EFM03-04(2)

Question 1

What are the three most common forecasting mistakes?

Answer 1

• linear forecast: assume linear growth, no knowledge of what drives sales, why should sales grow by 5 units per month
• Hockey stick forecast: sales begin slowly and then suddenly increase, no understanding of what might drive sales growth.
• 20/80 vs. 80/20: develop and test business model, develop a marketing plan with accurate, detailed market data.

Question 2

What are the three underlying pillars of the marketing plan?

Answer 2

revenue forecast, all financial forecasts.

Question 3

What decisions tie the cash forecast to the revenue forecast?

Answer 3

• Whether credit is to be extended to customers. (industry standard)
• The percentage of sales that will be on credit
• How long it will take to collect credit sales
• costs(2-7% of sales) of accepting credit card payment.

Question 4

What are the limitations on the firm’s ability to generate revenue?

Answer 4

• manufacturing capacity
• service firms - available employee time
• subscriptions - disconnect rate
• number of sales people
• seasonality

Question 5

What are the key assumptions for a scenario analysis?

Answer 5

• Revenue Forecast: price, size of market, potential market share, time to reach potential.
• Expense forecast: largest cost areas.
• Make best-case: what you think will happen; most likely case: push down all critical assumptions; worst-case: push assumptions down to extreme

Question 6

Why is the sales forecast important?

Answer 6

• Bank financing
• inventory assumptions
• staffing decisions
• space decisions
• investors

Question 7

What are the three basic guidelines for revenue forecasts?

Answer 7

• Market research to assure the quality of the assumptions behind the revenue forecasts.
• validate assumptions with more than one source of data.
• plan based on more conservative assumptions