03. sales forecasting

What is sales forecasting

The prediction of future demand by anticipating what consumers are likely to do in a given set of circumstances

What can sales forecasting help predict

• HMR needs (workforce planning)

• Finance needs (working capital revenue/ capital expenditure, cash flow)

• The quantity and cost of raw materials

• Production levels

What are quantitative forecasting methods

• times series analysis (extrapolations and correlation)

• Market research data

What are qualitative forecasting methods

• Delphi technique

• Brainstorming

• Expert opinion

• Intuition

What is times series analysis

Uses evidence from past sales records to predict future sales patterns

What is seasonal analysis

Sales are measured on a monthly or weekly basis to examine the seasonality of demand e.g. sakes for ice cream are higher in the warmer seasons

What is cycle analysis

LT figures are used to examine the relationship between demand levels and economic activity. Recession? Boom?

What is random factor analysis

Attempts to explain how unusual or extreme sales figures occur.

What is trend analysis

Focuses on long-term data which had been collected over a number of years. This objective is to determine the general trend of sales- rising falling or stagnant

What is extrapolation

Involves taking the past and extending it into the future (prediction for future sales)

Benefits of times series analysis

• helps business plan ahead

• Helps financial planning

• Production planning to determine the right level of supplies

• HR planning correct number of staff

• Reduces risks of unexpected planning

Drawbacks of time-series analysis

• changes in trend

• Time consuming

• Won’t work for new business

• Could be wrong as its only a prediction

• Less useful for LT forecasts

When will sales forecasting be more accurate

• what happens in the past continues into the future

• It is for a short period of time

• Are the market conditions stable/ steady

• Market research is reliable and thorough

What are moving averages

Calculated in order to smooth out the raw data to find the underlying trend. To do this you find the average of the year before, the year in question and the year after

What is a correlation

Measures the relationship between two variables. There can be a positive correlation and a negative correlation

Positive- as one increases the other increases

Negative- as one increases the other decreases

What is market research data

Another method of quantitative sales forecasting using market research data.

What are the different market research data’s that can be used in sales forecasting

• surveys of customers intentions- create predictions by directly asking people what they intend to do in the future

• Direct sales information- sales team within a business closely interacts with customers, sales staff might notice any developing trends

• Test marketing- testing consumers response to a product before it is released

What is brainstorming advantages and disadvantages

A subjective technique for generating new, useful ideas and promoting creative thinking between groups of people

Adv- cheap, multiple opinions, new perspectives

Dis- need to know business, potential for disagreements, not factual

What is intuition advantages and disadvantages

An expert or experienced member of staff use their ‘gut feeling’ to predict future trends

Adv- know the business, first mover advantage, no costs

Dis- prediction, only one persons feeling, high risk, could be incorrect

What is expert opinion advantages and disadvantages

Huge variety on both individual markets and in general business issues that can be used to help businesses try and forecast the future (in this case sales)

Adv- more likely to trust, more reliable

Dis- could have high costs, potential for disagreements as there are many different opinions

What is the Delphi method

A forecasting technique based on researching the views of a panel of experts

1. Begins with the initial development of a questionnaire focusing on the problem or issue questions e.g. future market trends

2. A panel of experts is selected and the questionnaire is sent to them

3. Each participant answers the questionnaire independently and returns it

4. Responses are summarised before a further questionnaire is developed, based on findings, and sent to the same panel of experts

5. Cycle repeats as many times as needed

6. Final report is created

Advantages of using the Delphi method

• thorough

• More reliable

• Panel of experts

• It’s flexible- applied to a range if problems

• Structured way to make decisions

• Creates a record of experts responses

Disadvantages of using the Delphi method

• time consuming

• Expensive

• Conflict

• Assumes experts are willing to come to a consensus

External factors effecting forecasting

• economic factors- unemployment, inflation, a recession

• Consumer factors such as trends and styles

• Competition