Sales forecasts

4 purposes of sales forecasts

-to identify trends

-seasonal fluctuations

-cyclical fluctuations

-random fluctuations

describe identifying a trend

This shows the pattern that is indicated from the figures. For example, there may be a trend for the sales of a new product to rise sharply in a short period as it becomes very popular.

describe seasonal fluctuations

Over a year a business is unlikely to have a constant level of sales. Seasonal variations are very important to certain businesses, such as ice-cream

describe cyclical fluctuations

cycle of ‘highs and lows’ in their sales figures over a number of years. These can be the result of the recession-boom-recession of the trade cycle in the economy

describe random fluctuations

may be unusual data due to unusual conditions. An example might be the sudden boost in sales of umbrellas in unusually wet summer months

4 benefits of sales forecasting

-gives clear idea of cash inflow predictions so finances can be managed

-allow business to plan orders of supplies and components

-enable business to have correct staffing levels for predicted sales

-enable business to have capacity to meet projected orders

explain consumer trends as a factor effecting sales forecasting

-the habits and behaviours of consumers around the products they buy and how they use them

-businesses aim to meet needs of consumers by providing products and services

-consumer tastes and preferences can change quickly

-usually short term in response to seasons and fashion

explain seasonal variation as a factor effecting sales forecasting

-Some products are seasonal in that they are purchased in smaller or greater quantities at different times of the year

-Businesses can put in place strategies to manage the periods when cash-flow will be less strong

-Time series data is used by businesses to identify seasonal variations

explain fashion as a factor effecting sales forecasting

-consumer tastes and preferences change quickly and are highly unpredictable

-Any change in fashion will lead to businesses modifying their sales forecasts

explain long term trends as a factor effecting sales forecasting

-Long-term changes affect sales forecasts, and business strategic responses based on investment and strategic planning

explain economic variables as a factor effecting sales forecasting

-When interest rates are rising, sales forecasts may be adjusted downwards

-Businesses might expect that demand for their product will fall

explain inflation as a factor effecting sales forecasting

-The general rise in consumer prices over time

-In such periods consumers and businesses often choose to spend less. Sales forecasts are reduced at these times

explain unemployment as a factor effecting sales forecasting

-During a recession, unemployment rises-spending in economy fell, had a huge impact on business sales and orders

-sales forecasts are reduced

explain exchange rates as a factor effecting sales forecasting

-If the pound strengthens , US goods become cheaper for UK consumers, increasing competition for UK businesses.

-UK goods become more expensive for US consumers, so demand for UK exports may fall.

-UK businesses may predict lower sales due to increased competition and reduced overseas demand.

explain economic growth as a factor effecting sales forecasting

-judged using Gross Domestic Product (GDP). This is a measure of the total output of an economy.

-When economic growth is rising, sales tend to increase

-consumer incomes generally increase-sales forecasts will often be increased

explain interest rates as a factor effecting sales forecasting

-When interest rates are high, the cost of loans increases and the demand for loans falls.

explain 6 actions of competitors as a factor effecting sales forecasting

-Competitor actions

-Impact on forecasts

-Short-term vs long-term

-Past data reliability

-Business response

-Uncertainty

describe Competitor actions

Competitors can affect sales through changes in pricing, promotion and new branches

describe Impact on forecasts

If competitors attract customers, a business may need to lower its sales forecasts.

describe Short-term vs long-term

A temporary promotion may have a short-term effect, whereas a rival opening nearby may have a longer-term impact

describe Past data reliability

Competitor actions change market conditions, making past sales data less reliable

describe Business response

If a business responds effectively to competition, its sales forecasts may remain unchanged

describe Uncertainty

The true impact of competitors' actions may only become clear in the future

define extrapolation

see how a business can use past sales data to identify future sales