Sales Forecasting Flashcards
Definition of sales forecast
A sales forecast estimates the volume or value of future sales using market research or past sales data.
Purpose of sales forecast-avoid cash flow problems
Accurately forecasting the sales and building a sales plan can help the business to manage their production, staff and financing needs more effectively and possibly avoid unforeseen cash flow problems
Free up management time
While it’s always wise to expect the unexpected, a well- constructed sales forecast can allow the business owners to spend more time developing their business rather than responding to day-to-day developments in sales and marketing
Production capacity
The business can use a sales forecast to estimate if they need to increase or decrease production – and this will also help them to see if they have enough production capacity to deal with expected demand
Employing more workers
• If the business has high sales forecasts for a new product or service it may need to take on new employees to cope with new levels of demand
Start promotional activity
If sales are forecast to be very low and the product or service is not in the decline phase of the product lifecycle, then the business may decide to try and increase sales though promotion and marketing
Factors affecting sales forecasts-consumer trends
A sales forecast may take into account consumer trends
• Documents like reports that Mintel produce can help a business to identify an upcoming trend
• Fashion shows and trade fairs are also ways that a business can research what might be new popular products
Economic variables
Economic variables such as; interest rates, inflation, unemployment rate and GDP can all affect how a business plans its sales forecasts
• For example some sales contracts may not be renewed due to inflation and the rising cost of the products from the business, so it may need to lower prices to maintain the correct level of sales predicted
Actions of competitors
The actions of competitors may also have an impact on sales forecasting
• If the business has products that face declining sales, perhaps because of a competitor’s superior product, they may decide to produce or sell less of those products
Difficulties of sales forecasts- no garuntees
Just because a sales forecast has been written by a business - there are no guarantees that sales will meet these levels
• This could be down to any number of uncertain factors e.g. impact of terrorism on tourism in some countries
Dynamic markets
In April of 2017 the fidget spinner was the must-have toy, by May 2017 most schools had banned them and sales were in decline
• The craze or fad for fidget spinners had died - meanwhile toy shops are packed to the rafters with the toy they can no longer sell
Short term thinking
A sales forecast is useful for a business which can produce and sell products or services in a one year period
• For some businesses e.g. ship building company or a hotel, a one year forecast will not be useful or appropriate for multi- billion dollar contracts, over a longer time period
