8. Sales Forecasting Flashcards
(27 cards)
What is forecasting?
A business process assessing the probable outcome using assumptions about the future based on a variety of data
What can a business predict?
Future sales
Effect of promotion on sales
Possible change in the size of the market
The way sales change at different times
What is a time series analysis?
- involves predicting future levels from past data known as ‘time series data’ - a set of figures arranged in order of the time they occurred
— business will NEED to consider whether it has the physical capacity to produce this volume and the staffing required to produce this, and may need to recruit more staff
Likely to be four components that a business wants to identify in time series data
What are the four components a business wants to identify?
The trend
Seasonal fluctuations
Cyclical fluctuations
Random fluctuations
What does the trend identify in time series data?
can provide figures to help identify future patterns
What do seasonal fluctuations identify in time series data ?
Large demands in specific seasons for specific products
What do cyclical fluctuations identify in time series data ?
Increase / decrease in sales according to the stage of the business cycle
What do random fluctuations identify in time series data?
Unusual figures that stand out from any trend
How is percentage change calculated?
Change in sales/original x 100
What are the benefits of sales forecasting?
- inform cash flow predictions
- allow business to plan orders of suppliers and components
- ensure it has the correct staffing levels for the predicted sales
- enable the business to ensure it has the capacity to meet predicted orders
What factors affect sales forecasting?
Seasonal variations
Flow
Fashion
Long-term trends
How do seasonal variations affect sales forecasting ?
Help recognize when lower sales will occur and therefore expect lower cash flow
Very useful as they can use strategies to manage the periods with low cash flow
How does flow affect sales forecasting?
Reduce consumption of energy - gas & electricity to reduce cash flow
How does fashion affect sales forecasting?
Consumer trends and preferences change constantly
Leads to business modifying their sales forecasts
How do long term trends affect sales forecasting?
Fashion can change in short term with little notice
Long-term changes affect sales forecasts and business strategic responses based on investment and strategic planning
What are the economic variables affecting sales forecasting?
Economic growth
Interest rates
Inflation
Unemployment
Exchange rates
Actions of competitors
How does economic growth affect sales forecasting ?
Measured using GDP: All the countries production (output of the economy during 1 year)
When rising sales tend to increase because consumer incomes increase = higher spending
Slow down in economic growth = lower sales -> sales are reduced which will affect sales forecasts
How do interest rates affect sales forecasting?
Cost of borrowing money (cost of loan)
When interest rates are high, cost of loans increase and demand for them fall
When they’re lower , cost of loans also fall making them more attractive to consumers
How does inflation affect sales forecasting
General rise in prices overtime
In such periods , consumers and businesses choose to spend less
How does unemployment affect sales forecasting?
Number of people out of work
Rises in recession
How do exchange rates affect sales forecasting?
Reflect the value of one currency in terms of another
As a result—> uk businesses may find that sales fall due to increased competitiveness of USA
Income rising means demand rises, opposite is true when incomes rise , businesses can expect sales to fall due to them shifting to more expensive providers meaning sales forecast falls when consumer incomes rise
How do actions of competitors affect sales forecasts ?
Size of the impact on sales forecast depends on type of strategy used by a competing business
Any significant actions by a competitor will reflect reliability of time series and dates eg. Past sales
Dynamic nature of business means company doesn’t ignore actions of competitors
What factors cause difficulty in sales forecasting
Volatile (changing) consumer tastes and preferences
Range of data
Subjective expert opinion
How do volatile (changing) consumer tastes and preferences cause difficulty in sales forecasting ?
Can use past sales data to identify previous sales (extrapolation)
However it is not a perfect method to base future predictions
