4.3 - Sales forecasting (HL)

Question 1

Define the term ‘Sales Forecasting’ and for extra information, state why businesses use it.

Answer 1

A quantitative technique used to predict a firm’s level of sales revenue over a given time period.

It is used to make businesses understand the latest and expected market trends in the industry and the underlying reasons for these developments.

Question 2

State three ADVANTAGES of Sales Forecasting

Answer 2

ADVANTAGES:

1. Drives strategic planning in a business. For example, to make more informed decisions about growth and expansion plans.
2. Enables organizations to predict, identify, and prepare for likely opportunities and threats, such as cyclical and seasonal variations
3. Help businesses to identify sales trends, which helps to improve their operational efficiency. E.g more people can be hired prior to peak trading seasons, improve its stock control and have better cash flow management.

Question 3

State three DISADVANTAGES of Sales Forecasting

Answer 3

DISADVANTAGES:

1. Past data and sales trends are not indicative of the future. Extrapolated results can be inaccurate as they ignore changes in the external business environment.

2.Sales forecasts are less accurate the longer the time period under consideration, which raises the question about the usefulness of this quantitative tool.

3. Realistic and reliable sales forecasts depend on the ability to collect accurate market research data, but this can be time-consuming and expensive to collect.