2.2.1 Sales Forecasting

Sales forecast

🔗 A prediction of future sales and costs

📌 Purpose

• Assess ability to break even
• Predict sales volume and sales revenue
• Identify when promotional activity is needed (before a peak or to avoid a dip in sales)

Factors Affecting Sales Forecasts

• Consumer trends
• Economic variables
• Actions of competitors

Consumer Trends

• Demand in markets can change as consumer tastes and fashions change.
• Affects the overall market demand and the market shares of existing competitors

Economic Variables

• Demand can be sensitive to changes in variables such as exchange rates, inflation and unemployment rate

Exchange Rate

🔗 alterations affect the cost of imports and the competitiveness of exports, affects costs and sales of business, therefore affecting forecasts

Inflation

🔗 higher cost of raw materials, businesses have to charge higher prices, deter customers, lower sales

Unemployment

🔗 rate of unemployment determines consumers' disposable income, affects forecasts

Actions of competitors

• Competitors lowering prices, launching a new product or having a fresh promotional campaign can affect the sales of other businesses in the market

Types of Fluctuation

Seasonal fluctuations – Where sales vary according to the season Cyclical fluctuations – Where sales vary due to the economy. Random fluctuations – Where sales vary due to freak occurrences (often unexplained).

Benefits And Drawbacks:

• Allows businesses to prepare operations accordingly 📝 e.g., stock levels by informing suppliers, the workforce with the correct number of staff
• Effective tool to attract investors, help to raise finance
• Gives salespeople a goal to work towards, higher motivation
• Based on estimates, doesn't consider unexpected payments or external influences 📝 e.g., demand spikes or an economic downturn, decreases accuracy