Sales Forecasting

• sales forecasts?


  predict future revenues based on past sales figures
• revenues?


  income earned from sales
• sales forecasts focus on what will happen in the future to:


  • volume and value of sales
  • size of market
  • sales as a result of promotional activity
  • sales as a result of cyclical factors
• sales forecasts are an important tool to support planning and can improve the validity of cash flow forecast
• cash flow forecast?


  prediction of future cash inflows
• businesses use sales forecasts to determine resource requirements in a variety of ways including:


  • staff required?
  • stock required?
  • does capacity need to be expanded/reduced?
  • equipment needs upgraded, replaced, increased or reduced?
  • how much finance needed?
  • what type of finance?
  • promotional activity required?
• developing accurate sales forecasts is a skill and requires an understanding of several factor - can influence reliability of forecast
• how does understanding consumer trends create an accurate sales forecast? 


  • seasonal variations: demand for certain goods is seasonal + major events impact demand for a wide range of products
  • fashion: led by celebrities and their influence can have relatively short-term impact on sales
  • long-term: consumer behaviour, attitudes and spending habits change over time
• how does understanding economic variables - economic growth -create an accurate sales forecast? 


  • during periods of economic growth, increased consumer incomes will lead to higher than forecast sales
  • opposite will occur during periods of economic slowdown and sales may be less than forecast
• how does understanding economic variables - inflation-create an accurate sales forecast? 


  increase in price reduces consumer's spending power
• spending power?


  degree to which consumers have money to purchase goods + services
• how does understanding economic variables - unemployment -create an accurate sales forecast? 


  increased level of unemployment are experienced during period of recession and key cause of reduced spending in economy
• how does understanding economic variables - interest rates -create an accurate sales forecast?


  when interest rates rise borrowing becomes more expensive for consumers
• how does understanding economic variables - exchange rates-create an accurate sales forecast? 


  value of UK sterling falls against other global currencies, overseas consumers will find British exports become cheaper
• how does understanding actions of competitors create an accurate sales forecast? 


  sales forecast should consider short-term actions of competitors sales promotion as well as longer-term strategies (change to product ranges and expansion plans)
• sales promotions?


  temporary campaign to attract attention and increase sales
• sales forecasting involves the use of past data to predict the future
• effective sales forecasting requires skills and accurate use of timely data:

  smaller businesses lack experience or specialised personal to construct, analyse and interpret sales forecasting

  • difficult to avoid experiences bias
  • business may face problems in constructing sales forecasts that ignore the priorities of key stakeholders
• sales forecasting will rarely reflect the full range of external influences that can affect future inflows
• data can be used for businesses when constructing sales forecasting:


  • internal data (previous sales figure) will be a key source of information
  • selecting most appropriate external data to support sales forecasts is extremely challenging and will require careful evaluation