2.2.1 - sales forecasting

• Define sales forecast:

  • estimate the volume of sales using market research or past sales data.
• Purpose of sales forecasting:

  • avoid cashflow problems.
  • frees up management time
  • production capacity
  • employ more workers
  • start promotional activity.
• Factors affecting sales forecasts:

  • consumer trends
  • economic variables
  • actions of competitors
• Consumer trends:

  • sales forecasts may take into account consumer trends.
  • documents like mintel produce can help a business identify an upcoming trend.
• Economic variables:

  • interest rates, inflation, unemployment rates can all affect how a business plans its sales forecasts.
  • if interest rates rise, people less likely to spend.
• Action of competitors:

  • if a business has products that face declining phase, perhaps because of a competitors superior product, may decide to produce or sell less of those products.
• Problems of sales forecasting:

  • no guarantees
  • dynamic markets
  • short term thinking
• No guarantees:

  • no guarantees that sales will meet these levels.
  • down to a number of uncertain factors, e.g. impact of terrorism on tourism in some countries.
• Dynamic markets:

  • the craze of fidget spinners has died out, meanwhile toy shops are packed to the rafters with the toy they no longer sell.
• Short term thinking:

  • useful for a business which can produce and sell products/services in one year period.