2.2.1 Sales forecasting

Sales forecast

Predicting future sales volumes/ values to inform key decisions

Purpose of sales forecasts

• To increase/decrease production capacity

• To employ more/less workers

• To start a promotional activity if sales drop

Factors affecting sales forecasts

• Consumer trends

• Economic variables

• Competitor actions

Difficulties of sales forecasting

• Different product life cycles

• Consumer and Market uncertainty

• Limited historical data for new products

Quantitative analysis

Numerical information to draw conclusions

Qualitative analysis

Customer opinions to draw conclusions

How market analysis is used

• Corporate strategy

• Production

• Finance

• Marketing

• HR

Corporate strategy

Helps senior managers assess if business strategy will work

Production

• Align output with market needs

• Avoid production bottlenecks

Finance

• Create realistic budgets, cash flow forecast

• Manage financial resources

• Adjust investment strategies

Marketing

• Insights into consumer preferences

• Meet customer needs and capitalise on market opportunities

HR

• Additionally hire staff or invest in training and development

• Align HR strategies with overall business goals

Consumer trends definition

Anticipate and meet the needs of customers as their tastes and preferences will change over time

Consumer trends

1. Seasonal variation

2. Fashion

3. Long-term trends

Economic variables

• Economic growth

• Interest rates

• Inflation

• Unemployment

• Exchange rates

Economic growth

Measure of total output of economy (GDP)

Interest rate

Charged by banks and financial institutions for borrowing money

Inflation

General rise in consumer prices over time

Unemployment

Number of people who are out of work

Exchange rates

Price of one currency in terms of another

Problems with sales forecasting

• Historical data may not reflect future performance

• Seasons

• Unforeseen natural disasters

• Fluctuations due to: promotion, politics, shortages, war

• Rapid consumer trends

• Rapid economic changes

Benefits of sales forecasting

• Help businesses get right number of staff

• The business has capacity

• Plan for future

• Build accurate cashflow forecasts