sales forecasting’?
a quantitative management technique used to predict a firm’s level of sales over a given tme period.
What are the three sales forecasting techniques?
Extrapolation
Market research
Time series analysis
Extrapolation
identifies the trend by using past data and extending this trend to predict future sales.
Market research
identifying and forecasting the buying habits of consumers can be vital to a firm’s prosperity and survival
Time series analysis
attempts to predict sales levels by identifying the underlying trend from a sequence of actual sales figures recorded at regular intervals in the past. there are three main elements:
seasonal variations
cyclical variations
random variations
Distinguish between seasonal, cyclical and random variations.
Seasonal variations - periodic fluctuations in sales revenues over a specified time period.
Cyclical variations - recurrent fluctuations in sales linked to the economic cycle of booms and slumps; last longer than a year.
Random variations - unpredicted variations in sales revenue
What factors affect the choice of sales forecasting methods?
how accurate forecasts need to be
how far ahead forecasts
availability and cost of data and information collection
stage in a product’s life cycle
What are moving averages?
a more accurate method of identifying trends so they are a more useful tool for sales forecasting.
Outline the benefits of sales forecasting.
Improved efficiency and productivity Improved working capital and cash flow Improved stock control Improved budgeting Helps to secure external sources of finance
Explain the limitations of sales forecasting.
Limited information
Inaccuracy of predictions
Garbage in garbage out
External influences