BM 4.3 - Sales Forecasting (HL)

define sales forecasting

“Quantitative management technique used to predict a firm’s level of sales over a given time period”

what is the purpose of sales forecasting?

help a biz. Identify problems and opportunities in advance for optimized marketing, efficiency and profitability

a limitation of sales forecasting

may be inaccurate bc many variables are subject to change

3 different forecasting techniques

• market research

• extrapolation

• time series analysis

define market research in the context of sales forecasting

identifying and forecasting the buying habits of consumers

define extrapolation in the context of sales forecasting

identifying a firm’s sales trend by using historical data and EXTENDS it to predict future sales

When does extrapolation work well?

in cases of clear correlation between factors

how are extrapolation forecasts usually shown?

by a line of best fit

define time series analysis in the context of sales forecasting

sales forecasting method that identifies patterns in sales data (trends, seasonality, cycles) based on specific variations to predict future sales

define the three types of variations in time series analysis

• Seasonal

• Cyclical - tied to the economic cycle

• Random - unpredictable, hard to anticipate

4 factors to consider when choosing a sales forecasting method

• Accuracy - Use data w/ shorter intervals

• Time - how far ahead they need to apply

• Cost - availability and cost of data collection

• Stage in the product’s life cycle

4 benefits of sales forecasting

• Improved working capital and cash flow

• Improved stock control/ production efficiency - prevent over- + under-production

• Helps secure external sources of finance - sales forecasts are a common requirement

• Improved budgeting - anticipate and adjust to changes

4 limitations of sales forecasting

• Limited information

• Inaccuracy 

• Garbage in, garbage out (GIGO)

  • Irrelevant, biased, outdated sales data

• External influences - random, unpredictable variations