Quantitative sales forecasting 3.3.1 Flashcards
What is sales forecasting?
The projection of probable, future sales in units or revenue. Sales forecasts are used to predict the level of future sales. This helps a business make decisions and anticipate performance in the short and long term.
What is quantitive sales forecasting?
Use of statistical forecasting techniques such as time series analysis which makes predictions about future sales
What’s done with quantitative sales forecasting
Organise production, organise resources in the business like employees, and organise marketing
What is time series analysis?
Method that allows a business to predict future sales from past data.
How do you calculate a three-period moving average?
- Leave first years smoothed data blank.
- Take the first second and third years’ sales data and add them together.
- Divide by 3 (or what period you’re calculating).
Forecasting for an existing business involves these three techniques:
- Moving averages
- Extrapolation
- Correlation
Why is a moving average helpful?
It can help identify an underlying trend in a set of data with strong seasonal variations or an erratic pattern.
What is extrapolation?
Extrapolation uses trends established from historical data to forecast the future
What are the benefits of extrapolation?
- A simple method of forecasting
- Not much data required
- Quick and cheap
What are the drawbacks of extrapolation?
- Unreliable if there are significant fluctuations in historical data.
- Assumes past trends will continue into the future.
- Ignores qualitative factors.
What does a correlation mean?
Correlation looks at the strength of a relationship between two variables.
What are the factors affecting sales forecasts?
- Consumer trends: Demanding in many markets changes as consumer tastes and fashions change. Affects both overall market demand and the market shares of existing competitors.
- Economic variables: Demand is often sensitive to changes in variables such as exchange rates, interest rates, and taxation. The overall strength of the economy is also important.
- Competitor actions: Hard to predict, but have the insignificant reason why sales forecasts proved to be over-optimistic.
Sales forecast are likely to be inaccurate when…
- Business is new: A start-up is hard to predict sales with no previous data.
- Market subject to significant disruption from technological change
- Demand is highly subject to changes in price and income (elasticity)
- Product is a fashion item
- Significant changes in market share (e.g. new market entrants)
- Management has demonstrated poor sales forecasting ability in the past
- The further into the future you predict, the less reliable the forecast will be
What are the benefits of quantitative sales forecasting?
- Useful for predicting.
- Planning tool.
- Easy to interpret.
What are the drawbacks to quantitative sales forecasting?
- May not be reliable.
- Consumer trends change.
- Economic variables change
- Competitor actions change and so hard to predict.
