Sales forecasting

• What is the purpose of sales forecasting for a firm?


  To estimate how many items a firm is likely to sell in the future
• Why do firms want an idea of future sales?


  It helps in planning for ordering materials, hiring, and product releases
• What are the key reasons for predicting sales?

  • Ordering raw materials
  • Hiring workers
  • Releasing new products
  • Funding promotional campaigns
  • Building up stock levels
  • Identifying when money is needed
• What can happen if a firm orders too many raw materials?


  It can lead to costly excess inventory
• What is a consequence of hiring too many workers?


  It can lead to increased expenses
• Why is timing important when releasing new products?


  Releasing too soon or too late can affect sales
• What is a potential risk of not forecasting sales accurately?


  It can lead to running out of money or needing an emergency loan
• What factors can affect the actual level of sales?


  Various external factors such as economic conditions and consumer trends
• How might a rise in income tax affect sales?


  People take home less money, potentially reducing spending
• What impact does a new law limiting parking spaces have on sales?


  It may deter customers from visiting the area
• What are the key categories affecting sales forecasts?

  • Consumer trends
  • Economic variables
  • Actions of competitors
  • Legal changes
• How do consumer trends affect sales forecasts?


  Changes in buying habits can lead to fluctuations in sales
• What are economic variables that can impact sales?


  Changes in imports/exports, cost of living, and unemployment rates
• How can actions of competitors affect a firm's sales?


  Rival actions like new products or promotions can impact sales
• What are legal changes that can affect sales forecasts?


  New laws like sugar taxes or tobacco bans can impact sales
• What is time series analysis in sales forecasting?


  Using historical data to predict future sales trends
• What are the three key areas to look at in quantitative data forecasting?

  1. Three-point moving averages
  2. Scatter graphs and correlation
  3. Extrapolation
• What is a three-point moving average?

  A method to smooth out sales data over a period of time
• Why is understanding seasonal trends important for firms?

  It helps in making long-term planning decisions
• How do you calculate a three-point moving average for January, February, and March sales of £152, £169, and £177?

  $\text{Moving Average} =$$\frac{152 + 169 + 177}{3} =$$166$
• What is the moving average for February, March, and April sales of £169, £177, and £149?


  $\text{Moving Average} =$$\frac{169 + 177 + 149}{3} =$$165$
• What does a moving average help firms avoid?


  Knee-jerk reactions to sudden sales fluctuations
• What is the benefit of plotting sales data on a line graph?


  It helps visualize trends over time
• What is the purpose of scatter graphs in sales forecasting?


  To discover the strength of the link between two variables
• What does a positive correlation in a scatter graph indicate?


  As one variable increases, the other variable also increases
• What does a negative correlation in a scatter graph indicate?


  As one variable increases, the other variable decreases
• What does no correlation in a scatter graph suggest?


  There is no clear relationship between the two variables
• What is extrapolation in sales forecasting?


  Extending the line of best fit to predict future sales outcomes
• What is a potential drawback of relying on strong relationships in forecasting?


  It may be difficult to isolate changes to one variable
• What is a limitation of qualitative data in sales forecasting?


  It lacks clear grounding and may be seen as guesswork
• What are the three qualitative forecasting methods?


  1. Intuition
  2. Brainstorming
  3. The Delphi method
• What is intuition in sales forecasting?


  Relying on the gut instincts of key managers based on market understanding
• What is brainstorming in the context of sales forecasting?


  Gathering expert workers to share ideas and predict future sales
• What is the Delphi method?


  A secret method where experts provide anonymous feedback on predictions
• What is a potential drawback of the Delphi method?


  The lengthy process may make it unsuitable for sudden events
• What are the benefits of qualitative data in sales forecasting?


  • Allows for creative thinking
  • Quick responses to sudden events
  • Useful in new markets
• What is a limitation of quantitative data in sales forecasting?


  It relies heavily on past trends matching future events
• How can Stylish Comfort use a three-point moving average in decision-making?


  It helps them make informed long-term planning decisions based on sales trends
• What are the potential benefits of using qualitative data for sales forecasts?


  It allows for flexibility and creativity in uncertain markets