Sales Forecasting Flashcards
Sales Forecasting
Sales forecasting is a projection of achievable sales revenue, based on historical data, analysis of market trends and salespersons estimates.
Advantages of sales forecasting
- Helps businesses plan ahead
- Helps financial planning, including cash flow management
- Reduces the risk of unexpected surprises
- Useful for identifying seasonal variations
- Production planning to determine higher or lower levels of production needed.
Disadvantages of sales forecasting
- Not always easy to predict the future
- Historical data is not always a good indication of what might happen in the future
- No forecast can be correct 100% of the time
- Less useful for long term forecasts
Quantitative Sales Forecasting methods
- Time series analysis
- Use of market research data
Time series analysis
Time series analysis uses evidence from past sales records to predict future sales patterns.
There are serveral methods of time-series analysis that can be used:
Seasonal analysis - Sales are measured on a monthly or weekly basis to examine the seasonality of demand
Trend analysis - This focuses on long term data, which has been collected over a number of years. The objective is to determine the general trend of sales. (E.g rising, falling, stagnant)
Cycle analysis - Long term figures are used but now the objective is to examine the relationship between demand levels and economic activity.
Random factor analysis - This method of analysis attempts to explain how unusual or extreme sales figures occur. Attempts to provide explanations for abnormal sales activity.
Extrapolation
Once evidence has been gathered, the future can be predicted extrapolation involves taking the past and extending it into the future.
Extending the line of trend, to predict the future.
Three point moving average
Calculated by taking a number in the series with the previous and next numbers and dividing them by 3 to find the average.
Jan. Feb. March
- 147
130+135+147 = 412
412/3 = 137.3
The effect of the calculation of a three month, moving average is to smooth out seasonal variations. This smoothing will help us plot and predict trends.
Correlation
A correlation measures the relationship between two variables.
Eg Postive correlation (both increase)
Negative correlation (As one increases the other decreases)
Use of market research data
Surveys of consumers intentions - this method of forecasting makes predictions by asking people directly what they intend to do in the future. The results of the survey allow businesses to predict sales patterns and plan for the future.
Direct sales information - Sales teams have been businesses interact closely with customers sales staff might notice any developing trends and they have experienced to spot market changes
Test marketing - test marketing involves testing customers response to a product, before the full release of the product.
Qualitative sales forecasting methods
The Delphi method
Brainstorming
Intuition
Expert opinion
The Delphi method
Process used to arrive at a group opinion or decision by surveying a panel of experts. Experts respond to several rounds of questionnaires and responses are aggregated and shared with the group after each round.
Carried out independently to allow the group to arrive at the consensus, without bias.
Advantages
- flexible to be used in a variety of situations
- provides a structured way for a group of people to make decisions
- Participants have time to think through their ideas, leading to a better quality of response.
- expert opinions and ideas which can be used when needed.
Disadvantages
- Time consuming
- it assumes experts are willing to come to a consensus
- monetary payment to the experts may lead to bias.
Brainstorming
Brainstorming is a subjective technique for generating new useful ideas, and from creative thinking, usually between a group of people.
All ideas are welcome and there are no wrong answers. Work best if members are creative.
Intuition
With limited data available to collect and examine, business leaders and managers may instead use their gut feeling or intuition. They may have previous experience in other existing markets and products that can be transferred.
Expert opinion
Experts are useful for gaining specialised insights into likely feature patterns and trends, but should not be used on a standalone basis. The opinions of experts should be combined with information gathered from other sources
External factors affecting quantitative and qualitative sales forecasting
Economic factors - unemployment levels, inflation, interest rates, economic growth. This is likely to affect consumer spending and decrease or increase demand for certain products.
Consumer factors - consumer taste and fashions are constantly changing and businesses try to anticipate these changes through market research.
Competition factors - competitors will have their own strategies and plants for the future and any significant action by competitors could reduce the accuracy of sales forecasting.
