Sales forecasting Flashcards
What is a sales forecast?
A sales forecast estimates the volume or value of future sales using market research or past sales data.
List the different purposes of sales forecasts.
Avoiding cash flow problems Freeing up management time Production capacity Employ more workers Start promotional activity
Explain avoiding cash flow problems as a purpose of a sales forecast.
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
Explain freeing up management time as a purpose of a sales forecast.
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
Explain production capacity as a purpose of a sales forecast.
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
The business may need to buy or rent new premises if there is a huge increase in sales forecast
Explain employing more workers as a purpose of a sales forecast.
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
Failure to meet required staffing levels could result in poor reviews – customer service and this may have an impact on future sales
Explain starting promotional activity as a purpose of a sales forecast.
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 through promotion and marketing
List different factors that affect sales forecasts.
Consumer trends
Economic variables
Actions of competitors
Explain consumer trends as a factor affecting sales forecasts.
A sales forecast may take into account consumer trends
Documents like Mintel 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
Explain economic variables as a factor affecting sales forecasts.
Economic variables such as; interest rates, inflation, unemployment rate and GDP can all affect how a business plans its sales forecasts
Explain actions of competitors as a factor affecting sales forecasts.
The actions of competitors may affect 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
List the different difficulties of sales forecasting
Having no guarantees
Dynamic markets
Short term thinking
Explain having no guarantees as a difficulty of sales forecasting.
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
Explain markets being dynamic as a difficulty of sales forecasting.
Markets change as demand changes. These changes can be unpredictable.
The craze or fad for fidget spinners has died - meanwhile toy shops are packed to the rafters with the toy they can no longer sell.
Explain short term thinking as a difficulty of sales forecasting.
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, a one year forecast will not be useful or appropriate for multi-billion dollar contracts, over a longer time period
