Chapter 30- Sales Forecasting

Question 1

Sales Forecast

Answer 1

• Projection on future sales revenue, usually based on past data

It is one of the most important tasks for a business, and one that will directly affect its efficiency and success – how much stock would it buy and hold? What would its staffing levels be? How do we know if it has enough funding?

Question 2

Sales Forecasting Advantages

Answer 2

• Gives the business an idea of what the inflows will be so they can plan for the
outflows
• Gives the business an idea of what staff they need, e.g. if they are predicted a
large sales forecast
• Gives the business an idea of what machinery they need

Question 3

Difficulties of Sales Forecasting

Answer 3

• Volatile consumer tastes – inaccurate sales forecasts from 2008 onwards nearly
caused the collapse of Crocs after it assumed that strong growth of its product
would continue in subsequent years – in which capacity and production were
increased

Question 4

Factors Affecting Sales Forecasting

Answer 4

• Consumer Trends, e.g. fashion, consumer behaviour and demands
• Seasonal variations – some products are seasonal in that they are purchased in
smaller or greater quantities at different times of the year.
• Economic variables, e.g. interest rates, growth, inflation
• Actions of the competitors – competitors use a strategy to capture market share
from a rival, sales forecasts may need to be adjusted downwards – the size of the
impact on sales forecasts will depend on the type of the strategy used by the
competing business

Question 5

Time Series Data

Answer 5

A method that allows a business to predict future levels from past figures
- For example, a business may predict future sales by analysing sales over the last
ten years
- The business is assuming that past figures are a useful indicator of what will
happen in the future
- The forecast is important because it will determine orders of raw materials and
components, which may need to be placed well in advance
- Time series analysis does not try to explain data, only to describe what is
happening or predict what will happen

Question 6

There are likely to be four components that a business wants to identify in time series data:

Answer 6

• The trend – Businesses try to identify a trend, for example, there may be a trend
for sales of a new product to rise sharply in a short period as it becomes very
popular

• 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 producers or greeting card manufactures, where there may be large
sales sometimes but not at others

• Cyclical fluctuations – for many businesses there may be a cycle of ‘highs and
lows’ in their sales figures over a number of years – these can be the result of the
recession-boom-recession trade cycle of the economy

• Random fluctuations – At times there will be freak figures that stand out from any
trend that is taking place – an example might be the sudden boost in sales of
umbrellas in unusually wet summer months

Question 7

Consumer Income

Answer 7

The amount of income remaining after taxes and expenses have been deducted from wages

Question 8

Consumer Trends

Answer 8

The habits or behaviours of consumers that determine the goods and services they buy

Question 9

Economic Growth

Answer 9

The rise in output of an economy as measured by the growth in GDP, usually as a percentage

Question 10

Economic Variables

Answer 10

Measures within the economy which have effects on businesses and consumers. E.g. unemployment, inflation and exchange rates

Question 11

Extrapolation

Answer 11

forecasting future trends based on past data

Question 12

Forecasting

Answer 12

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