financial planning: sales forecasting

consumer income

the maount of income remaining after taxes and expenses have been deducted from wages

consumer trends

the habits or behaviors of consumers that determine the goods and services they buy.

• affects the decisions and marketing of a product

• most changes are short term

economic growth

the rise in output of an economy as measured by GDP as a percentage

economic variables

measures within the economy which have effects on businesses and consumers

extrapolation

forecasting future tends based on past data

forecasting

a business process assessing the probable outcome using assumptions on the future

sales forecasting

prediction of future sales revenue based onprevious sales data

time series data

a method that allows a business to predict future levels from past figures

purposes of sales forecasting

• future sales of prducts

• measuring the effect of promotion on sales

• possible changes in the size of the market in the future

• the way sales change at different times in the years

types of fluctuation

• trend

• seasonal fluctuations

• cyclical fluctuations

• random fluctuations

seasonal fluctuations

certain goods are seasonal so the demand varies with the seasons

these allow businesses to place strategies to manage when cash flow will be less strong

christmas

cyclical fluctuations

a cycles of recession→ expansion → recession

random fluctuation

surprising or unusual figures that stand out from any trend

how is sales forecasting performed

using time series data or historcal data

advantages of sales forecasting

• inform cash flow prediction to mnage finances

• allows plan order or supplies and components

• ensures correct staffing levels for predicted sales

• ensures a business has the capacity to meet predicted orders

disadvantages

• volatile consumer tastes and preferences which cannot be predicted as extrpolation is used

• forecast used is only as accurate as the data used

• subjuct to expert opinion

factors affecting sales forecasts

• consumer trends

• seasonal variations

• fashion

• long term trends

• economic variables

fashion

changes constantly with times

sales forecasting is difficult to perform in the fashion industry due to unpredictability being a feature of its sales

long term trends

affect sales forecasts amd business strategic responses based on the investment

economic variables on sales forecasting

• economic growth

• interest rates

• inflation

• unemployment

• exchange rates

• actions of competitors

economic growth on sales forecasting

economic growth directly increases consumer incomes → higher spending → sales forecast will change to meet this new demand

interest rates

during a recession interest rates increase

higher interest rates= decreased sales forecasts therefore borrowing becomes more expensive for consumers

inflation

• general increase in consumer prices over time

• as inflation increases consumer income decreases so sales forecasts increase

unemployment

during a recession unemployment increases so spending decreases → decreases sales forecast

exchange rates

reflect the value of a currency in terms of another

when the value dcreases exports from that country becomes cheaper so more people buy from that countru

actions of compeitiors

where changes in product range lead to a decrease in the sales fore cast