4.3 Sales forecasting

What is sales forecasting?

It is predicting future level of sales in a given time period

Why is sales forecasting good?

It helps to predict future demand, and identifies opportunities in advance, helping a firm to prepare for future sales

What are the different sales forecasting techniques?

• Extrapolation

• Market research

• Time series analysis

What is extrapolation?

Using past data to identify trends and predict future sales

What is market research?

Forecasting buying habits of customers, and understanding consumer behaviour to make future predictions

What is time-series analysis?

Predicting future sales levels based on trends during that time. This can be seasonal variations, random variations (e.g., covid) or economic variations (e.g., inflation)

Advantages of sales forecasting?

• Improved stock control - when knowing future sales, stock-outs or stock-piling can be prevented

• Improved budgeting - only spending money on materials/products that you need

• Stakeholder confidence - better and easier decision-making

Disadvantages of sales forecasting?

• Inaccuracy of predictions - based on assumptions and is biased

• Data used to predict future trends may be old or bad quality

• Demand frequently changes

• Short-term focus

• Events such as pandemics or natural disasters can suddenly change the data